The US pharmaceutical industry’s commercial market has historically been the Wild West. Under a fee-for-service environment, physicians and their patients made many of the care decisions with few restrictions. However, the changing health care landscape, including the move to a value-based health care system, has changed the ability of manufacturers to drive growth through the lever of price.
There is no question the pharmaceutical industry is undergoing a transformation. But many manufacturers are finding it difficult to transition to a commercial model that accommodates this new environment. The source of this difficultly is both a concern that abandoning traditional models will lead to near-term erosion of business performance and a lack of credible proven models that work in this new environment.
The most successful pharmaceutical manufacturers will be those led by executives who understand how key orthodoxies upon which the current models are built have eroded, enabling them to let go of once-successful strategies. This will result in the alignment of their commercial models with the changing market dynamics. This new model will likely need to address four market realities:
- Physicians are no longer the key decision makers: Under the historic model, physicians were the primary decision-makers for brand choice. But their influence is eroding and they are becoming increasingly inaccessible to pharmaceutical sales reps. Less than 5 percent of physicians now drive significant prescription volume, and less than half of all prescribers are considered accessible. As stakeholder dynamics evolve, the once homogeneous health care market can now be broken into several archetypes with distinct characteristics.
Under a new commercial model , pharmaceutical companies understand the differences that exist across unique markets. They can identify key decision makers, and they understand the patient experience that is needed to improve outcomes. New commercial strategies are grounded in a common foundation but are executed differentially based on market and customer needs.
- Clinical programs are no longer sufficient to gain market access and product differentiation: Some pharmaceutical products are experiencing high rejection rates at the pharmacy, and a growing number of providers are offering just one therapy per class. Unprecedented utilization criteria—along with paperwork put in place by pharmacy benefit managers (PBMs) and health plans—has increased the importance of strengthening relationships with those shouldering financial risk.
Under a new commercial model, complexities within markets and distribution channels may require pharmaceutical companies to deploy field teams with tailored expertise. The move from a generalist model to one where cross-functional teams engage with senior customer levels can be paramount to creating relationships and driving business. In this world, teams should consider balancing the clinical message with messages around value and real-world evidence, and brand strategy likely becomes secondary to market and channel strategy.
- Products are no longer adequately differentiated to justify sustained price increases: Historically, pharmaceutical company executives have understood that prices could be increased as long as products offered clinical benefits. Products were generally considered to be differentiated, which allowed for sustained price increases. But the ability to increase net price has fallen about 70 percent over the last five years due to gross-to-net pressure.*
Under a new commercial model, pharmaceutical companies transition from a story grounded in efficacy and safety to one focused on economic and health system value. This may require a commitment to focus on value early in the development process and may require collection of real-world evidence in collaboration with customers to tell the full story.
- Commercial spending no longer drops to the bottom line equally across customers: Historically, many pharmaceutical companies viewed each customer as having equal importance, and each dollar spent on commercial tactics dropped to the bottom line equally. While this is no longer the case, many companies continue to orient around a national P&L. As a result, they often lack visibility into local market or pick up on customer nuances. This can lead to a market where companies trade bottom-line contribution for top-line revenue.
Under a new commercial model, companies should consider rationalizing efforts according to the extent to which they affect the bottom line at a market/product level. Choices from gross sales to margins are internally transparent, deliberate, integrated, and aligned to a single executive. As opposed to orienting around volume, new incentive structures should become aligned to a model that supports pull-through within specific archetypes.
Five themes to consider addressing in the new model
Constructing a new commercial model in this changing landscape may require a start-up mindset that enables executives to build capabilities around five areas:
- Insights: Imagine if…companies didn’t require market research departments because they collected insights directly from their interactions with customers.
- The imperative: Collect market intelligence through internal and external sources that engage directly with customers (e.g., digital listening posts, field-based insights collection, strong customer relationship management (CRM) systems and processes).
- Analytics: Imagine if…company executives knew exactly where to invest their next commercial dollar and understood its impact on their business.
- The imperative: Create an environment for advanced analytics that can be used to inform commercial-model choices and drive efficiency (e.g., understanding local market archetypes, commercial levers that drive profitability, and key stakeholders that influence system/market dynamics).
- Value: Imagine if…companies were able to articulate the value of their products in the language of customers.
- The imperative: Build a new go-to-market model that is focused on communicating the clinical and economic value of the product rather than focusing on sales.
- Experts: Imagine if…companies were able to gain market access at an account without a single sales rep calling on a physician.
- The imperative: Move from a generalist to an expert model where cross-functional teams engage at senior customer levels to create relationships and drive business.
- Digital: Imagine if…customers came to prefer interacting with companies digitally versus in person.
- The imperative: Leverage technology and digital assets to disrupt current orthodoxies around how we engage with customers (e.g., health care provider and patient services) while enabling insight collection, analytics execution and value communication in a more holistic way.
A transition to this new commercial model changes both the relative spend and importance of individual functions in the future state. As the importance of traditional sales and promotion declines, more emphasis will likely be placed on the capabilities sitting within market access and medical to support the demonstration of value to existing and potential customers. While market forces continue to tame the once Wild West of commercial environments, pharmaceutical leaders should consider blazing a trail toward this new commercial model.
*Source: ZS Associates – Access Monitor 2015 Report, Deloitte Analysis
PS, if you are attending eyeforpharma Philadelphia, feel free to stop by my session on this topic tomorrow at 1:55.