Inflection Point Strategies for High Performance in the U.S. Biopharmaceutical Industry
These are tough times for the U.S. biopharmaceutical industry. The sector has lagged behind the S&P 500 for the past two years, and investors have lost confidence in its ability to deliver future value to shareholders (see Figure 1).
A host of related challenges compound the problem of slumping investor confidence.
For one, product portfolios are under pressure. More than $80 billion in product sales face patent expiry by 2009, and generic drugs are expected to erode the branded business by 80 percent within six to 12 months.
R&D productivity is also declining. Benchmarking studies show most companies believe in-licensing is a critical component of their strategy as they feel more pressure to hunt for external innovation.
Meanwhile, because American consumers pick up an increasing share of healthcare costs – the average copay increased between 42 and 94 percent between 2000 and 2004 – more patients are taking a greater role in managing their own healthcare. Growing numbers are enrolling in consumer-directed health plans and health savings accounts. Almost half of all consumers now use online medical sites to access treatment and product information.
And ongoing concerns about drug safety and the industry’s commercial practices do nothing to improve public perceptions of the industry.
Perhaps most concerning, the industry’s traditional marketing and sales tactics have alienated physicians and eroded salesforce effectiveness. Historically armies of sales representatives backed up by plenty of promotional spend have relentlessly pursued physicians. The success of this “reach and frequency” approach has come at a price – partly because it has been so widely replicated.
To be sure, the model has delivered – notably for Pfizer, the company cited by 61 percent of the executives in our study as today’s paradigm of a high-performance business. But although efforts to duplicate Pfizer’s success have increased promotional spending throughout the industry, most companies adopted an undifferentiated approach.
Increasingly sales representatives chase the same top 20 percent of high-prescribing physicians – yet only half of sales calls result in a meeting. Physicians complain that fewer than half of all sales representatives bring them new information. Worse, they only recall the sales message in fewer than 10 percent of cases.
Accenture’s cross-industry research into high-performance businesses has identified three building blocks of high performance – among them the ability to create and exploit a set of hard-to-replicate capabilities that maximize differentiation and create value. While these distinctive capabilities vary across industries, the mastery of strategically important business functions, such as marketing and sales, makes it possible for a business to consistently outperform its competition over time.
Additionally, our research reveals that a well-placed investment in marketing is imperative to winning customer loyalty and achieving high performance. However, the healthcare and pharmaceuticals industries demonstrate only an average marketing mastery (see Figure 2).
In a recent study, we surveyed 60 U.S. biopharmaceutical executives across 18 companies and spoke in depth to 25 of them. Our research confirms not only that these executives are far from blind to the challenges they face, but also that they instinctively appreciate all the building blocks of high performance – market focus and positioning and a performance anatomy, or culture, that enables out-execution, as well as distinctive capabilities.
Accenture’s industry knowledge and research suggest that the biopharmaceutical industry has reached an inflection point – a juncture at which an organization must begin transitioning from the old ways of doing business to the new in order to remain competitive. Inflection points occur when companies experience significant changes in the industry landscape. These can be triggered by any number of factors, such as shifting customer preferences, technology evolution and new regulatory policies.
Any inflection point provides the opportunity to erect the building blocks of high performance and achieve differentiation, as well as set a trajectory toward industry leadership. Now is the time for U.S. biopharmaceutical companies to seize that opportunity.
There is no single approach to developing a strategy to deal with an inflection point. Since much depends on a company’s product portfolio, organizational readiness, tolerance for risk and transition time frames can vary widely among organizations.
Strategies and Imperatives
As our research shows, U.S. biopharmaceutical companies have adopted different responses to that challenge. While companies are not necessarily creating a single comprehensive and coherent strategy, common strategic elements are emerging. Our research revealed three general strategies for inflection point success:
- Ready today’s model by improving critical aspects of the current business model in an attempt to slow declining performance;
- Institute new capabilities to drive competitive advantage and boost performance; and
- Change the game by defining new business practices to create a new performance trajectory.
Relative to each strategy, our research tested a series of emerging imperatives. What follows is a summary of the emerging imperatives that executives identified with during our discussions. Biopharmaceutical company executives are considering different configurations of these imperatives, depending on their situation and beliefs.
Relative to each strategy category, our research revealed some interesting findings:
- While almost all executives agreed with the “ready today’s model” imperatives, consensus eroded when “change the game” strategies were discussed;
- The most senior levels of the organization have perspectives on change-the-game strategies, but these strategies are not necessarily trickling down to the next level of leadership; and
- Organizational activity and momentum focus on readying today’s model, with some planning efforts starting to emerge for new capabilities.
Ready Today’s Model
Reinventing Sales
Most companies have started to test and/or deploy new salesforce models, and there is a movement toward improving physician relationships via more customer-centric selling strategies
– strategies that hinge on better understanding customer needs.
Many companies have begun reinventing sales with structural changes to the salesforce. These include changes in size, counterpart structures and customer alignment. Some companies are trying to change the nature of the selling experience through several strategies, including account-based selling techniques, use of new valuation and incentive plans and even rewriting the skills and types of resources needed by sales representative and district managers.
Going forward, companies should focus on reinventing and improving the physician dialogue. They will need to consider what information is important to physicians in their individual practices and how representatives can create more personalized sales interactions. This will require better understanding the type of patients seen by the physician and how the physician and patient are influenced by payer pressures. Companies will also need to examine how the salesforce is trained, the information they are equipped with, what future tools will ensure success and what type of people should actually be in selling roles. Pharmaceutical salesforces will also have to recognize new care delivery models as an important new customer segment.
Industrialized Analytics
When Accenture asked executives about the drivers of commercial performance in the biopharmaceutical industry, respondents rated analytics as one of the top five capabilities critical to outperforming the competition in the next three years.
Many organizations recognize that they are falling short in this area. Because senior management does not create a culture of factbased decision making, data is not well-organized or integrated, analytics capabilities are isolated, decision makers do not have ready access to tools and companies lack the skills to move from analysis to insight. The result is that far too many decisions are made primarily on the basis of “management judgment,” and much data analysis results not in action or change in behavior but rather in a “wait and see” approach.
Some leading companies are beginning to develop consistent and holistic approaches to business analytics. One method is to establish a more fact-based decision-making process that leads to organizational action. Some are digging deeper into their analytics to develop subnational and customer segment views that make the analysis more actionable. Others are considering a shift in basic reporting and analysis responsibilities to allow internal resources to focus on higher value-added insight generation. The market is changing so swiftly that developing analytics as a driver of action needs to become a continuous process that informs all decisions – not just when the team is setting its annual plan or refreshing its tactical plan.
Large-scale Cost Removal
All executives in our study recognized the inefficiencies in how they market and sell products currently. Pricing pressures and decreasing numbers of new product opportunities necessitate leaner, more streamlined commercial functions.
Biopharmaceutical companies are actively assessing their internal organizations and functions to see just where and how they overinvest or underinvest. All functions within sales and marketing are under scrutiny, as the value of each activity and function is questioned in the process of streamlining and focusing on customer value. Companies are also targeting transactional and noncore functions for removal, scale-down or outsourcing. Transactional areas include sales operations processes, customer inquiry functions/call centers and standard reporting. Noncore functions include enterprise support areas like human resources and finance. Such steps can result in average cost savings of 20 to 40 percent.
More aggressive companies are pursuing outsourcing and/or offshoring arrangements on a global scale – a more transformational costremoval strategy. They also are seeking partners that they can hold accountable to desired service levels and outcomes while reducing costs.
Instituting New Capabilities
Multichannel Marketing
Executives believe that new, alternative channels are key to future commercial efforts. In fact 94 percent of respondents indicated that new or alternative channels will be either beneficial or required for maintaining relationships with physicians over the next three years. Eighty-nine percent reported the same need in communicating with patients.
Developing a multichannel marketing capability is a three-step process. Step one is introducing a new level of integration by which organizations create integrated brand and channel strategies based on customer preferences, needs, interactions and behavior. Step two is putting the customer perspective first, by executing coordinated tactics across channels to manage both the customer experience and the desired outcome. Step three is measuring, assessing and refining campaigns based on reactions and behaviors from deployed tactics.
Accenture’s experience with multichannel marketing has demonstrated that organizations can reduce overall marketing cycle time an average of 25 to 45 percent, and increase productivity an average of 15 to 40 percent across marketing organizations. A well-executed multichannel marketing strategy also delivers a consistent increase in customer value, response rates and revenue per customer.
Commercial Compliance
The industry’s use of certain promotional practices has come under heightened publicity and political pressure. Manufacturers are also being held more accountable for relationships with healthcare providers, as regulators seek to understand how much a manufacturer has serviced a physician and what the total financial benefit has been. Most notably, there is a continued emphasis on enforcement of off-label and false claims, with more than 150 off-label cases in the current backlog at the U.S. Attorney’s Office.
Noncompliance has significant consequences. Since 1992, $13.9 billion has been recovered through major healthcare settlements, with $9.4 billion recovered in the last five years alone. While the number of major cases in the hospital sector is the same as in the pharmaceutical sector, the trend is in the direction of pharmaceuticals: Total settlements in the hospital sector have been $3.7 billion compared with $5.8 billion in the pharmaceutical industry.
Developing a strong commercial compliance capability requires investing in a combination of customer information management, processes, training and supporting analytics to provide a total view of the interaction and relationship with healthcare providers. Customer information management capabilities and associated technology solutions like customer master and approval/work flow software are needed to track and manage all financial or value-oriented transactions. Processes and supporting analytics must be cross-functional, providing marketing, legal and regulatory solutions for improving compliance management.
Overall, companies will need to step back and define a comprehensive vision for their commercial compliance capability. They will need to decide how reactive (or proactive) they want to be, and whether it will become a differentiator for their organization.
Non-mega Brand Excellence
Executives expect pipelines to yield more midsize products targeted at specific patient populations. As a result they are moving away from focusing on a few blockbusters and toward a franchise-centric orientation that encompasses smaller, non-mega brands.
Non-mega brand excellence requires bettertargeted promotional strategies and tactics. Capabilities for optimizing cross-portfolio spend will become increasingly important as portfolios grow larger and more complex. Executives may look to create separate organizations focused on product launch to speed the delivery of smaller products to market. They will need to develop more targeted, customer-centric marketing campaigns. Achieving excellence will likely require new, patient-focused skills and talents, especially for biotech products, and may even require new definitions of success built around patient metrics.
The challenge for executives will be to maintain a blockbuster, “shoot for the stars” mind-set while also focusing on smaller, niche products. Non-mega brand excellence does not imply that commercial leadership should not “think big” – but the two approaches are very different. Organizations require capabilities that can meet the requirements of both large and small brands.
Organizations must build out their non-mega brand capabilities and leadership needs to provide better direction and decision support around the approach – mega or non-mega – that makes the most sense at the portfolio level.
Changing the Game
Innovative Product Differentiators
Differentiating products is the ultimate goal of the future marketing and sales model and, not surprisingly, only the most senior management at a few biopharmaceutical companies is actively pursuing such initiatives. As more executives look for ways to tackle their No. 1 concern – pricing pressure –
the ability to differentiate the value proposition will become increasingly important.
The first step is to better communicate the clinical benefits and economic outcomes of a product, prioritizing an increased focus on pharmacoeconomics and using various methodologies to assess and define the impact on healthcare outcomes that a product can have. Innovative product differentiation involves developing and delivering product and service offerings that provide new value for the customer well beyond the purchase of a pill. In this model, biopharmaceutical companies will seek to wrap value-added offerings around their products to enhance the customer experience and differentiate themselves from the competition.
Innovative product differentiators will provide competitive advantage by delivering new value to the customer. The differentiators will create customer stickiness and loyalty while demonstrating the pharmaceutical company’s commitment to a more holistic healthcare solution. Over time we expect these differentiators to become the norm as more companies seek new ways to defend themselves against managed markets, government, consumer and competitive product pricing pressures.
Patient Relationship Management
“Reach and frequency” tactics helped establish a direct dialogue with the physician – but the industry has little or no experience in creating long-term dialogue with patients. Most biopharmaceutical organizations lack a common approach to the patient across brand teams, and do not pursue a common experience or common elements of an experience.
However, this lack of trust-based relationships also creates the opportunity to differentiate by establishing and maintaining long-term relationships with patients that go far beyond traditional, mass-media, direct-toconsumer relationships. Seizing this opportunity involves aligning the entire marketing and sales function around the patient.
Improving the dialogue with the consumer is enormously powerful. Biopharmaceutical companies can look to leading consumer companies such as Pepsi and Harley Davidson to understand what drives consumer behavior beyond the diagnosis and first script. Being able to speak more effectively to the consumer enables biopharmaceutical organizations to become valued partners with other healthcare providers in standard-of-care decisions. Successful biopharmaceutical companies will develop strategies and tactics to enable and inform the patient dialogue in an ongoing way.
The Future Model
It will take time to transition to a future model that is very different. Traditional tactics are still succeeding, although their success is waning. Limited prior success with improving performance in selected areas has also made the executives we surveyed hesitant to invest in change. Most rate their prior investments as only somewhat successful or neutral. And many efforts to create a different commercial approach are merely tests or pilots, as companies “dabble”
in new ways of doing business. Executives also wonder how easy it will be to mobilize their companies against inflection point strategies when organizational barriers, a lack of resources and talent, and poor execution rank as their top three challenges in moving forward.
Nevertheless there is consensus about what the desired marketing and sales organization will actually look like – customer-focused, differentiated, innovative, results-oriented, agile and equipped with the capabilities and culture to ensure excellent execution.
An inflection point doesn’t require immediate change but rather a managed transition, appropriately evolving the old model while preparing for the new. Accenture believes that the pace and type of evolution will be different for each company. Companies with stronger portfolio positions may choose to evolve more slowly, while companies with a more significant need for change, a true “burning platform,” may move more aggressively.
Characteristics of the future commercial model will include:
A product portfolio with:
- A smaller, more targeted product profile focused on distinct patient populations;
- More heterogeneous product portfolios; and
- New product offerings that create customer loyalty.
An operating model that:
- Is leaner, more flexible and organized around a smaller, ever-changing portfolio;
- Increases customer focus to eliminate operating model redundancies;
- Increases focus on compliance;
- Provides greater alignment with payer and government organizations; and
- Uses outsourcing to generate efficiencies.
Robust capabilities that:
- Put the rigor and science back into commercial decision making and performance measurement;
- Integrate with marketing channels to deliver a personalized customer experience;
- Are supported by a redefined information architecture to enable multichannel capabilities; and
- Are driven by continuous analytics provided to key decision makers.
A new and/or “reskilled” employee base and people skills that:
- Establish a culture with an “insight to action” mentality;
- Leverage skills and competencies from other consumer-focused industries like retail and financial services;
- Embrace external sourcing and partnership arrangements as key ingredients to success; and
- Adopt innovation and new thinking.
In summary, biopharmaceutical companies should pursue a mix of all three inflection strategies, focusing especially on readiness and the institution of new capabilities to achieve the new model.
Successful companies will align the leadership team around this change agenda, fast-track their chosen imperatives, evaluate and reconfigure their talent base and create a program structure robust enough to manage the ongoing transformation journey to high performance.
