Just how important is it to understand how much you’re spending on sales and marketing and where exactly that money is going? According to Stewart Adkins, Director of Stewart Adkins Advisors, Ltd., nothing could be more important right now.
Adkins delivered his presentation, “Get a timely overview of the industry: and a reminder of why ROI is such a critical factor for success” at the October 2007 eyeforpharma conference on Marketing ROI. Not since the 1990s, says Adkins, has the pharma market seen such radical change. There have been (and continue to be) fundamental, “seismic” shifts in the market – shifts that are outside the control of pharma companies. The important thing, he says, is to know what’s happening and be prepared to withstand and even capitalize on the existing and upcoming changes.
Seismic shifts
One of the shifts that will impact the pharma market is the change in demographics. Populations are aging, and while that’s good for pharma, since older people tend to require more pharma products, it places a greater burden on a shrinking population of younger people. There is increasing pressure on pharma to relieve some of this burden and to provide very high value for money spent.
Another shift that will affect pharma sales is technological. A growth in the sophistication and use of “biomarkers” will allow health care professionals to diagnose and monitor diseases more closely and accurately. This will lead to greatly improved outcomes for patients and less waste.
Geography plays a major role in the shift in the market. As Adkins points out, 80% of the world’s population doesn’t live in highly developed countries such as the US, Europe and Japan. Markets in developing countries have huge potential for pharma, but only if the business model pharma employs undergoes some radical changes. The current model, that of targeting the wealthy elite, is simply not sustainable in emerging markets, and governments in emerging markets will likely be unwilling to support such behavior. For example, why, Adkins asks, would a country grant intellectual property protections if it has no reason to believe that its citizens will benefit?
Finally, society’s expectations of pharma companies have undergone a significant and unfortunate alteration in recent years. Adkins attributes this to a “growing misalignment” between what the industry is doing and what society expects from the industry. There is a fundamental lack of trust, and until that can be remedied, the industry will continue to struggle against the consequences of its reputation. Says Adkins, this lack of trust has likely been behind the politicization of the FDA. The agency is now so focused on safety – to the exclusion of all else – that not one primary care drug has been granted FDA approval in 2007. In order to return to a path of continued growth, the industry must realign its business model to meet society’s expectations.
What’s driving us down?
Volume of sales of branded products has been declining in the US for the past four years. The key driver of the slowdown is the expiration of patents. From 2000 to 2006, 3% of sales went off patent every year. From 2007 to 2013, that number is expected to be 6.8% of sales. Most companies, according to Adkins, have between 30 and 35% of sales that they will lose to generics over the next five years, a loss of $200 billion in sales and $160 billion in gross profit over the next six to seven years. If it weren’t for increases in prices, many American pharma companies wouldn’t be showing growth at all. However, price increases have resulted in concomitant decreases in reputation as some companies boost prices by 6, 8, even 13%.
Slowdowns don’t just hit the pharma industry’s sales figures – stock market performances among the major brands have also slumped. With slowing sales and anticipation of what Adkins terms a “tidal wave” of patent losses, pharma share prices are significantly lower. From 2001 to September of 2006, six major pharma companies underperformed in the stock market by around 15% of value to over 50% of value. In comparison, during the same time period, the S & P industrial average rose by about 10%.
The overall value of the industry has seen marked deterioration. In the 90s, pharma stocks were very highly valued above fair market value, investors apparently willing to pay more with the expectation that the industry would generate additional sales and growth. Now the stocks are sold at fair value, and investors are clearly demonstrating an unwillingness to bear the burden of R&D. And, says Adkins, with the recent behavior of the FDA, perhaps that’s a “fair approach.” Pharma stocks are “cheap,” according to Adkins, and offer pretty good value for the investment dollar.
Emerging markets, emerging opportunities One way to counteract the impacts of market shifts is to look towards the emerging markets of developing countries. The so-called E7 countries (China, India, Russia, Brazil, Mexico, Indonesia and Turkey) have seen rapid economic growth. Though these countries account for only 8% of pharma sales currently, Adkins projects they could equal as much as 14% of total pharma sales by 2020, by virtue of their growth alone.
As the countries’ economies grow and stabilize, they will have more money to spend on health care. It’s a market, says Adkins, that pharma can’t afford to ignore.
Secondary to none
Back in the US and Europe, a major shift in product mix is already underway. Many major patents are set to expire in the next few years, and there is a lack of new product flow in the pipeline to take their place; therefore, focus is turning to secondary and specialty healthcare over primary.
Specialty and secondary care are currently growing at 10% a year, Adkins claims, and the consequences are huge. Traditional sales forces will have to be retrained or cut back or both in order to provide a sales team with the proper skill set. The days when one-to-one selling to GPs was enough are over; now it’s necessary to have salespeople who can match the expectations of those who focus on specialists and key accounts. It’s not necessary to have an “army of salespeople” when you have only a small number of prescribing physicians to influence.
Adkins points to pharma companies already heavily invested in secondary and specialty products such as oncology treatments. While other companies are struggling to bring their sales forces into alignment with the new paradigm, these companies are better placed to withstand and even capitalize on changes in market needs and product mix.
Who decides?
Another major change to bear in mind is that doctors may no longer be the primary influence behind prescriptions. Increasingly, power of prescribing decisions is in the hands of payors: key accounts, pharmacy benefit managers, managed care organizations. Consumers also may have greater say in the drugs they take. At the moment, pharma money and resources are directed at influencing primary care physicians. In the very near future, this will no longer be appropriate.
As Adkins says, there are factors affecting pharma sales and marketing which are simply outside of the industry’s control. Patent expiries, reimbursement changes, health technology assessments, even pharma’s influence over customer types are all set to alter the landscape if they haven’t done so already. The best way to counteract these impacts, says Adkins, is to be ready for them. Using “robust, accurate and valid ROI analytics,” we can understand what we’re spending and what we’re getting for our dollars, and let that inform future spending decisions.
Author: Shannon Perry, journalist, eyeforpharma
