The new year begins on a note of optimism. A major breakthrough in stem cell research promises to open the door to new biomedical-research opportunities. The drawn-out Congressional debate over user-fee reauthorization and drug safety regulation is over, with most parties satisfied with resulting compromises. The Medicare drug benefit moved into its third year, showing signs of maturity and acceptance. The vaccine industry is experiencing a resurgence after years in the doldrums, with important new vaccines on the market and more under development. And unlike many previous years, the Food and Drug Administration had a confirmed commissioner for all of 2007, lending stability to the agency.   

But this does not signal any slowdown in Congressional hearings and investigations. As the 2008 presidential campaign heats up, the pundits and politicians will have much more to say about the hot topics on this year's agenda: 

 The legislative wrangling is over, and now the lawyers are in charge of deciphering what members of Congress really intended for many complex and contentious portions of the FDA Amendments Act [see "Whither FDA 'Revitalization'?]. There is considerable uncertainty about how and when manufacturers will have to file Risk Evaluation and Mitigation Strategies (REMS), especially for high-risk drugs already on the market. FDA has to clarify a process for tracking and enforcing compliance with Phase IV study commitments. And new requirements for registering a greatly expanded range of clinical trials and trial results present a substantial challenge for FDA and the National Library of Medicine.  

FDA Deputy Commissioner Janet Woodcock indicated that a REMS may not be required for all drugs, in discussing FDAAA at a Food and Drug Law Institute conference in November. The agency will use its REMS authority "judiciously," she commented, noting that too many restricted drug-distribution programs could increase confusion and decrease access to the therapy.  

 went to press last month was that FDA could not yet use the added revenues authorized under the Prescription Drug User Fee Act (PDUFA) section of FDAAA. The agency collected the higher fees, but could not spend the money until Congress approved its 2008 appropriation bill, which was caught in the wrangling between Democrats and the Bush administration over federal government spending. Efforts to modernize FDA's IT system and to expand access to outside safety information, among other new projects, may get off the ground very slowly.  

 While wrestling with new programs, FDA is under pressure to demonstrate that it has not become overly gun-shy about approving new drugs for market. New drug approvals were down last year, as well as the number of new molecular entities (NMEs). Manufacturers complain that the agency is issuing more "approvable" letters, which demand additional trials and testing before final approval and often lead to narrow indications. Black-box warnings seem to be proliferating, as well as agency safety alerts and advisory-committee reviews of safety issues for certain drugs and drug classes.  

FDA has launched a pilot program to reassess the risks and benefits of typical NMEs 18 months after approval. The agency hopes that it can speed up approvals and reduce postmarket crises by identifying ways to detect safety issues earlier in the review process. FDAAA provides FDA with additional tools for assessing product safety before and after approval, but that may not quell the political rhetoric about manufacturer malfeasance and FDA ineptitude.  

 Drug safety issues, along with the concerns generated by contaminated Chinese pet food and toys, have focused public attention on how well FDA and other government agencies can detect and halt the import of dangerous products. The Bush administration issued an Import Action Safety Plan in November that offered few new ideas or funding specifics but provides a basis for Congressional action. Legislators already are raising questions about the quality of foreign drug products and how well FDA monitors the growing volume of drugs and drug substances from China, India, and other countries. Investigators cite inadequate FDA computer systems for tracking foreign manufacturers and for inspecting overseas plants in a timely and efficient manner. There are proposals to authorize FDA curbs on inadequately documented imports and to collect user fees on imports to expand foreign inspections; those revenues also could support proposed FDA satellite offices in China and India.  

Amidst the outcry over inadequate foreign inspections, FDA continues to struggle to meet requirements for monitoring pharmaceutical plants in the United States. The agency's field force has suffered from budget cuts, and recent reorganization plans have been derailed by opposition from regulatory staffers and from Congress. Perhaps demands to boost oversight of imports will increase support for domestic regulatory activities as well.  

 Despite concerns about hazardous medicines from overseas, some members of Congress continue to press for more liberal drug-reimporting policies to help consumers access low-cost medicines. Medicare Part D has greatly expanded government outlays for prescription drugs, and everyone wants to keep the drug spend under control. Democrats claim that government authority to negotiate payments for Medicare drug plans will help, as will full disclosure of manufacturer prices, curbs on drug advertising, and expanded access to low-cost generic drugs.  

To achieve this last goal, Congress will continue to seek a pathway for FDA to approve follow-on biologics. The legislators agreed to drop that issue from FDAAA, but promised to take it up this year. And projections of big cost-savings from biosimilars will keep it on the front burner. 

Better information on which medical treatments work best for certain patients could improve healthcare and cut spending by reducing inappropriate drug utilization and avoiding unnecessary or harmful procedures. That possibility is boosting support for a larger government role in assessing medical-treatment effectiveness, while health plans and payers also demand more evidence that medical products are cost-effective as well as safe and effective medically.  

The challenge for drug and medical-product manufacturers is to encourage analysis of how drugs compare with alternative medical and surgical procedures—and not to use this information to control prices or deny coverage for innovative products. Even if a study indicates that a drug may be less effective for many patients, there should be room to prescribe that drug for a smaller patient population that may benefit.  

 More independent assessments are needed because some members of Congress and consumer advocates believe that pharma exercises too much control over FDA decisions. The critics want to block scientists with industry ties from serving on FDA advisory boards, but agreed to a FDAAA compromise that allows some conflict-of-interest waivers so that important experts will be able to provide advice when needed. FDA has issued new policies to make COI and waiver policies more transparent and is taking steps to reduce waivers overall. 

Concerns about industry influence at FDA have colored the formation of the new Reagan-Udall Foundation, created by FDAAA to support innovation and enhance safety for FDA-regulated products. FDA named a 14-member panel, headed by former FDA commissioner Mark McClellan, to oversee the new organization. But Rep. Rosa DeLauro (D-CT), who chairs the House Appropriations subcommittee in charge of FDA's budget, has objected that industry influence may lead the foundation to encourage the development of more profitable, but not necessarily safer, products.  

DeLauro plans to hold hearings on Reagan-Udall and other COI issues, while also directing how FDA spends its annual budget. Sponsors have joined with the biomedical research community and other parties to urge a significant boost in agency resources so that FDA can better manage its continually expanding responsibilities. A new report to FDA's Science Board says that the agency needs more money and better computer systems to keep up with important scientific advances and adequately protect the nation's health [see "Show FDA the Money"]. It's not clear whether Congress will respond to this challenge or if this expert analysis will just gather dust on the shelf like so many similar undertakings. 

s Washington correspondent. She can be reached at 

Articles

Washington Report

Pricing, safety, comparative effectiveness, patents, and biosimilars top 2008's policy agenda

New Year, New Policy Challenges for Pharma

Jamie Cobb, executive creative director, Micromass:

 When used to represent a brand, an icon should evoke strong associations and specific attributes, both emotionally and rationally. For these reasons, I think Lunesta has hit the mark with its use of the moth. The characteristics and behavior of the icon match well with the product attributes—calm, gentle, comforting sleep. Paired with the brand's execution of the creative and the seamless consumer and professional media strategy, it's no wonder this campaign is one of the most recognized.    

 The one that really came to mind for me as the most memorable and powerful was the Lovenox shark. It's not totally current, but to me it's far better than anything out there. It's an image of platelets and fibers linking together in the shape of a shark. It shows instantly and urgently the danger of a clot that can kill. It doesn't even need words, but the original words that went with it were beautiful: "When a killer clot threatens, Lovenox wastes no time." It's just one of the most powerful images that I've ever seen. And I know they've stuck with it; they've used the shark again in other ads in the series over time. It's just an icon that I wish I had done. I don't know that there are any other icons in the recent past that have had the longevity of the Lovenox shark. There's a lot of good stuff out there, but this one stands out.  

Michael Sanzen, partner, director of creative services, Concentric:

 The Viagra blue-diamond pill is a great example of a company thinking about building a brand from the earliest stages of product development. I think one of the reasons you see so many cartoon characters, apples, bulldogs, and things like that in this business is because we don't have something tangible to show and to sell that evokes an emotion. That's why I love the blue-diamond Viagra pill. It gives us something tangible that actually does speak to some of the benefits of the product. It's premium; it's romantic. And it's something that I will give the agency and the marketing team credit for recognizing and showcasing in every piece. If you think about their messaging and look at their materials today, like the consumer Web site—not to be crass—but the word 

 is everywhere. It's a tasteful way to talk about quality, romance, and now, ultimately, firmness.  

Jeffrey Scott, president, Mohrman/Scott Associates:

 Product management has to stick with an icon. For example, the Prevacid tummy had been a key part of the advertising campaign for 10 years. Then, apparently, TAP Pharmaceutical changed agencies and all but abandoned the campaign. It's still in the advertising, but they reduced it to a postage stamp. In fact, we did a study about a year ago with a journal in which there had been a Prevacid ad that had a very burly-looking, tattooed man holding the tummy in his arms, as if he were comforting it. The ad scored 50 percent above the issue norm and twice what you would expect it to do for its size and type. Half the docs who saw it came away with an advocacy message. Later, we tested another Prevacid ad, after TAP had switched agencies, and the ad bombed. The tummy was working for them for years, and they walked away from it. I worked for an agency that had a Procter & Gamble account, and Procter had a dictum that applied to all product managers: The brand is sacred. The first thing product managers want to do when they join a brand is make their mark, do some changes in the advertising, because that's a very visible thing and is very tempting. P&G's standpoint on it was that you can't do that. They built that product and its advertising over years, and for someone to come in the course of his term and attempt to abandon that effort doesn't make sense.  

Lisa Flaiz, VP, group director and national pharma practice lead, Avenue A|Razorfish:

 We've moved away from the talking white coat as a creative strategy. The Chantix tortoise-and-hare campaign is definitely one of my new favorites. It's so great because it delivers on insight that Pfizer has obviously learned from research. People who have tried to quit smoking before have learned that it doesn't usually happen the first time. It might be a stop-and-start process. It's a slow, steady thing. I like how the tortoise and the hare represent the slow-and-steady approach versus the cold-turkey approach. I think the creative treatment is fabulous and memorable. It's a story that everybody gets; it goes right to your childhood but not in a childish way. We're starting to see the Mirapex paintbrush swatches. It's not really a character, but it used art and a graphic to represent the patient and the disease state and to break through a little bit. Mirapex had to do something totally different from Rozerem because Rozerem went off the deep end. And I love the Celebrex word art. Again, the word art is not a cartoon character, there is no icon there. Also, using text graphics is not new, but Celebrex did it in a way that showed a slice of life. So I think this creative trend we're seeing away from the white coats is positive. We're finding new ways in pharma to do things creatively and to continue to deliver fair balance in a way that isn't a voiceover over shiny happy people.  

Raz Crowe, vice president, creative services, Roska Healthcare: 

In general, pharma advertising is catching up with consumer, but it's still five, six years behind the curve. You're taking your brand and tying it to something less obnoxious than a bleeding sore or painful rectal itch. It's smart marketing. I love the Lamisil critter, Digger. That was really good. But I can never figure out why the Nasonex bee has this pseudo French/Spanish accent. I'm not in love with the female symbol coming off of the bathroom door and talking about Detrol, either. That one bothers me. And I hate the happy people on the beach in the Valtrex ads. If you had something like a critter that protects people from herpes, that would be better and more heroic.  

I love the Rozerem ads. I'm not saying they work for everybody. But as an ad guy, I love them. Is Abe Lincoln my conscience, or is he just plain Abe Lincoln? Is the beaver the beaver, or does he represent my dreams and aspirations? What's the deep-sea diver doing in the back? They're cutting edge. It may not be the most generally accepted ad, but you have to respect whoever pulled that off. I would love to have been in the pitch meeting when they signed on the line. That was extremely brave. I'd love to see more people doing stuff like this, I really would. In Europe, they're more apt to do things like this. It might be that US culture is more conservative. When I travel to Europe, I see more cartoons in pharma ads. 

 I find the Rozerem  beaver to be intriguing because of its relationship to the dream. That's a great way to talk about dreaming and to visualize it. The whole category of sleep aids has grown so dramatically, driven not only by need but by the desire to have something better. I think the beaver gives you the sense that there's a richness to the night that you may be missing. Of course, any advertising at all is only as good as the sales it generates, and I stick to that philosophy. But if you talk to me about personally identifying a favorite, I absolutely love the Rozerem ads. I love the Lunesta moth too. I actually bought the product because of that commercial. I was disappointed with the product, but they'd sold me on it. I liked the idea of waking up and stretching my arms out in the morning, having a great night's sleep, waking up with a desire to take the world on.  

Column

We asked seven industry experts to talk about today's best (and worst) pharma icons

Lincoln, Digger, and the Rest of the Gang

Aid charity Oxfam has issued a damning report claiming that the pharmaceutical industry is denying medicines to millions of poor people. It also says that pharma's unwillingness to change the way it does business in developing countries undermines the industry's own future. 

Investing for Life: Meeting Poor People's Needs for Access to Medicines Through Responsible Business Practices,

 casts a critical eye on the world's 12 largest pharma companies, plus Gilead, which has a portfolio of anti-HIV medicines. The companies were interviewed in late 2006 and early 2007, and the report looks at how they set drug prices, their strategies for protecting their intellectual property, and their track records in inventing medicines aimed at treating diseases that predominantly affect developing countries.  

It doesn't make pretty reading for pharma. It claims failure to implement tiered pricing mechanisms in a transparent and systematic way denies medicines to poor people in developing countries. The focus on donations is, it says, too strong. And it doesn't think enough research is being done for diseases that largely affect the developing world.  

Perhaps most important, however, is Oxfam's claim that industry's insistence on upholding its patents plays a huge role in preventing access to essential medicines—the United Nations estimates the number of people affected at almost 2 billion. The World Health Organization (WHO) has asserted that generic competition is key to improving access, and Oxfam says that the IP protection regime established under the TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement presents "major obstacles" for access to affordable new drugs as it gives pharma companies monopolies that keep prices high. 

This fails to take into account the fact that if there were no way of recouping the huge cost of discovering a drug, pharma R&D would dry up and there would be no new medicines at all. Drug discovery is an expensive business, and it's not something that academia and charity foundations have the ability or resources to succeed at themselves unless they get lucky. They need Big Pharma's skills and resources.  

What the Oxfam report skirts over and then largely ignores is the number of projects drug companies are involved with on a joint public–private basis. These combine industry's skills, particularly at medicinal chemistry, with the resources of charities, academia, and NGOs, to develop drugs for diseases that disproportionately affect the developing world. Novartis, for example, has set up an entire research center in Singapore, with the help of funding agencies such as the Wellcome Trust and the local government. It is focusing on drugs to treat dengue, tuberculosis, and malaria, three major unmet medical needs in the developing world. Similarly, GlaxoSmithKline has a dedicated site at Tres Cantos in Spain, where it's looking for malaria drugs. And Pfizer has provided WHO with access to its library of antiparasitic lead compounds. The large compound collections built up over many years of research represent one of Big Pharma's greatest assets in determining starting points for drug discovery projects. These are just three examples. 

 Industry has hit back at the report, with the Association of the British Pharmaceutical Industry (ABPI) describing it as "disappointing" that the agency continues to focus on claims that industry isn't doing enough to improve access to medicines, despite evidence of a "vast and growing investment by companies in sustainable partnerships and initiatives." 

ABPI is particularly annoyed about the continued focus on industry's defense of intellectual property. The organization says that in many countries it doesn't matter how cheap medicines are, patients still can't afford to buy them. India is a good example: It may have the world's cheapest prices for essential medicines, but two-thirds of Indians still go without. 

ABPI's director general, Richard Barker, believes Oxfam should stop criticizing the industry and look to work with it instead. "We acknowledge our responsibility to cooperate with governments, philanthropists, world bodies, and major nongovernmental organizations, such as Oxfam, to try to improve the health of those living in developing nations," he said. "Access to the right treatment is vital for many of the world's poor, but this should be combined with addressing the causes of poverty." 

's global correspondent. She can be reached at 

Global Report

Pharma defends itself against claims made in charity's report on drug access for the world's poor

Oxfam Points Finger

Pharma faces myriad challenges in information technology. But, in fact, many of them require the same action: To control costs, a company needs to refine its processes across the board, replacing old spreadsheet-driven processes with sophisticated analytics. That means collecting and analyzing data from a daunting variety of internal and external sources.  

To meet these challenges, companies need IT systems that support the ubiquitous flow of data across the organization. But they also need to create and implement new business processes—and in some cases, develop new relationships with suppliers, distributors, and customers who hold key data.   

This business evolution is playing out in various parts of the industry, from R&D to sales management to marketing. But one of the clearest examples comes in sales and operations planning (S&OP), where companies are attempting to replace their old make-to-stock model with a demand-driven approach. 

The impetus for change is clear. Approximately five years ago, inventory management agreements (IMAs) emerged. IMAs were devised by manufacturers as a way to align their business objectives with those of the distributors by shifting costs to the most efficient point in the supply chain. But pharma companies aren't good at matching production to demand, so IMAs have had a perverse effect: According to a 2005 report by Pembroke Consulting, pharmaceutical manufacturers added nearly $4 billion in inventory between Q4 2001 and Q4 2004. At the same time, they spent at least $785 million in additional manufacturing operating costs, not counting related expenses such as expedited shipments and the excess capital tied up in inventory.  

In this environment, manufacturers are looking for new approaches to help them unify all business areas—R&D, sales, marketing, manufacturing, distribution, and finance—and truly align supply with demand.  

IT plays a crucial role here. With the right systems, companies can:  

Make better forecasts via accurate, easy-to-access historical data and improved collaboration across formerly siloed departments 

Maintain flexibility in production, with the ability to enter new product batches as needed

Better monitor inventory levels to enable more timely response to fluctuating demand

Automatically and accurately document all sales and operations processes to ensure regulatory compliance

Gain complete visibility into end-to-end operations.

Most pharma companies have a fragmented S&OP process. Typically, each department has its own process, storing data on spreadsheets. Departmental plans are not aligned with one another or company objectives. This situation leads to a time-consuming manual process that results in "the forecast," which is typically inaccurate. The supply chain team takes the forecast and figures out how to meet demand—with no thought to the profitability of their decisions. Ultimately, the "approved" plan is filed away, leaving departments to execute based on their own department-specific objectives. 

The goal should be to replace this process with one that leads to a single, organization-wide forecast—built on accurate demand signals—which is at the core of an integrated S&OP approach. And the crucial tool in developing this process is integrated IT.   

Using integrated IT solutions, manufacturers can perform simultaneous S&OP across multiple distribution and manufacturing facilities, and across various lines of business—including planning, marketing, finance, and manufacturing—within a single planning run, while at the same time accounting for the latest consensus forecast, sales orders, production status, purchase orders, and inventory-policy recommendations. Some systems, for example, allow a direct linkage between sales orders and production batches, enabling users to create a batch reservation for a sales order. When the batch is completed, the reservation for the order line is converted into an inventory allocation and can then be confirmed and shipped. Alternatively, if there are no existing batches planned or in process for the required product, a user can initiate a request to create a batch specifically for that order. Automated workflow notifications apprise order-entry personnel of any changes to the production schedule that may impact their order.  

But where does the data come from to enable this sort of forecasting? 

Historically, demand-signal-collection models have focused on analysis of distributor orders. But manufacturers have learned through painful experience that these orders provide limited visibility into actual consumer demand. Critically, manufacturers must understand where inventory is in the distribution channel at any given time so they can make accurate, timely adjustments to projections and/or production. 

This means that the manufacturer/distributor relationship must be reframed. Progressive manufacturers are pursuing this goal through several means, including pay-for-performance contracts—which place requirements on both manufacturer and distributor.  

Some manufacturers are forming bonds with their distributors to capture and share electronic data interchange (EDI) information. Through the efforts of the X12 Committee as well as the Healthcare Distribution Management Association's Electronic Commerce Task Force, several key EDI standards have been developed. These include EDI 852 files (which document product-activity data, including product sold, quantity on hand, and orders) and EDI 867 files (which document product transfer and resale data) to improve demand-signal collection. This gives the manufacturer a better, though not perfect, picture of what the distributor actually has on hand at any given time. It also helps reduce both manufacturer and distributor inventories without having a negative impact on customer order-fill rates.  

Other manufacturers are going to the pharmacy level to collect data on the number of prescriptions filled for their drugs. With a significant number of drugs expected to go off patent in the next few years, many pharmaceutical companies are awakening to the reality that they may have to play (at least to some extent) in the generic space, where pharmacy store-level inventory information is crucial.  

Collecting prescription-fill data can be complicated; prescription information comes in multiple formats, and not all retailers make it available to manufacturers. However, suitable approximation models are being devised that improve the utility of this information.  

In addition, another possible source of demand-signal data could be gleaned from electronic drug pedigrees, which California plans to mandate by 2009. A drug pedigree is a certified record that contains information about each distribution and transfer of ownership of a prescription drug. It records the sale of an item by a pharmaceutical manufacturer, any acquisitions and sales by wholesalers or repackagers, and final sale to a pharmacy or other entity administering or dispensing the drug.  

As pharmaceutical manufacturers transform their relationships with distributors, it becomes increasingly essential to have access to IT applications that facilitate trade and partner management and enable advanced analytics. Manufacturers need to effectively capture, analyze, and make decisions based on demand-signal data that is growing in volume and complexity. Spreadsheet-based management cannot fulfill these objectives.  

The demand-driven supply chain does not end with the creation of a more accurate forecast. After securing and analyzing information from the distribution channel and using it to develop a more accurate forecast, manufacturers must go back to their distribution partners to determine collective success—a key factor in performance-based contracts. IT systems that enable sophisticated business intelligence and analysis are essential here. For example, manufacturers entering into pay-for-performance contracts with their distributors must be able to set key performance indicators for both parties and to track and analyze performance to determine outcomes and areas for improvement. 

The transition from a make-to-stock environment to a demand-driven model requires organization-wide support and a commitment to following the demand signal and a single forecast. It also depends on a solid IT infrastructure that enables the flow of critical operational data across the organization and provides the analytic capabilities needed to make informed and actionable decisions based on that information. These ingredients, when combined and managed carefully, yield a powerful formula for continued success.  

 product strategy director of life sciences at Oracle, contributed to this story. 

 is senior industry director, life sciences at Oracle. He can be reached at 

 is senior director of life sciences industry business unit at Oracle. He can be reached at 

Tech

More control over warehouse data (from drug company to pharmacist) is key to inventory control

Beyond the Foggy Supply Chain

At the Bristol-Myers Squibb year-end briefing December 5, CEO James Cornelius didn't try to distract analysts and investors from BMS's flattening top line by chatting up its pipeline. Instead, he got right to the point, announcing that he was closing half of the company's manufacturing plants, selling off its medical-imaging division, and perhaps putting its nondrug business on the block later this year. The proceeds, which could top $15 billion, are meant as a bulwark against what Cornelius called "a patent cliff"—when its turbo-seller, blood thinner Plavix, loses market exclusivity in 2011.  

The patent cliff is not just a BMS problem. According to IMS Health, starting in 2010, the industry will lose $28 billion a year in sales to generics, up 40 percent from current levels, and the bloodbath will continue for three years or more. Datamonitor estimates that between 2011 and 2012, pharma revenues will fall—for the first time in four decades.  

Pfizer's 2011 loss of Lipitor, the best-selling drug in history, has earned most of the ink, partly because the industry leader's late-stage pipeline will come nowhere near making up the $13 billion-a-year shortfall. By 2012, Sanofi-Aventis will lose half of its current revenue to generics, and Merck will wave good-bye to its three best-selling drugs—and 44 percent of its top line.  

"There's very little that a CEO can do today or over the next year to significantly affect the top line, outside of big acquisitions," says Ernst & Young's Global Risk Advisory head Jeffrey Steinberg. "They'll work very hard to apply as many quick fixes as possible on the cost side." 

Most of those fixes will involve the three Rs—rationalizing, restructuring, and rightsizing—plus increased outsourcing and offshoring, faster and cheaper R&D, sales force layoffs, and a steady diet of deals. 

Oh, yes, and a lot of blunt talk from CEOs. 

"The thing that has struck me most recently is how much more talk there is from the C-suites about the need for fundamental, dramatic change," says Chuck Farkas, head of Bain & Co.'s North American Healthcare Practice. 

Capgemini Life Sciences VP Omar Chane has also noted the new realism. "At the highest levels and among the younger leadership there is a stark realization of the necessity for change," he says.  

Says Ernst & Young's Steinberg: "For the first time, I'm hearing executives say things like, 'We're just never going to see another $10 billion–plus drug like Lipitor.'" 

Adelene Perkins, Infinity Pharmaceuticals 

This new attitude strikes some analysts as an important change. "Many of these CEOs and CFOs are a younger generation," says IMS Health Senior VP Murray Aitken. "They don't have all the baggage of 'I built this industry,' and they're in no denial about the enormity and complexity of the challenges." 

One of the harshest Cassandras isn't young or new. "The industry is doomed if we don't change," Lilly CEO Sidney Taurel told the 

 in a December 6 front-pager titled "Pharma Faces Grim Prognosis." And BMS's Cornelius supplied the perfect coda for the piece. "I'm talking to you from the 44th floor of an office on Park Avenue," he said. "A year from now, I won't be...because we're going to move downstairs out of these very expensive offices." 

Despite the doomsaying, pharma remains immensely profitable. In 2008, the global market is expected to grow 5 to 6 percent to a new high of $745 billion. On the 2006 

 500 list, only Big Oil outperformed Big Pharma. 

But, as IMS forecasts, it will be a very different market:   

The top-seven markets will account for just under half of global sales growth, their lowest amount ever. 

US-market sales have dropped from one-half to one-third of the global total over the past five years.  

This year will also mark the first time the worldwide primary-care drug market heads south. Growth is limited to the specialty market and, of course, generics, both of which will increase by 15 percent. 

"There's a tidal wave of generic drugs, and we are just in the beginning of the tidal wave," says Medco Health Solutions' Laizer Kornwasser. Generics will account for two-thirds of all US prescriptions this year, as payers squeeze spending on the spiking demand for meds. Of the estimated $70 billion total for generic sales, $20 billion will be the result of name-brand blockbusters losing market exclusivity this year. The CNS category will take the biggest hit, with two cash cows, Johnson & Johnson's antipsychotic Risperdal and Wyeth's antidepressant Effexor XR (pending resolution of a patent challenge by Teva), going generic. Meantime, J&J, GlaxoSmithKline, and Abbott will have fits as their three blockbuster anticonvulsants—Topamax, Lamictal, and Depakote, respectively—fall to knockoffs. Merck's Fosamax for osteoporosis and Wyeth's Protonix for acid reflux will join them. 

And what new starlets will replace these old stalwarts? The 2008 pipeline will deliver 25 to 30 innovative products, says IMS, a full 80 percent in the specialty category. However, given the sorry rate of recent approvals, it's anybody's guess how many will make it to market.  

Oncology is out in front with a crop of targeted treatments for small populations worth $45 billion, or 17 percent, of market growth. Leading the list are two human monoclonal antibodies, Pfizer's tremelimumab (formerly ticilimumab) and Bristol-Myers Squibb's ipilimumab for malignant melanoma. For chronic lymphocytic leukemia, Cephalon's Treanda will vie with HuMax-CD20, for which Glaxo just inked a $2.1 billion licensing deal with little Danish biotech Genmab. Another biotech, Tennessee-based GTx, is hoping to market its first product, Acapodene, for prostate cancer.  

There are important advances against other diseases too. Pfizer, J&J, and Targanta Therapeutics all expect to file MRSA-battling antibiotics. In HIV, Schering-Plough's vicriviroc, a CCR5 entry inhibitor, is due to compete with Pfizer's first-in-class contender, while Merck will launch its novel integrase inhibitor, Raltegravir, approved late last year.  

In the primary care market, big-ticket launches are few. Closely watched will be Lilly's novel blood thinner, the potent-but-problematic Prasugrel; Abbott's Simcor, a combo of Niaspan and simvastatin, a generic version of Zocor; and Roche's rheumatoid arthritis drug, Actemra. Bazedoxifene, Wyeth/Ligand's osteoporosis drug, could make a splash as Merck's Fosamax goes off patent. 

Two of the industry's most trumpeted-but-troubled blockbusters-to-be could escape FDA's safety snares on their second try if Novartis and Sanofi-Aventis resubmit Galvus and Acomplia, respectively, both for diabetes.  

Meantime, Merck is planning to knock on FDA's door with two controversial compounds: Phase III cholesterol-buster anacetrapib, a CETP inhibitor whose first-in-class contender, Pfizer's torcetrapib, famously crashed and burned this time last year; and taranabant, a so-called cannabinoid-1 receptor inverse agonist—an Acomplia competitor whose NDA is due this year. If Merck wins, though, it will have scored a trifecta: launching first-in-class drugs in cholesterol, obesity, and, with Januvia, diabetes, even though the compounds were number two coming into the home stretch. 

Another first: The top-seven emerging markets (the old BRIC group—Brazil, Russia, India, China—plus Turkey, Mexico, and South Korea) will make up one-quarter of global sales growth.  

Rapid economic expansion in these countries is fueling a growing middle class demanding better healthcare and using private insurance to obtain it. But their pharmaceutical consumption is mostly limited to generics, and, according to VOI Consulting's Todd Clark, counterfeits make up as much as 75 percent of the market.  

However promising these markets look, though, "there's a general sense that 'we'll wait a few years until there's a bigger middle class able to buy brand lifestyle drugs,'" says IMS's Aitken. Companies will continue to make inroads, forming local partnerships as the industry steps up outsourcing for manufacturing, IT, clinical trials, and even discovery. 

Chronic threats to patents further darken the picture. Says Clark flatly: "Pharma must recognize that its global international property rights are under greater threat now than at any time since the advent of the WHO system. Actions by Thailand and Brazil have been met largely with silence from the Bush administration—a signal to the world that the US government will no longer fight on behalf of pharma." 

One solution is for drugmakers to price their own drugs at generic prices worldwide once they go off patent, says St. Joseph's University's Bill Trombetta: "There's money to be made off the 4 billion people living on two bucks a day. But pursuing this market requires a totally new orientation along with stripping out costs."  

Analysts may be impressed with the new outspokenness of pharma CEOs, but they are underwhelmed by their actions. "Progress is incremental," says Bain & Co.'s Farkas. "There are modest improvements being made to the existing model—rather than throwing it in the trash." 

Many analysts say that pharma has sacrificed innovation at the altar of size and sales. "It's not by chance that the pipelines have dried up," says Bruckner Group's Michael Russo. "Advertisers and marketers have taken over from the innovators—researchers and businesspeople—who do the real work of developing drugs." 

David Windley of investment bank Jefferies & Co. agrees. "Companies are still going after blockbusters and even megablockbusters," he says. "They're just beginning to accept that they're likely to be smaller in the future."  

One exception is Novartis' Dan Vasella. At his end-of-year briefing, Vasella specified exactly how much smaller—or "more nimble and agile," in pharmaspeak—the drug giant would get: In 2008, every Novartis division will max out at six levels. "When things get tighter, and you get more pressure, then it's much easier to say, Look, it's just not going to continue this way," Vasella told the 

In fact, 2007 was a year of announced layoffs at most of the top firms: Pfizer, 10,000; AstraZeneca, 7,600; Bayer, 6,100; J&J, 5,000; BMS, 4,300; Novartis, 3,750; Amgen, 2,600. Merck set the trend in November 2005 with a "reorganization" that included 7,000 pink slips. About a third of the 30,000 lost jobs were US sales reps. While that's a troop cut of one-tenth, many analysts think deeper cuts are in store—or should be. 

"While the sales force cuts have been large, they aren't as significant as previously anticipated—mostly fine-tuning based on changing portfolios," says Capgemini's Chane. "And they've already reached a threshold beyond which everyone seems afraid to move."  

But as Big Pharma launches more and more biologics, the sales model will evolve, however gradually, to meet the demands of the specialty market. "I doubt that there will be many overnight changes," says Arcas Group President Jan Heybroek. "We'll see sales structures start to function more like a group of small autonomous companies, each focused on a single disease state within a specific therapeutic area." 

Downsizing will continue to claim many manufacturing plants worldwide. AstraZeneca plans to get out of the business completely. Pfizer will be outsourcing as much as 30 percent of its manufacturing to China, India, and South Korea. "Last year, some drugmakers made big deals in outsourcing, and there will be more in 2008," says Patni Life Sciences head Mark Kolb. "Pharma is recognizing that in places like India, it can save money and get better talent and better processes than at home."  

And as industry execs dig deeper into the 2008 balance sheet, says TGaS managing partner Stephen Gerard, they'll take the knife to former luxuries like redundant clinical trials. "They're going to outsource important functions," he says, ticking off information management, sales force automation, and especially primary research. Sanofi-Aventis broke the ice last year when it opened an R&D shop in Goa, India.  

But Bain & Co.'s Farkas says that outsourcing is more than just a cost-cutting device. "Pharma needs to get outside its own walls," he says. "Some of the best science is being done in academia and biotechs, and companies should form ongoing partnerships to bring in more of an outside view." He notes that a growing number of new CFOs and even CEOs are coming from outside the industry—precisely because they're on good terms with major outsourcing, not to mention major change. 

Major change must be driven by a vision that is proactive rather than reactive, analysts say. Even as industry leaders make decisions to protect their companies from the coming deluge, they also need to be laying the foundations for Big Pharma 2020. Most experts agree that the successful business model will involve many new forms of outside collaboration.  

"Pharma needs to evolve from being a product-focused industry to being consumer-focused," says Deloitte Life Sciences leader Terry Hisey. That means not merely making and marketing medicines, as essential as they are. It means providing a whole range of products and services for disease management, including devices, diagnostics, information, and support. "And pharma needs to be on the cutting edge of this holistic trend," he says, "or it will be relegated to the sidelines."  

Features

Pharm Exec asks experts to predict what 2008 has up its sleeve for the industry--from the top line to the bottom line, from R&D to M&As, from Congress to the courts.

Pharma Forecast: Into the Woods

FDA has more than its share of problems these days. But if you go by the news, you might conclude that they're all political at heart—the result of pressure from the industry, Congress, and a public that's losing its collective mind over drug safety. So much ink and angst have been expended over the agency's independence and internal squabbles that it's almost a relief to be reminded that it has other problems—great big ones that threaten FDA's ability to do its job and that put the public at risk. 

, the report issued in November by the FDA Science Board Subcommittee on Science and Technology. It made relatively little splash in the press. That was a surprise, because the report was a scorcher, devoting almost 60 pages to proving that FDA has fallen desperately behind in scientific capability, to the point where it simply cannot do its job. The primary culprit: the usual one—chronic, decades-long lack of funding. 

The science of food and drugs has changed, the report says, but FDA's scientists haven't kept up. Not only can they no longer lead industry, they're having a hard time just keeping up. 

To do science requires scientists, and FDA has difficulty recruiting and retaining them. The personnel turnover rate for key scientists at FDA is double that of other government agencies. 

The agency has no way to evaluate its scientists, says the subcommittee. It doesn't invest enough in developing them, and it doesn't have extensive relations with outside scientists who could help remedy the expertise shortfall. 

The agency's IT system is inadequate and unreliable. Its IT budget is about half that of the Centers for Disease Control, which has a similar-size staff and significantly smaller responsibilities. 

Perhaps most dauntingly, the report argues that FDA lacks expertise in statistics and risk–benefit assessment (you know, the science the agency uses in deciding whether to approve drugs or not).

I said it was a relief to hear this critique, and it is. The newspaper model of what's wrong with FDA is designed primarily to spotlight the virtue and public spirit of the politicians enunciating the problems. It's pretty hard to get from there to a practical model of reform, though IOM has certainly made a fair effort. 

This subcommittee report, on the other hand, can lead to action pretty directly. Are we unhappy with FDA's understanding of safety? Well, maybe we should hire a bunch of top-line safety scientists and let them go to work. Are we unhappy with the way decisions get made on risk? Maybe we should get some expertise on board and formalize the decision-making process. If we're worried about politics and influence, maybe we should make sure there are scientists available to build more robust procedures for approving drugs. 

I wish I believed the scientific rebirth of FDA was really on the national agenda. Unlike so many of the issues the political candidates are flogging this season, this is one where change could actually take place—and it would make a huge difference. It would cost money, but not as much as it will cost us to allow the United States to slip out of its position of leadership in food and drug regulation.  

The good news is that FDA isn't really broken. It's just broke. That's not so hard to fix. The question is, Who cares enough? 

From the Editor

A new report says FDA is desperately behind on science. At last, a critique we can actually do something about. But will we?

Not Enough Science

Wyeth's Bob Essner announced recently that he's relinquishing his long-held CEO spot to his longtime number two, Bernard Poussot. Now, Bob's not leaving pharma, or even Wyeth—where he'll serve as chairman. But what better time to acknowledge one of the industry's great leaders. 

What a run! When Bob took the reins, Wyeth meant Premarin and Prempro and a stack of leftover Fen-Phen lawsuits. Under his guidance, it became a winner with solid franchises in CNS, respiratory, rheumatoid arthritis, and, increasingly, oncology. 

Bob assembled and retained an exceptional commercial team: Joe Mahady, Geno Germano, Ulf Wiinberg, Jim Connolly, and Cavan Redmond. All highly recruitable for CEO or COO jobs elsewhere, yet all still with Wyeth. Show me another CEO with a comparable record! Together they launched significant drugs and pursued Essner's mission of developing and acquiring products that truly contribute to the betterment of health. No me-too's! No sir! 

I've known Bob for 20 years. There's no flash to him. He looks like the history professor he always thought he would be, growing up back in Ohio. There's an intellectual weight to him, a mindfulness and clarity of thought. But he's no ivory-tower type, rather a brilliant marketer, a risk taker, and a hands-on manager who remembers that "executive" comes from the same root as "execute."  

One of my most vivid memories of Bob Essner comes from my days at the Robert A. Becker agency. We had just won the Effexor business, after presenting a niche strategy for the drug. A few days later, I received a call from Bob. (I was in the Lincoln Tunnel, stuck behind a three-car pileup.) He thought I was looking too narrowly at the market.  

The call (and the traffic jam) stretched to nearly an hour, with Bob taking me through the data and explaining his vision of the drug.  

It was one of the most remarkable experiences I ever had in the ad business. Here was the COO of a major company, focusing his intellect and attention on me—not giving me orders, not critiquing my strategy, but trying to win me over, heart and mind, to his way of seeing things. It worked. He played the leader as I've seldom seen it played, and I was led. We changed the positioning, and guess what? Effexor was number one within two years.  

Another memory: We had planned to have dinner in New York. A few days before our scheduled date, he called and said, "I have a better idea—let me cook dinner for you." And cook he did. As my wife and I sat there with Bob, his wife, and their three children, there was a real magic that had everything to do with the character and depth of the man, with his unfeigned interest in others, his effortless humility, and his obvious pleasure in working with his own two hands to honor and please his guests. Cooking may not be a core leadership skill, but the kind of heart and soul that went into the dinner we ate that night certainly are. 

So, thanks for dinner, Bob. And for the work and the friendship. And for the example that so many of us try to live up to. Stay healthy and happy. 

Leadership

The departure of Wyeth's legendary CEO prompts a reflection on true leadership-and cooking

The Essential Essner

Like a giant steam vent on a pressure cooker, the law of supply and demand has finally relieved the pressure pharmaceutical companies have felt for the past 10 years from ongoing pay inflation. Enough large pharma companies are downsizing their primary care sales force that it is now becoming an employers' market for qualified primary care reps. 

For the first time in more than a decade, the sales force "arms race" has halted. Salaries appear to be leveling off, and pay practices are likely to be less aggressive in the immediate future. If this trend continues, it will have a ripple effect on hiring practices and pay structures. Companies will have the luxury of attracting talent in an environment with lower pay inflation and of choosing from more qualified candidates. 

These were some of the findings of the Hay Group's 17th Annual Sales Force Effectiveness Study. (See "About the Survey," 

.) However, not all companies—and not all positions in sales and marketing—are experiencing the same loss of prominence as Big Pharma's PCP field reps. In particular, Big, pharma is rethinking its sales force structure and investing in areas like managed care and national account management, which can have a greater impact on sales.  

All these changes show that the pharmaceutical industry recognizes it's living in a new world—but that a tightening of the belt, when it comes to sales forces, may be just what the doctor ordered. 

For the first time in more than a decade, the pharma industry has halted its sales force expansion. In 2007, thousands of reps were hit with pink slips in a much-publicized spate of downsizing.  

Of the Big Pharma companies responding to the Hay Group survey, 17 percent have decreased their sales staff by more than 15 percent. This precipitous drop is particularly telling because launch activity—the main driver of sales force ramp-ups—has been steady for the past five years. These major layoffs from Pfizer, AstraZeneca, and others made headlines and indicate major shifts within the industry. But they don't tell the whole story.  

Half of all Big Pharma companies reported no significant change at all in the size of their sales force. This is somewhat a function of product pipeline and somewhat related to their focus on specialty products. Meanwhile, if one looks across the spectrum of company types, there are still pockets of growth. Half of all Hay Group survey respondents increased the size of their sales force by 6 percent or more in the past year. The highest growth rate (22 percent) was among hospital sales reps, reflecting the continued emphasis on reaching larger provider groups and specialty products. (See "Expansion Slows,") 

As is expected in a climate of major layoffs, the rates of voluntary turnover—when the employee decides to terminate his employment by a company—have also declined. Voluntary turnover was 12 percent in 2007, compared with 15 percent in 2006. This is, however, still a bit higher than the 10 percent we see in sales positions in other industries. The most movement is typically among PCP reps, but interestingly, for the first time, voluntary turnover among PCP reps, hospital reps, and specialty reps was the same. Hospital and specialty reps have begun gravitating toward smaller or midsize companies with more robust pipelines. We are seeing that many of these reps are willing to accept lower pay in exchange for perceived greater job security—a big concern, given that only 17 percent of Big Pharma companies anticipate growth in the next 12 months.  

Even though turnover rates are coming down, the length of time it takes to fill vacant territories has increased, which means that many companies still struggle to stay fully staffed. One quarter of participating survey respondents report an average vacancy rate of more than two months. Filling open sales positions is particularly problematic for biotech companies, where a whopping 60 percent report an average vacancy rate of more than two months. This difficulty is likely due to the greater selectivity many biotech companies use to recruit specialty sales talent.   

There's no doubt that companies are learning to do more with less. Key to that is trimming the fat while retaining top talent. The numbers back this trend: More organizations are implementing formal processes for retaining high-performing and high-potential salespeople. This year, 41 percent indicated that they have a formal process in place, compared with 30 percent in 2006 and 22 percent in 2005. This process may be as simple as identifying high-performers and communicating to those reps that the company views them in this way. In any case, companies are rapidly realizing the importance of this process to keeping their strongest field reps. 

The use of contract sales organizations has not abated, as organizations are taking advantage of the greater flexibility offered by outsourcing. One-fifth of the responding companies use contract sales organizations, consistent with 2006. However, the industry is less likely than in the past to recruit these workers into full-time staff positions. In 2006, all companies said that they occasionally recruited contract staff, whereas this year, only 75 percent did (likely a result of downsizing and the redeployment of internal sales staff). That being said, many companies are, in fact, increasingly open to hiring sales people with no industry experience; this year, 69 percent of participants said they did so, compared with 56 percent in 2006.  

The shift to an employers' market was evidenced by the stagnation of primary care reps' salaries. In 2007, the median base pay for all reps was $63,100, up from $61,900 in 2006 (a 1.9 percent increase). The median total compensation for a Level II primary care sales rep—that is, a fully trained sales representative—was $96,500, up from $94,500 in 2006 (a 2 percent increase).  

Pharmaceutical sales reps continue to be paid more handsomely than their counterparts in general industry, where median base salaries for sales reps are $62,000 vs. the $72,100 average for all types of pharmaceutical reps.  

However, the average merit increase did not change between 2005 and 2006, and at 4 percent was slightly above that of general industry's 3.5 percent. Given the freer labor market, it is very likely that merit increases will begin to level off, if not decrease, as companies will not need to pay a premium to attract and retain the talent they need.   

This trend is not yet true of total cash compensation for specialty reps, as they continue to experience pay increases.    

Putting aside specialty sales, there are apparent changes in the way that companies are targeting their pay scales in relation to the market. Most companies set out to pay reps at or above the market median. Therefore, since no company targets below the median, the median is a constantly moving target, and has had the effect of ratcheting up pay levels and inflating reps' salaries. (See "Pay Positioning: Total Cash Compensation," ) But this year, companies have begun to target lower overall, with no pay packages targeted above the 90th percentile. This is a continuation of a trend, where the number of companies targeting cash compensation in the 75th to 89th percentile has shrunk 50 percent in the last four years. 

Pay Positioning: Total Cash Compensation 

Incentive Compensation: Too Much at Risk? 

In 2001, incentive compensation accounted for 20 percent of a salesperson's total compensation. Over the next several years, that percentage rose gradually as companies sought to accommodate escalating pay scales by shifting more of the risk to employees. By 2005, incentive compensation accounted for 27 percent of the sales force's total compensation.  

We may finally have seen a reversal of that trend in 2007, as the ratio was down ever-so slightly to 26-to-74. That is still a far cry from the 10 percent contributed by incentive compensation in the consumer-products industry, but it may signify a realization within the pharma industry that the ratio had grown too lopsided.  

The reality of managed care and strict formularies is that pharma reps simply don't have the same direct impact over the actual sale, nor are their sales results 100 percent trackable, given that data is collected on a sample basis. As companies find relief from pay inflation, they should be able to put less emphasis on incentive compensation versus base salary. (Much of the recent increase in the proportion of variable pay has been needed to match high rates of pay inflation in the industry.)   

Over the years, as companies placed greater emphasis on incentive compensation, they added complexity into their incentive plans based on the premise that measuring more dimensions of performance increases accuracy and fairness. Many companies have thus overengineered their plans, turning them into monsters that are too difficult to administer and explain to reps.  

These incentive-compensation plan designs are only manageable—not to mention understandable—with a maximum of three variables. When plans incorporate more than that, they lack the focus needed to inspire and direct reps' behavior.  

Most companies (64 percent) base incentive-plan payout on achievement of target, quota, and goal—fewer are using a ranking or matrix-based system that pits the performance of one rep against another's (19 percent compared with 34 percent the year before). Approximately 40 percent of all plans use ranking at some point in the process (down from 50 percent last year); however, 22 percent of plans are based solely on ranking. Our experience tells us that the percentage of companies using ranking methodologies will continue to decline. After all, companies have a growing recognition that pitting one rep against another can foster the wrong kind of competition—and that they have to pay out their entire budget for incentive compensation, whether they meet their sales objectives or not. Commission-based systems, where companies pay, say, $1 per scrip, continue to be scarce, with the exception of launch-compensation plans. It is simply not possible to design territories with equal sales-volume opportunity. The number of companies using this type of plan was down from 11 percent of plans in 2006 to 2 percent in 2007.  

Across all companies, 82 percent of incentive plans are based primarily on individual performance. Respondents use a combination of factors in setting territory quotas. Past territory results are used 76 percent of the time; company goals, 65 percent of the time; and territory potential, 57 percent of the time. Some organizations consider managed care impact, but they often treat it as a secondary factor. 

Companies are continuing to move away from qualitative factors to judge reps' performance, seeking more simplicity in the numbers. The percentage of study respondents that relies exclusively on quantitative factors to measure rep performance climbed to 68 percent, up from 64 percent in 2006. Consistent with last year's findings, prescription volume, market share, and revenue continue to be the most prevalent primary criteria used to determine payout. Qualitative measures, especially achievement of objectives and manager appraisals, tend to be used as secondary measures. For those companies that use a mix of quantitative and qualitative factors, on average, 90 percent of the mix is quantitative. 

The vast majority (more than 80 percent) of organizations participating in the survey set goals that reps must achieve before the incentive plan kicks in. This is an increase from last year's 67 percent. Among respondents, 80 to 100 percent of eligible employees receive a payout, down from 90 to 100 percent last year, as companies strive to enforce minimum-performance standards to earn an incentive payout. Companies have thus tightened the purse strings, somewhat reflecting the fact that employers are increasingly interested in enforcing sales force productivity standards.  

Other Incentives: Completing the Package 

The percentage of companies offering stock options as a long-term incentive did not change significantly between 2006 and 2007 for any of the sales and marketing jobs. Forty-four percent of responding companies offer those options to sales reps, and nearly all offer them to sales and marketing executives. Far fewer companies are now offering incentive stock options (i.e., where the number of options is determined by an individual's performance)—the percentage of which dropped dramatically between 2006 and 2007 from 20 percent of companies to 13 percent.   

Reversing a trend, there has been an increase in the offering of various equipment, tools, and perquisites to PCP reps, especially regarding the provision of an Internet connection (up from 36 percent in 2006 to 63 percent in 2007) and PDAs. As the need for connectivity becomes ever-more pervasive, it is less often viewed as a perk and more often as a standard part of doing business. Nearly three-quarters of survey participants offer other special perks, such as single rooms at meetings, upgrades to their cars, added stock options, and increases to base pay or incentive compensation to "executive reps"—a designation many companies confer on their highest earners.  

While contests and non-cash incentives often have a greater directional impact on performance than cash compensation, such awards and recognition programs make up only about 7 percent, on average, of the incentive-compensation budget. This is not to suggest that the percentage should change. Indeed, companies are wise not to let contests and other incentives overshadow the annual incentive plan and diminish its impact.   

Standing in sharp contrast to the PCP role, the role of account management continues to grow in importance as pharma organizations recognize the increasing control payers have over patients' access to drugs.   

Most organizations report that their managed care/corporate accounts function has either recently changed its organizational strategy or is expected to make a significant change within the next couple of years. Survey participants also report that they are adding staff to their managed care organizations. The median level of reported staffing increase is 25 percent.   

Unlike field reps, who typically have hundreds of doctors in their territories, account managers are much more focused and targeted. On average, a typical regional account manager manages 14 accounts, and a national account manager, 12 accounts.  

With greater accountability, increased responsibility, and higher-level skill requirements—account managers have pay levels significantly higher than sales reps. Total cash for regional account managers averaged $149,000 last year, while for national account managers, the average total cash was $163,000. Interestingly, the pay mix between base pay and incentive compensation was fairly close to that of field reps: 74 to 26.   

Although accountability for results (in terms of revenue contribution) is significantly higher than that for a pharmaceutical field rep, the difficulty in measuring direct impact precludes putting more pay at risk. For that reason, nearly 30 percent of incentive pay is determined by qualitative vs. quantitative performance.   

The evidence indicates that this pay strategy is working. Turnover rates among account-management personnel averaged about 1 percent last year. Yet despite this enviably low turnover, about one-third of organizations remain concerned about account-manager turnover because it is so difficult to replace qualified incumbents. (Sales reps do not necessarily have the right skill set to be effective in an account management role.) To mitigate this concern, companies are making pay adjustments and offering more career opportunities while trying to engage account-management personnel and foster a positive company culture. 

Companies have been experimenting for the past couple of years with different sales models to increase the productivity of their salespeople. Yet none appear to have gone so far as to ask the toughest question: Should the role of a PCP rep as it is currently practiced really be designed as a traditional sales job?  

We know, for instance, that less than one out of every four sales calls results in actual face time with a doctor. And that 80 percent of drug utilization in the United States is controlled by public payers and not by physicians, according to data from the Centers for Medicare and Medicaid Services. In the harsh light of reality then, shouldn't we design the PCP position more like a merchandizing role than a sales role?   

For example, a force of merchandizing representatives would check on the supply of samples, make sure that office staff has promotional materials, give physicians and other healthcare professionals basic drug information, and refer them to a Web site or phone number for more detailed information. And if this job were evaluated based on factors of the job that characterize the level of responsibility involved, there is little doubt that the pay scale could be 20 to 30 percent less than what it currently is for primary care reps. Think of what that could do to a pharmaceutical company's return on its sales force investment. 

Welcome to the new employer's market for reps. The Hay Group's annual survey reports how, as the primary sales force contracts, so too does its pay.

Salesforce Survey 2008

The message is clear: Pharma needs true innovation to get its pipelines flowing. But if the industry is serious about pursuing new science, then it should devote more resources to searching for it.  

Pharma scientists and engineers in charge of clinical research and testing don't have much time to spare, but they are still often pulled into mundane and routine operations. Scientists, for example, spend an enormous amount of time on stability testing. This strains already limited internal resources and leaves them unavailable for more strategic and critical functions, such as formulation and product development.   

Most companies look to contract research organizations (CROs) for help with this problem. In 2006, CROs brought in $7.44 billion, according to Frost & Sullivan, and that market is projected to grow to $20 billion by 2013. Yet the growing specialization of science, the need to optimize R&D spend, and a changing regulatory landscape that demands more studies quicker means that, for pharma, the traditional outsourcing approach won't always work.  

Increasingly, some companies are forgoing the question of whether or not to outsource. Instead, R&D execs are looking at another model, where—rather than taking the work out of the pharma organization—they ask consultants and researchers to come inside and work alongside in-house staff. 

When it comes to clinical teams, the question of whether or not to outsource brings some untraditional answers

Pharmaceutical Executive-01-01-2008