	Pharmaceutical and Life Sciences (PLS) companies are under tremendous pressure to improve their supply chains and operations efficiency. Market headwinds include a staggering number of mergers and acquisitions; additionally, big Pharma continues to face an increase of drug patent expirations and downward pressure on profit margins. Aggressive competition from generic pharmaceutical manufacturers, as well as increasing costs to develop and launch new products also factor in-mandating improvements in supply chain and operations. Supply chain analytics is 

 strategic differentiator for PLS companies to excel in the face of adversity, and will ultimately help these companies become world-class drug or medical device suppliers.

	Supply chain analytics are used to measure, monitor, and improve individual business processes as well as the overall performance and health of the supply chain. PLS companies struggle with suboptimized Sales & Operations Planning (S&OP) processes due to a variety of factors, including lack of effective governance, fragmented decision-making, misaligned key performance indicators (KPIs), and a general distrust in sales forecast accuracy. Historically, drugmakers have not been as focused as other industries on working capital. However, the topic has received greater attention in recent years due to expiry of patents, and the squeeze the pricing pressures have put on profit margins. Today, pharma supply chains hold massive buckets of data; this makes it a rich place to look for and establish analytical advantages and for PLS companies to develop a comprehensive, analytical approach to optimize their supply chain and operational efficiencies.

	For years, conventional wisdom in the pharma industry had it that research and development was the strategic business driver while mainline manufacturing and supply chain strategies were overlooked. Cost of goods sold as a percentage of sales was low and blockbuster drugs commanded premium pricing and market exclusivity. Pharma executives had settled into a mantra of "do no harm" to other strategies. However, in recent years, the dynamics of the drug industry have begun to change. FDA approvals have been slow, and, consequently, revenue growth has lagged. Sales have declined and government involvement in the healthcare industry has put downward pressure on drug prices. Adding to this volatile environment is the fact that many of the market-making drugs are going off patent protection. In light of this, governments have encouraged direct competition by enabling generics. In conjunction, there have been several changes in the regulatory approach that has put a huge emphasis on quality.

	The industry has responded in bits and pieces, but executives are beginning to realize that the complex web of supply chain holds the key to competitive advantage and potential innovation. According to a research article by HFS in 2011

, a majority of organizations were planning to increase investments targeted toward supply chain analytics. Insights from such initiatives will help PLS companies optimize their supply chain functions and enable them to manage market pressure, while robustly managing financial performance.

	To meet the current industry challenges and increasing supply chain complexity, supply chain analytics must evolve in a rapid way around three areas-enablement, effectiveness, and earnings.

	Rapid globalization for drug companies has resulted in an outburst of various types of world-class suppliers, near-shore and outsourced manufacturing plants, far-flung distribution centers, and increased number of drug retailers. Rapid growth in emerging markets has spawned a rising trend to introduce a wide variety of established drug products. The upshot has been the creation of many complex and extended global supply chains that need to be carefully managed.

	Before pharma companies can analyze how effective their supply chain really is, they will need to have clear, end-to-end visibility of their global supply chains. At a simple glance, this begins with basic metrics and reporting, as these tools provide the backbone of data for performance measurements. However, in the current state, there is no single source of truth for supply chain visibility. The industry lacks a unified physical and financial view of the supply chain domains that links supply chain strategy, performance management, and risk. To achieve maximum effect, an advanced analytic "control tower" can enable real-time decisions and KPI's through the cloud.

	Enablement in pharma supply chain analytics can be broadly classified into three areas:

Poor forecast accuracy and demand volatility continue to challenge drug companies due to sub-optimized sales and operations planning (S&OP) processes. The S&OP process is fragmented due to a lack of effective governance and disconnected decision-making, with misaligned KPIs leading to a lack of confidence in sales forecasts. In addition, the pharma industry faces important quality and health implications due to the fact that the product not only needs to be in the right place at the right time but also with the right quality.

	Counterfeit drugs are on the rise. Product authenticity will need to be monitored through increased visibility, especially during a time where there is a intense regulatory scrutiny. There is need to have basic forecasting metrics more visible to enable replenishment; KPIs such as forecast accuracy, forecast bias, and On Time-In-Full can be very quickly deployed and will help measure the pulse in the supply chain planning domain.

Pharma company inventory metrics have been used for a while; however, there has been a lack of focus on inventory accountability within big Pharma due to business process and information disconnects and commercial vs. supply chain inventory responsibility. Pharma lags in inventory KPIs primarily due to no stock-out policies and complexity created by market specific product expiration requirements. The result includes increasing product discards year over year due to lack of coordination, thereby leading to inventory shortages and overages worldwide.

	A KPI dashboard with trend analysis for inventory at a market level and with a multi-dimensional drilldown will be a welcome solution for pharma companies to increase visibility and insight. With incremental detailed data, further analytics can enable near real-time inventory tracking and tracing for controlled drugs. Enabling such metrics will ensure that commercial opportunities are realized for at-risk inventory. Once inventory becomes visible, all other supply chain parties such as vendors and customers, both internal and external, can share information and be in a better position to manage inventory. In the research world, this inventory visibility will form the backbone in managing high-dollar laboratory materials, track supplies in real time and reduce the negative impact it can have on research productivity. Analytics in this space include inventory variance analysis, inventory revaluation, slow-moving inventory reporting, tolled inventory reports, gross-to-net inventory bridge, days on hand, as well as inventory usability for obsolescence purposes.

, over the past decade, pharmaceutical tonnage has grown in both air and ocean modes to the tune of four million tons per year. More valuable drugs travel by air, with air freight accounting for the majority of the total value shipped. Out of a total value of $269 billion, air freight cost a whopping $213 billion in 2012 alone. Fluctuating demand and global logistics have driven drug companies to continuously reflect on their distribution network design and strategy. Drug companies can realize immense performance improvement opportunities through analytics driven activities such as improved visibility to in-transit goods, freight lane reporting, fleet sizing, load planning, and freight cost consolidation. A quick win here would be to target freight lanes that create imbalances over time and identifying which route supports the business and which ones do not.

	Another basic analysis would be to use the Pareto principle; determining the percentage of the network that constitutes 80% of the cost and refining those to maximize yield. An agile approach here would be healthy in monitoring and continually fine-tuning network designs for efficient logistics management. With the recent wave of consolidations in the pharma domain, there is a huge advantage in determining network synergies to drive considerable reduction in overall transportation costs.

	An effective supply chain is characterized by the appropriate, consistent movement of data up and down the supply chain. Decisions can only be as good as the data coming through. In the previous section, we discussed how supply chain visibility can be enabled to empower drug companies to make insightful decisions. In this section, we take a look at two advanced analytic capabilities that can power pharma to remain competitive for the future.

Reliability engineering / manufacturing analytics - 

Big Pharma's main challenge is that its information is spread across multiple data systems, maintained by different organizations across the globe. Bringing data under a single umbrella becomes a powerhouse for driving process improvement in the manufacturing space in conjunction with compliance to the ever-changing regulatory guidelines. The industry has taken various routes to ensure manufacturing reliability. Genentech and Baxter, for example have embraced lean while Novartis has developed its own six sigma internal tool kit. However, none of these have been entirely successful in maintaining a predictable operational performance. An integrated manufacturing, holistic system that embraces process methods, toolsets, along with analytical models could help pharma with anemic product launches and manufacturing performance.

	Real-time measurements of process parameters allow drug manufacturers to leverage advanced statistical analytical methods to monitor and correct process conditions before a potential quality failure occurs. Meaningful, metrics such as overall equipment effectiveness and asset utilization can be used to measure performance trends over time. Loss-tracking analytics can then be activated to ensure that variations to target can be evaluated. Another area of analytics would be to do with critical process constraints. Regulatory initiatives such as design to quality require drug companies to identify critical to quality (CTQ) parameters to ensure that their end products are safe. When batch data, process, and product quality data come together, then analysis can be done to identify these CTQ parameters and their acceptable range.

With industry acquisitions and consolidation, it is widely understood that network design is the most fundamental decision that will impact customer service levels. This will be the key profitability driver because networks directly affect both supply chain costs and customer satisfaction. The huge investment cost of buying assets and building facilities makes it essential to design a supply chain network which performs well over a long period of time. Because drug and medicine are globally considered a strategic commodity, achieving a stable yet flexible design while optimizing cost becomes the end goal.

	Increasingly, supply chain networks have become disparate. As pharma companies seek tax efficiency in European countries, a variety of factors ranging from cost structure, tax laws, materials, and new product launches have driven drug companies to reconsider their supply chain networks. Network design is a powerful analytic driven, modeling approach proven to deliver significant reduction in supply costs and customer-service-level improvements.

	A targeted multi-stage network optimization approach will immediately help the pharma landscape. Most PLS companies are constantly evaluating a multitude of product launches, emerging markets, process and real estate investment, as well as divestitures to drive their future state. At this juncture, it is vital to do a quick cost-based analytics exercise focused on KPI's such as investment cost; return on investment; sunk costs; stock costs; transportation costs; etc. Once these KPIs are established, they can then be leveraged to choose between a centralized and a decentralized network design model. Once the right model has been established to optimize the network, a series of "what-if" analyses can be performed. These scenarios would be based on demand and supply fluctuations, cost inflation, currency exchange risk, fiscal and economic policies, market volatility, tax and tariffs, social sentiments, and so on. The simulation structure would then enable a new, rationalized network with significantly less operating expenses and no impact to customer service levels.

	Drug companies have long been the envy of other industries, with their strong balance sheets, attractive operating margins, and hordes of cash-not to mention single-product lines that generate billion-dollar annual revenues. The consequence was that little attention was paid to working capital, which is typically defined as the difference between a company's current assets and liabilities. A positive working capital ratio is essential for a firm to be able to operate profitably, service its debt and fund upcoming operational expenses.

 on the performance of large pharma companies, has found that there is an aggregate total of $20 billion to $43 billion in cash unnecessarily tied up in working capital, equivalent to between 3.6% and 7.7% of sales. The analysis also showed that the cash opportunity is distributed across each working capital component-40% coming from inventories, 35% from payables, and 25% from receivables. This is where supply chain analytics can play a huge role in the active management of working capital. The focus on achieving a high-quality balance sheet requires granular level cost information at every point in the supply chain-by product, by distribution channel, and by customer. Quantifying these cost differences can help a company discontinue an unprofitable product, alter a distribution network to increase profitability, and then redeploy the freed up capital towards new drug research or towards other innovations.

	Once the basic ERP and other legacy system data have been enabled on a common platform, a "total delivered cost" analytic approach can be used to illuminate the granularity of cost variation across the supply chain. This approach works by overlapping additional logic to the data from the company's various information technology domains. Then, the analytical approach will connect the dots between what the company is selling and to which customers, while highlighting the various levels of costing across the supply chain. Specifically, the first step in this would be to engage in a cost-to-serve as is analytics exercise. This baseline analysis will identify actual costs in comparison to theoretical costs; in addition, this will also build visibility of historical cost to serve at a product and customer level. The second phase in this analytical approach will be based on trade terms efficiency. A trade model can be developed that addresses incentives and discounts based on true cost. This will then be integrated into the commercial and supply chain functions to deliver changes with the trade terms and ultimately, their successful adoption. A third and a complex step to complete the exercise would be to simulate cost-to-serve scenarios across both the internal and the customer network that can help promote joint value creation.

	Another key area of working capital that analytics can address is inventory optimization. An end-to-end methodology uses several analytical steps to optimize inventory. The leading step is to develop a supply chain network map that captures the product flow across the network. This is crucial as this will identify the involved sites, the relative volume, and the value of product flows, inventory holding points, the supplier base, and the key markets for the network products. Simultaneously, the lead times across the network are also established and, then, segmented into release, production, quality, and logistics buckets. Once all the information is enabled, statistical analytical models can be built to determine inventory target levels based on observed demand and supply variability and the desired service levels.

	The supply chain is globalized in a typical pharmaceutical company. The pharma supply chain is also complex, so inventory optimization should be carefully managed using a two-step approach.

Highly strategic inventory locations are analyzed and optimized individually at single stages. This will secure quick wins and allow inventory to be released within a few weeks to months without decreasing customer service levels. The output of this model should be target cycle and safety stock quantities calculated at each node, including factors such as minimum order quantities, production costs, and vendor managed inventory among others.

The second phase will be to optimize inventory at a multi-echelon level, which is typically done with the help of an advanced optimization tool. A true multi-echelon approach should take into account the following factors:

	» Elimination of demand signals from the next node in the supply chain.

	» Account for all the lead-time variations from suppliers, both internal and external.

	» Harmonize order cycles throughout the distribution network.

	» Segmented customer service levels based on product demand and supply.

The end game: Maintaining supply chain efficiency

	Integration of global supply chains and establishing end-to-end supply chain visibility in the pharmaceutical industry have spawned a variety of challenges; this includes growth in emerging markets, competitive generic equivalents, and volatile customer demand-all of which add to pharmaceutical supply chain complexity. Supply chain analytics represent a systematic approach to ease the brunt of these challenges. Enablement of basic supply chain metrics and standardized operational reporting are important stepping stones, as these capabilities will pave the way to increasing supply chain effectiveness. Advanced analytics, inventory optimization engines, and network design models will support supply chain executives with the necessary tools to meet the ever-changing needs of the pharma supply chain landscape and enable them to maintain a competitive advantage.

	1. HFS Analytics Market Landscape Report, 2011, Phil Fersht, Reetika Joshi (

	2. Pharmaceuticals market overview, Global Seabury trade database, 2013, Derek Brand (

	3. Cash on prescription – Pharmaceutical companies and working capital management, 2011, Ernst and Young LLP

is Manager, both in the Advisory Supply Chain & Operations practice of Ernst & Young LLP. They can be reached at 

The views expressed herein are those of the authors and do not necessarily reflect the views of Ernst & Young LLP.

Articles

Features

Examining a new three-part formula to enable the supply chain function to manage market pressures while delivering on the bottom line.

Supply Chain Analytics: Pharma’s Next Big Bet

	Under the Affordable Care Act, the US made great strides in extending health coverage to millions of people who previously had none. Nevertheless, for many people who struggle with chronic illnesses, paying for medical care is a challenge.

	In recent months, the media has put a spotlight on these access issues, causing a wave of finger pointing among pharmaceutical companies and health insurers. The drug industry argues that high deductibles and co-pays discourage economically challenged individuals from filling prescriptions that could make them well. Insurers counter that the problem lies in the high cost of medications to treat chronic diseases.

	Patients, physicians, and other healthcare stakeholders are getting tired of this blame game. Most people feel it is time for pharmaceutical companies and insurers to bury their differences and collaborate on behalf of patients.

	I strongly agree. We must start to put more of our energies into building partnerships that can deliver high-quality care to the greatest number of people. Those results may take the form of disease awareness and education campaigns, patient assistance programs, or greater transparency on the cost and availability of healthcare products and services. Whatever the vehicle, we need to adopt a more collaborative spirit and mode of public discourse.

	I understand that collaboration among opposing camps requires compromise and concessions. Why do I believe this is possible? Because the process has already begun.

	One place where we have already seen results is in the area of community engagement. Pharmaceutical companies and payers have started working together on a variety of diabetes education programs, and in a growing number of cities, we collaborate to identify people at risk of diabetes so that we can protect them from the downward spiral to disease.

	Our most ambitious initiative is called Cities Changing Diabetes, which we launched in the US in November in a partnership with the city of Houston. The goal is to analyze key factors driving the global epidemic in urban diabetes and use that knowledge to forge real-world solutions. To the extent that we succeed, there will be fewer patients to purchase our prescription drugs-and that is fine! We would consider it a necessary goal and symbol of our success.

	Once our Cities partnership is in full gear, we hope to work closely with the Houston business community, including leading health insurers such as United Healthcare, Blue Cross Blue Shield, Aetna, and Cigna to tackle the issue of urban diabetes head on. For payers, public health programs like Cities Changing Diabetes won't be a framework for recruiting new plan members. As with our academic, governmental, and other partners, all of the payers' resources will be used to gather knowledge and execute strategies to fight the disease.

	With some of these insurance partners, we have already tested the ground rules for collaboration in smaller local alliances. These have led to the promotion of healthy living habits, as well as new communication channels between our two industries. And don't overlook the golden irony: The insurers are working on behalf of individuals who may never sign up for their plans, while Novo Nordisk is helping ensure that swaths of the population never develop an illness that would require them to use our products.

	The first program designed with these ideals in mind was launched in Chicago in 2011. It was a sponsorship program for the Chicago Fire Soccer Club, conceived from the get-go as a partnership involving Novo Nordisk, Blue Cross and Blue Shield of Illinois, and the American Diabetes Association. Now in our fourth year, we operate out of shared booths at popular pre-game street fairs known as FireFests.

	At the booths, we distribute literature on diabetes prevention and awareness and we have health experts on hand to talk with visitors. Blue Cross and Novo Nordisk also co-sponsor Chicago Fire soccer practices where fans can mingle with players. Last year, we kicked off a similar program with Independence Blue Cross (IBC) in Philadelphia, and we're developing initiatives in other cities.

	In indirect ways, these community programs burnish the brands for corporate sponsors. But the greatest reward comes when sports fans start to connect some important dots in their own lives. The fans feel inspired by the athletic feats and the glow of good health on the playing field. Our message is simple: Take that inspiration and convert it to a lifetime stance against illness.

	There are other, more business-focused areas where Novo Nordisk is trying to change its perspective toward payers. For example, we began shifting resources internally so that we could work as partners with health insurers and pharmacy benefit managers to solve patients' problems.

	In the past, for each of these key accounts, Novo Nordisk assigned just one staff member to handle all of the insurer's questions or requests. Now, the same insurer can draw on a dedicated team, whether they're helping patients achieve treatment goals or setting up a medication adherence program.

	Collaborations among payers and pharma companies will ultimately necessitate deeper levels of compromise. Let's take just one area of disagreement between the two camps: issues of transparency. It's not hard to visualize the kinds of concessions pharma and payers may one day put on the negotiating table.

	For pharma's part, we could provide a more edifying view of how innovation, research and development, and marketing and administrative costs are reflected in the prices of certain drugs. Our industry has tried to explain that the next generation of life-saving medicines is paid for out of current profits. I think payers, policymakers, physicians, and patient advocates get it. But they have asked for greater clarity, and we shouldn't be so quick to dismiss the request.

	What could the insurers do better? For one thing, the exchange websites they've created could be more helpful to patients and also benefit their budding partnerships with pharmaceutical companies. I'd like to see these sites include out-of-pocket calculators, formulary search tools, and other enhancements to simplify the consumer's experience. The sites could also feature links to necessary documents such as benefit and coverage summaries, updated formularies and provider directories, and information on financial assistance.

	Some of these compromises may take time. But the joint efforts pharmaceutical companies and payers are making with Cities Changing Diabetes and other urban initiatives set an important precedent. Together, we're breaking down barriers that have kept payers and pharma at odds for too long-barriers that owe their existence to competing incentives and business models.

	Both sides now understand that patients never benefitted from the rifts that divide us. As we raise the ante in this game-forging compromises, and gradually taking on some of the transparency issues I just described-it's good to remember that the ground is broken and the foundations are laid.

Columns

In a follow-up to our November CEO profile, Novo Nordisk’s Jesper Høiland writes how pharma companies and insurers are learning to collaborate.

Beyond the Blame Game: How Pharma is Learning to Collaborate

	Over the past 15 years, a small ripple has grown into a wave of transformation in pharmaceutical marketing. It was born of the growing realization that patients and physicians are not the logical, data-driven decision makers classical economists want us to think they are. The truth is, patients and clinicians decide to use or not to use products and brands for reasons that are not always rational. Efficacy and clinical data become table stakes in many cases and, thus, are only casual factors in the choice of medications and pharmaceutical brands. In fact, an overwhelming body of evidence confirms patients and physicians alike often behave, dare we say, "irrationally."

	Throughout thousands of patient and physician interviews designed to reveal deeper motivations, we have observed irrational decision-making across many disease states. People are driven by a deep emotional desire to be and feel normal, yet illness and disease robs them of that potential. In chronic disease states, emotional well-being is replaced with constant reminders that a person will never again feel normal. Medication becomes one of those reminders and the desire to be normal is so strong, patients who could actually die from not using their medications still may not take them consistently. This is certainly not rational behavior and largely debunks the neo classical economics premise of functionality and rationality as the central motivations in human decision-making.

	Our research has also revealed, across nearly all physician specialties, that deeper emotional motivations influence doctors to make treatment and prescribing decisions based on feelings, intuitions, and instincts versus clinical data. Physicians decide which medical specialty they will practice based on how they feel about themselves and what specialization they believe will best define and shape their own identities. Doctors who see themselves as thinkers and problem-solvers gravitate to diagnostics while others who seek a stronger sense of control will choose hands on specialties such as surgery and radiology.

	The choice of medical specialty reveals early glimpses of how physicians' treatment and prescribing methods are influenced by their emotional motivations. Diagnosticians are more likely to tinker with medications and play the role of alchemist until they feel they have cracked the code on the correct combinations. Physicians who need to feel confidence and closure will only prescribe what has worked for them in the past even if new products offer better patient benefits such as fewer side effects. While clinical data, efficacy, and side effect profiles are considerations in their decision-making, the data is often not the determining factor.

	These deeper often-subconscious motivations create cognitive biases that influence decision-making outside of our awareness and prompt irrational choices. Physicians will insist they consider their decisions in a logical and rational manner but there is much evidence to disprove their argument. For example, from 1994 to 2003, the number of cases of children diagnosed with bipolar disorder increased by a factor of 40 times, effectively doubling the incidence rate in less than 10 years. Were there actually that many more cases or was something more irrational at work? As it turns out, the number of actual cases had not increased. Only greater awareness of a broader more arbitrary range of symptoms had dramatically invoked a newfound bias among many physicians to diagnose the disorder. The data actually refuted it but the cognitive bias nevertheless promoted the behavior.

	We've recently completed an emotional motivations study with a group of physicians focused on a specific chronic disease category. Our findings revealed these doctors actually encourage patients to choose their own medications. The physicians feel this approach will influence patients to better adhere to their medications. Even more tellingly, the doctors harbor the cognitive bias that they don't ever want to be perceived as making the wrong recommendation.

	These behaviors make up the cognitive illusions we instinctively accept as human nature. There are dozens and dozens of quirks, habits, and beliefs that reveal the human truths behind our behaviors. The ongoing study of these truths inspired the relatively new science of behavioral economics that has convincingly demonstrated we don't often follow the best logic or even act in our own best interests.

	Daniel Kahneman, the father of behavioral economics, conducted extensive psychological experiments that revealed and documented systematic flaws in the thought processes in our minds. Ironically, as a psychologist, he won the Nobel Prize in Economic Sciences for his work in understanding human decision-making. Even though cooperation between economists and psychologists is a somewhat new phenomenon, it is growing in a number of places within academia, government, and healthcare. In the UK, a government-sponsored Behavioral Insights Team has been established to conduct behavioral research and design behavioral change initiatives to influence behaviors such as timely payment of taxes and the effective use of government services.

	Behavioral economics principles are also being used to promote better healthcare and healthy habits around the world. By understanding the deeper thought processes that influence health-related behaviors, we can deploy insights to design products and programs that encourage better health choices and positive behavioral changes. One example of a cognitive bias is our tendency to value the present and discount the future-emotional rewards in the moment are more appealing than the prospect of emotional rewards in the future. Another is attention deficit due to cognitive overload. We can overcome both by applying behavioral economics devices or workarounds to diminish the affect of the bias. Among many others, applications include raising rates of organ donation, educating about various health dangers, increasing use of condoms, enabling weight loss, reducing sugar consumption, and eliminating tobacco use. The secret of transforming behaviors is to alter the cognitive bias by making negative health decisions more difficult and good health choices seem easier.

	What does this mean for pharmaceutical marketers and brands? If the power of behavioral economics can be used to increase healthy habits around the world, we can use the same disciplines to increase brand preference. First, we have to change the way we think about how our audiences make decisions. We have to accept they are not the rational decision makers we think they are. Then it becomes a matter of identifying and understanding how cognitive biases can be leveraged to influence behaviors within a product category or a specific brand. For example, research indicates the cognitive bias associated with expert opinions causes people to actually disengage their own critical thinking and irrationally defer to expert advice.

 So, if you appreciate the value of key opinion leaders for physician marketing, you already subscribe to behavioral economics principles.

	Can behavioral economics be used to increase patient adherence to prescribed brands and dosing regimens? In one chronic disease study, we discovered constant reminders to take your meds increased anxiety and provoked lack of adherence. The brand decided to have the conversation in a different way and discuss what happens when patients inevitably skip their medications for a day or two. The brand seems to have gained influence with patients simply because it recognizes the emotional realities they face and has, in the patient's mind, become part of the solution instead of the problem. In this way, the brand recognizes the futility of trying to change the cognitive bias and instead reframes it to the brand's advantage.

	Pharmaceutical marketers can also tap behavioral economics to optimize brand positioning and messaging. Researchers explored various cognitive biases related to flu shots and demonstrated how social norms can be leveraged to influence perceptions. Two groups of study participants were asked to read newspaper articles with different versions of the numbers of people receiving flu shots. One article described a larger percentage of people getting the shot and another version relayed that a larger number were not getting the shot. Then the study participants were supplied an article characterizing people who take the shot as considerate and those who don't are inconsiderate of others. The participants were most influenced by the messages that deviated from what they were primed to believe was normal behavior for other people in their social sphere. Pharmaceutical brands can leverage these types of realizations by understanding the most socially relevant and emotionally resonant way to frame a brand's position and messaging.

	Pharmaceutical marketers can rely on behavioral economics principles to help them truly reveal the mind of their customers and why they do what they do. Discerning the deeper motivations of your audiences can help you design the most meaningful brand position and communications that will deliver tremendous returns for reasonable investments. A highly resonant brand message that addresses cognitive biases does not require hundreds or thousands of impressions. It connects with your audience the first time they are exposed to it. In fact, behavioral economics insights are often simple and inexpensive yet represent the most powerful thing marketers can do to change perceptions and positively influence behaviors toward their brands.

	1. Brafman, Ori & Brafman, Rom. (2008). 

Sway: The irresistible pull of irrational behavior

	2. Martin, S., Goldstein, N., Cialdini, R. (2014). Th

e Small Big: Small changes that spark big influence

How Does It Make You Feel?: Why Emotion Wins the Battle of Brands

Brand success can hinge on discovering the deeper motivations of customers and addressing the cognitive biases that result.

Marketing: Beware the Hidden Forces of Behavioral Economics

FIVE YEARS AGO, IN MY FIRST COLUMN AS EDITOR

, I offered up a prediction: that the future of the biopharmaceutical business depended on how managers fared on five key measures of performance. At the start of a new year that also ranks "high on the five," it's appropriate to assess industry's progress. Here, in no assigned order, is our update on the five criteria and whether the industry deserves a check or a minus in moving forward on each.

Innovation is back in the form of novel treatments that build on the underlying scientific advance from small molecule chemistry to complex protein biologics. Some 42 new drugs, vaccines, and diagnostics were approved by the FDA in 2014, up sharply from 27 in 2013; it's also a significant improvement against the per-year average of 22.9 new drugs that passed FDA muster during the first decade of the millennium. Of the 42, 15 were classified as drugs for rare diseases-a record high-while 16 earned FDA status as "first in class" for their strong clinical profile and therapeutic impact. More important, as an indicator of future industry pipeline productivity, CDER applications for new drug approvals are surging, with 123 filed in 2014. That's almost four times higher than the 36 filed with CDER in 2013. Yes, great science is on the rise, lifted by the prevailing thermal of partnership-collaborative, cross-functional and institutionally diverse.

√ Building value throughout the product life cycle. 

Generic IP challenges and branded competition within therapeutic classes make achieving this metric harder than ever. But internal process changes to de-risk clinical development, combined with incentives like coupon offsets to reposition products for post-patent growth, are bolstering launch performance while earning a reprieve against that once inevitable 80% loss of market share within six months of patent expiry. 

Editorial Advisory Board members Stan Bernard and Mason Tenaglia have documented how cost-effectiveness research, war game simulations, longitudinal patient data, and advanced IT analytics are transforming commercial operations, with standard performance metrics moving from volume to margin, quantity to quality, and from national to local. Another boost is regulatory incentives that lengthen periods of market exclusivity in the most promising therapy areas, led by biologics. Prioritization of the value agenda is reflected in 

's latest Industry Audit of 27 big players in biopharma, where we see a higher average return on invested capital (ROIC). This is a critical differentiator of success now that the payer focus on value is constraining drugmakers' ability to price at will.

Recalibration of the tired formulaics of P&R into the outward-facing, inclusive, and integrated story map of market access is underway. Yet the function itself remains a work in progress, especially in securing organization-wide visibility and the eye of top management. This month's cover profile on Sanofi's effort to build a new commercial culture focused on the primacy of the patient as client and customer raises an additional read-between-the-lines question: will providers and payers adjust 

 expectations to the company narrative on what it thinks patients really want?

√ Achieving global operational efficiencies. 

Industry consolidation, an expanded footprint in international markets, regulatory compliance pressures, and product integrity and safety issues are all nudging progress here. Another is the complexity of manufacturing a new generation of drugs requiring scalable and cost-effective replication of living biologic organisms. As noted in this month's feature from Ernst & Young (EY) on supply chain analytics, Sales and Operations Planning (S&OP) has finally emerged as a strategic priority for big Pharma. The plus factor is the ability to achieve real competitive differentiation; conversely, failure to exploit supply chain synergies can be a huge drain on internal productivity. EY estimates that, among the 10 biggest pharma companies, as much as $43 billion is unnecessarily tied up in working capital each year rather than being released to more productive uses.

– Improving industry's societal reputation.

 Despite efforts aimed at the right places-establishing transparency as an ingrained business practice; recasting drug promotion as a measure of good science; addressing patient expectations; and expanding stakeholder networks-public skepticism about the industry hasn't changed much in five years. And some powerful new forces are emerging, led by an aggressive PBM community willing to take a page from activists in building coalitions to force concessions on high drug prices. Reputation enhancement has been tagged by PhRMA as a priority for 2015. Still, complacency remains central to the industry DNA: is it feasible long-term to simply rely on a GOP majority in Congress to forestall pricing Armageddon?

From the Editor

I offered up a prediction: that the future of the biopharmaceutical business depended on how managers fared on five key measures of performance.

The Industry's Score on Five Key Performance Measures

Following a year where a phenomenal cure was met by pricing outrage, the march of new products, including vaccines for malaria and dengue fever, and promising immunotherapy cancer combos will continue in 2015. As pharma and tech jell, how will the industry live up to its value supposition while pricing and profiting in the developed and developing worlds?

	From strengthening the fight against Ebola to facilitating the take-up of Obamacare exchange premiums, from tempering the renewed buoyancy in M&A with deference to the US Treasury Department to bringing practices further in line with the demands of transparency, pharma in 2015 will be defined as much by attempts to tackle the crises and trim the excesses that characterized 2014 as it will by the exciting new developments in disease treatments and healthcare technology.

	Remaining steadfast are questions that have dominated the industry debate in recent times: How does pharma replenish the drug pipeline and maintain value through the full product life cycle? How does the industry achieve global operational efficiencies? Improve its societal reputation? Secure market access? As pharma company executives struggle with these enduring questions, they may take solace from the notion that their operating context remains broadly the same. But for how long can that operating context be taken for granted?

's European correspondent Reflector, "2015 will see demands intensifying as further innovations with the merit-and prices-of [hepatitis C virus drug] 

 provoke payers and governments into forming common fronts against what some of them have started to openly depict as drug-industry exploitation."

	With the cost of capital remaining low, and the appetite for deals in the biopharma market continuing, 2015 looks set to be another interesting year from a consolidation and strategic opportunity perspective. Discussions with numerous investment analysts indicate that the scarcity of attractive assets will continue to keep valuations high, particularly for biotechs with mid-stage drug candidates that represent an advance in therapy and encounter few upfront competitors in the field. To thrive in this competitive environment, acquirors need to keep focused on two essentials: (1) how they intend to monetize these assets and (2) stay disciplined in their approach to negotiations. In an era of sharply curtailed product life cycles, any residual gain from paying too much is subject to a much bigger set of risks.

	Following the since-cancelled AbbVie–Shire sales transaction, the US Treasury Department made it clear last year that they're not in favor of tax inversions; accordingly, says Les Funtleyder, managing director of Poliwogg, we'll see "a lot less of that in 2015." But pharma has long been a consolidating industry, "so it wouldn't surprise me to see more large mergers taking place, despite them having a poor track record of long-term value creation." For Peter Tollman, senior partner and managing director, Boston Consulting Group, "it's tough to predict big deals, but look at the big players who have had success reshaping and strategizing their portfolios" in 2014. Tollman expects "similar smaller deals, asset swaps, and ecosystem manipulation" to continue into this year.

	However, for Elys Roberts, president of Ipsos Marketing North America, one of the issues with the proposed deals involving Pfizer, AstraZeneca, Actavis, and Allergan is that the potential for R&D is being crushed. "While operational synergies are huge drivers of financial value, the industry's raison d'être is to develop and deliver much-needed therapies," says Roberts. It's arguable that, in the current cycle, where investment dollars flow freely, the investor community's involvement is diametrically opposed to the target company's original therapeutic goals at a potentially significant-but as yet unknown-long-term cost to the industry and the patient population.

	The Pfizer acquisition of Wyeth provides a revealing illustration, explains Roberts. In 2008, the combination of the R&D investments of the two companies was close to $12 billion. In 2013, Pfizer spent $6.5 billion in R&D. Clearly, R&D over the years can become bloated, but $5.5 billion in R&D savings is not only the result of consolidating overlapping capabilities, but also the elimination of research sites, programs, and scientists.

	"Isn't the irony here that the very patent cliffs that are stimulating these deals, and that these firms are so desperate to avoid, are actually interfering with and eroding the future innovation that our industry keenly needs?" says Roberts.

	The point appears to be reinforced by the recent asset swap between GlaxoSmithKline and Novartis, in which Novartis receives GSK's oncology assets in exchange for Novartis' vaccine business, in effect, reducing GSK's oncology investment and focus. "While we do not know what the plans are for the R&D teams, wouldn't it be better in the long term for cancer vaccine research if both organizations had teams of scientists pursuing cancer and vaccine R&D?" says Roberts.

	Last summer, Ireland's Mallinckrodt plc agreed to pay $5.6 billion to absorb Questcor Pharmaceuticals Inc., the company behind a popular and controversial product for hard-to-treat autoimmune and inflammatory conditions. One day earlier, Sun Pharmaceutical Industries Ltd. outlined a $3.6 billion merger with Ranbaxy Laboratories Ltd. that will form India's biggest drug manufacturer. For Roberts, these deals, the much publicized $66 billion megadeal between Actavis and Allergan, and the news late last year of a $9 billion deal between Merck and Cubist all represent an opportunity to nurture the technology and R&D potential that has brought them together in a more innovative manner by voraciously protecting development assets and human capital, while aligning with and striving for greater operational efficiencies.

	Roberts says: "As the dancing continues, hopefully, as an industry we can take a moment to consider the intrinsic value of these terrific companies, while finding a balanced approach to protecting current and future innovation."

	If you think Obamacare navigated rough waters in 2014, this year will continue to offer choppy seas, says Tom Norton, principal at NHD Smart Communications. Particularly for those Rx firms hoping to access the Bronze and/or Silver insurance plans markets, the combination of more younger patients signing up for these coverages, the increased maximum out-of-pocket (OOP) spending, and the large increase in the number of insurers participating in the market, can only translate into heightened pricing tensions for the industry.

	The personal mandate requiring all Americans to have minimum essential healthcare coverage on their 2014 IRS filing means that, come April 15, for the first time, "all individuals must pay up, one way or the other, lest they face penalties on their 2015 IRS return." With millions of lower income, younger, and healthier Obamacare patients swept into the program, "the likelihood of the success for American innovator Rx's in Obamacare for 2015 will only get more difficult," says Norton.

	The impact of the new, mandated implementation of higher maximum OOP charges appears to be greater in the more established private sector plans. Beginning on Jan. 1, 2015, all "minimum essential health benefits," including Rx's, must operate within these mandated OOP limits. The maximum deductible/OOP costs for an individual is $6,600; the total for a family is $13,200. "What is not clear is how the pharmacy benefit managers (PBMs) and private health plans are actually going to cooperate in administering this," says Norton. According to the law, the PBMs and health plans can either "co-mingle" or "separate" the application of the medical and Rx deductibles. Ultimately, this determination will be made by the private employer.

	Another Affordable Care Act development has been an increase in insurance offerings. "More insurers will lead to competition, which is good for the Obamacare patients, but will also put increased pressure on Rx manufacturers to provide ever lower prices on individual and, in particular, bundled product offerings," notes Norton.

Blocked formularies, high deductibles, and the OIG 

	Three topics for 2015 weigh heavily on the minds of senior clients who attended IMS's Managed Markets Executive Forum in October, said Mason Tenaglia, vice president, payer and managed care insights, at IMS Institute for Health Informatics. The Express Scripts formulary block of 47 products is completing its first year. The impact of this move will be interesting to see, and the question for 2015 will be, what other commercial plans will emulate it by moving to more restrictive formularies, noted Tenaglia.

	Second, how will the Office of Inspector General (OIG) come down on manufacturers who may have sidestepped antikickback laws. For example, subsidized patients like those on Medicare Part D should not be permitted to use co-pay cards, but they figure out ways to do it, Tenaglia explained. There's a chance that the fallout from OIG's report could result in reversal in the trend toward using co-pay support in product launch.

	And third, the increasing exposure of patients to high deductible plans could have a major impact on branded drugs. As more and more employers move to high deductible plans, patients will start seeing the full price of their medications after a first and second fill, according to Tenaglia. With these increases, many patients could look to flip to a generic or stop taking their medications altogether.

	As the industry sees years of research coming to fruition, 2015 could be "the year of the product," says Peter Tollman. "The breakthroughs in oncology we've seen over the last year or two are just the beginning; looking ahead, the potential of combination treatments may be more exciting." Thanks to advances in the understanding of disease mechanisms, modeling, data analytics, genetics, and translational medicine, Tollman believes we can expect improved productivity and the science to begin bearing fruit in the form of new disease treatments.

	One product area to make a splash could be wearables. For Tarek Sherif, chairman & CEO of Medidata, 2015 will be a breakout year for healthcare mobile devices that go beyond exercise and diet apps. "The instrumentation of patients with wearable monitors will be dramatic in 2015 and 2016, creating a revolution parallel to what we've seen with smartphones over the last few years," says Sherif. The sector will remain a challenging one, however. "We're only starting to grasp the potential and technical challenges that this amount of data will create. From something like a wearable EKG monitor, the data quantities are staggering."

	Added to that, there is the issue that "nobody's really cracked a business code in how to make money from wearables," says Funtleyder. "That includes pharma, the payer community, and the technology companies." But "the millennial generation," comfortable with wearables and with the idea of having data made more or less publicly available, is more likely to adopt and "the wearables market will be pulled by them." Certainly, adds Funtleyder, there will be a lot of investment going into healthcare IT this year. "I believe you're going to see a number of IPOs in the sector."

Vaccines, Ebola, and emerging markets to watch

	2015 could be a banner year for vaccines, especially in the area of tropical endemic disease, with the likely launch of Sanofi's live, attenuated, tetravalent dengue vaccine (CYD-TDV) and GSK's RTS,S, the world's first vaccine against malaria. Their overall efficacy in a real-world setting will be interesting to follow; both have the potential to reduce the risk of suffering or death for millions of people in endemic markets such as Brazil and India, as well other developing countries. Recent clinical trial data for the dengue vaccine showed efficacy across multiple important strains which raises its value to the public, says Kevin Fitzpatrick, principal at IMS Consulting Group.


	2015 Strategic Outlook: An Industry in Flux

	Tackling the Ebola outbreak remains a top priority; we can be sure to see the testing of any Ebola product with reasonably strong potential fast-tracked in 2015, adds Fitzpatrick. J&J appears to be leading the way in this space, and, according to Funtleyder, the World Bank's agreement to indemnify J&J's $200 million commitment to an Ebola vaccine could be a significant precedent for future pharma business models. "If the World Bank or some other organization is willing to indemnify you, you're assured at least of not losing money, and it's possible you will start getting a toe-hold in the market," says Funtleyder.

	How vaccine innovation will prove profitable is a good question, agrees Fitzpatrick. Companies will need creative solutions to balance stakeholders in ways not required before. We're likely to see a combination of mechanisms for these different vaccines, including tiered pricing across markets and public or NGO sponsorship to make the treatments affordable while rewarding innovation.

	Ebola has brought attention to the fact that there is a lack of healthcare infrastructure in Africa, particularly sub-Saharan Africa, says Funtleyder. Market development there will be slow: "It will be a lot like China or Brazil, mulling along for five or 10 years, and then all of sudden becoming much more viable." There is always the danger of political instability, but this isn't anything we haven't seen before in South America or Asia, Funtleyder adds. And South Africa serves as the region's "anchor country." South Africa's competition committee is currently looking into healthcare competition, and may report as early as this year with its recommendations. But Africa "is not a place that's going to move the needle in one or two financial quarters; it's going to take time," says Funtleyder.

	A commitment to the improvement of healthcare is also a priority in Indonesia, and the country's new healthcare insurance scheme, Jaminan Kesehatan Nasional (JKN), which aims to cover all citizens by 2019, positions Indonesia as "the most promising emerging market for pharma" in 2015, according to Reenita Das, partner and senior vice president of healthcare and life sciences at Frost & Sullivan. In the short term, JKN is expected to boost the prescription drug demand in the country, as it will cover medical consultation and drug costs for participants. It is estimated that the drug spend as a percentage of total health expenditure will be close to 19% after JKN implementation, says Das. In 2014, over-the-counter (OTC) medicine covered 40% of total pharmaceutical market in Indonesia. This will grow to approximately 50% by the end of 2015.

	"More global multinational pharma companies will continue to make more deals with local home-grown companies in this region," says Das. This will continue to be expedited in response to local governments' protectionist policies and to help in private-public partnerships.

Europe 2015: A fresh start, or deeper into the mire?

	According to Reflector, "stirrings of hope" in the EU have been driven by the recent appointment of a new team to run its affairs-a new president of the European Commission (Jean-Claude Juncker) with a promise of a new plan, a new president of the European Council (Donald Tusk) from a (fairly) new member state (Poland), and a new foreign affairs supremo, Federica Mogherini. But, politically, the very substance of the EU itself is under threat-internally, from increased dissension within and among its institutions and between its member states, and externally, by instability and even open conflict on its eastern and southern borders. Socially, the divisions in Europe are starker than they've been for years, with austerity driving a wedge ever deeper between the affluent and the dispossessed, as health statistics underline, and with tensions further sharpened by migration, particularly from eastern to western Europe.

	In scientific terms, the EU's capital is robust but vulnerable, says Reflector. Official analyses released in December showed EU R&D investment is lagging behind other key competing regions, and spoke of "the poor R&D performance" of EU drug firms dragging down overall EU R&D investment trends and renewed efforts to relocate R&D elsewhere. And the reputation of Europe's regulatory system has been shaken by a series of sudden departures of senior figures-most notably the highly regarded boss of the European Medicines Agency (EMA), Guido Rasi-and by the "new incoherence creeping into EU attempts to adjust its healthcare systems to the opportunities that more personalized medicine might offer."

	The question, then, is what hope is there for the pharma sector in Europe?

	At the technical level, explains Reflector, 2015 will bring in new levels of openness both about clinical trial results, through EMA publication, and about industry links with doctors, through voluntary codes. "Those could make life easier if they relieve some of the recent pressures for greater transparency -but they could equally well stimulate an appetite for still more information."

	This year will also see the inception of some EU-led discussions on how to address the economics of drug supply. Says Reflector: "Just how much those discussions will take account of industrial imperatives depends very much on how hard industry can convince skeptical governments that they really need new drugs and a vibrant drug industry."

	"Meanwhile, Putin, ISIS, and al-Qaeda will throw further shadows over geopolitical stability, with the inevitable knock-on impact on the world economy, while budgetary constraints in Europe will tend to focus social spending increasingly on equality of opportunity-in poverty relief, housing, education, preventive life-style changes-rather than on higher drug bills. The drug industry in Europe will have to maneuver adroitly as its operating flexibility diminishes, and will have to be light on its feet to avoid being dragged into the mire."

's European and Online Editor. He can be reached at 

Pharm Exec’s annual report highlights the key scientific, commercial, and reputational trends shaping the industry in the year ahead.

What’s Ahead for 2015? Pharm Exec's Industry Outlook

	Like many things about Canada, it takes a long walk against a blustery wind to discover the country's rich history as a medicines innovator. A big step to bridge the distance took place last Nov. 19, when the Canadian R&D industry gathered in Toronto to celebrate a series of anniversaries-100 years for the brand industry trade group, Rx&D, founded in Ottawa in 1914; 50 years for Canada's Health Research Foundation, a non-profit affiliated with Rx&D that advocates for innovation and arranges partnerships between companies and local academic medical centers; and 20 years for Prix Galien Canada, a chapter of the global movement to reward innovation in private-sector drug discovery.

	Presented to the more than 300 participants was a timeline of "Canada first" pharmaceuticals innovation, dating back nearly a century from the discovery of insulin for diabetes, in Montreal in 1921; to, among others, the 1967 invention of a freeze-dried vaccine that helped eliminate smallpox; identification of the T-cell receptor, in 1983; co-discovery of V

, the first treatment for age-related macular degeneration, in 1995; development, in 2002, of the first vaccine for infant meningitis; and work on the first vaccine for HIV prevention, in 2011. Most recently, Canadian industry and institutions are credited with critical lab studies to show how cancer stem cells can be stimulated to halt tumor growth.

	Tying the day together was Rx&D's annual membership conference, a series of keynoters featuring leading politicians, researchers, and academicians as well as six policy panels, all arranged around the theme "Making Canada Better: Shaping the Next Century of Healthcare." Three themes emerged from the day's dialogue:

	» First, governments in Canada need to do more to "de-risk" the early stage path to market authorization through increased funding for basic research; improved outreach to start-up ventures; and enhanced, coordinated tax policies and other incentives.

	» Second, address what many executives from multinational drugmakers contend is Canada's "mixed message" to investors, particularly on IP rights and market access issues.

	» Third, all local stakeholders-government, the private sector, professional groups, and academia – must focus on pooled collaborations to raise Canada's profile in a competitive international environment: current priorities to make the country more attractive to life sciences investors are diluted by a fragmented and duplicative effort at the federal and provincial levels as well as within the business/professional sectors.


	Rx&D President Russell Williams (right) is honored with the Research Canada Leadership Award by Research Canada chairman Dr. Ryan Wiley. Courtesy of Rx&D.

	The day was topped off by a gala dinner featuring a number of awards, including the annual Prix Galien prize for best drug product, which went to InterMune's (now Roche) treatment for idiopathic pulmonary fibrosis, 

, which was partially developed in Canada, is the first treatment available for IPF, which prior to introduction of the drug could not be controlled and was invariably fatal over time. Singled out for accolades by the Health Research Foundation was Dr. Robert Young, a former researcher for Merck & Co. at its labs in Montreal who is credited with discovery of the breakthrough drug 

, a major advance in the prevention of asthma attacks.


	Dr. Robert Young (right) receives the Rx&D Health Research Foundation Achievement Award from Foundation chair Dr. Mel Cappe. Courtesy of Rx&D.

	Finally, the federal agency responsible for subsidizing basic research, Research Canada, offered one of its first Leadership Awards for Health Advocacy to Rx&D President Russell Williams for his efforts in building partnerships in areas ranging from the ethics of promotion to the quiet work he does to advance the practice of palliative care for chronically ill institutionalized patients. Williams, an old friend of 

, told the dinner crowd "I have the best of all jobs-an employer who lets me use my office to convene bright people to do big things. Canada has the best medical researchers in the world, but lacks the public policies to pull it all together. That's where we come in." Joining Williams in that work will be Rx&D's new chair for 2015, Pfizer Canada President John Helou.

The Canadian R&D industry, which boasts a rich history of drug innovation, celebrates a series of anniversaries.

Got Ideas? Go North!

	"Reinvention" may be the management buzzword of choice for today's big Pharma players, yet it's still hard to find c-suite leaders with the strategic chops-and specific job description-to make it happen. France's Sanofi, seeking to transition from a deep-rooted legacy operation whose family tree could supply a writer with paper for decades, is the exception. To become a globally integrated biopharmaceuticals enterprise, with a drug pipeline now 80% focused on next-generation biologics, Sanofi knew it had to rewrite history-and become a different company.

	The precise contours of this change remain a work in progress. But in July 2013, then CEO Chris Viehbacher took a decisive first step toward reinvention, splitting the commercial organization into two units and creating a new executive level position responsible for setting strategies to drive product development, coordinate launch cycles, and deliver P&L for the pharma businesses' innovative growth platforms, including the all-important diabetes franchise, oncology, immuno-inflammation, cardiovascular disease (CVD), and consumer OTC. The remit also expanded the footprint of Sanofi Patient Solutions, which provides customized service and delivery innovations "beyond the pill," but which to date has focused on diabetes care.

	Significantly, the job went to an outsider: Pascale Witz, a 17-year veteran of General Electric (GE) who led its global medical diagnostics business. Witz, 48, an MBA graduate of France's top private business school, INSEAD, stood out for her grounding in GE's strong cross-disciplinary culture. Another draw was GE's track record in shortening product development cycles-historically a lagging indicator of efficiency in big Pharma. Through her efforts to reposition diagnostics as a value driver in patient outcomes, Witz was familiar with the difficulties of obtaining reimbursement for new technologies in an era of declining health budgets. And there was her youthful, pre-career status as a top track and field athlete, a distinctly unconventional route for female achievement in France-but more on that later.

	Witz says she took the job for two reasons. First, the P&L responsibility put her in the management big league, with a portfolio of more than €15 billion in annual sales. Second, it offered the opportunity to execute around a new business model just as the company's drug pipeline was nearing prime time. As was the case at GE, Sanofi was generating good science that, in addition to offering patients radically new options for treatment, posed some challenges to the traditional way in which medicines were developed, dispensed, and used in the healthcare system.

	Internally, questions arose on whether changes in Sanofi's R&D operation were testing the relevance of the standard playbook used to guide the path to commercialization. Under R&D chief Elias Zerhouni, drug development had been restructured around a more flexible, outward-facing model of collaboration, one that recognizes today's biological disease targets are too complex and costly to be solved by any one stakeholder. The number of interests engaged to support the science demanded constant consultation and feedback, particularly in rendering judgments about whether investments in novel, cutting-edge therapies would find favor in a changing market, years down the line.

	This meant that teams associated with transitioning a compound to launch and then thrive in the real world marketplace needed to be sourced in tandem with the science, not kept in silos. Yet conversations with those responsible for the clinical development and launch teams often failed to incorporate the growing diversity of players with an impact on take-up of a new drug.

	A sense of urgency helped accelerate the push to reinvent. Like its big Pharma peers, Sanofi has been hit with a wave of patent expirations over the past few years, led by the loss of exclusivity of its anti-coagulant blockbuster, 

, in 2013. More important, the US patent on Sanofi's top-selling diabetes drug, 

, is due to expire next month, creating another deep hole in revenues. To rebuild its product line, Sanofi intends to launch as many as 18 new drugs and vaccines medicines (10 are in late-stage development) between now and 2020-a pledge it reaffirmed at its annual investor conference in Boston in November. Witz points out that achieving this goal means rolling out a new medicine virtually every six months.

	"By the time I arrived at Sanofi in July 2013, one thing was clear. The days of developing a medicine purely on the basis of clinical efficacy and then handing everything over to sales with the three-word command "sell, sell, sell" are over," Witz told 

. "What was required is a stepped-up commitment to focus all our resources to address a single question: do our efforts support a real medical need, across the broad continuum of care, with the potential to carry a positive impact on outcomes, as defined by the patient? It's a tough question, because with the healthcare environment changing so quickly, it had become unclear just who our customers are."

	In addition, many of the new products Sanofi plans to introduce address chronic illnesses, where market success depends on a high level of patient motivation and engagement. Says Witz, "Sanofi's unique product mix requires that we deal with people who have to manage their condition for the long term-literally, they must use our medicines for the remainder of their lives. So, the issue of how we get closer to the patient is not an academic exercise for us. Could we make an impact on outcomes by helping patients better understand the best way to manage their disease?"

	Witz decided that her first task as Sanofi's newest EVP would be to resolve these questions-decisively-with diabetes tagged as the "change agent" for a new business model built around a more integrated approach to care. Diabetes was an obvious choice, not only because it occupied prime turf as the company's biggest therapeutic franchise, where Sanofi had decades of expertise, but also because, like it or not, changing market conditions required a different approach. The diabetes segment has multiple players, is brutally competitive, and is buffeted by frequent modest improvements in science (there is still no cure in sight) that have companies vying to position their drugs as the foundation therapy that patients can rely on in maintaining the highest quality of life.

	With significant clinical differentiation harder to demonstrate, the conveniences a new diabetes drug offers to patients, particularly in promoting increased adherence-which has added appeal to prescribers and payers-can go far in determining whether a company hits blockbuster pay dirt or finds itself left in the dust. Add-ons like that will play an even larger role with the impending arrival of cheaper biosimilar versions of branded medicines like Sanofi's basal insulin 

, the company's top selling product, with sales of $7 billion in 2013. In fact, price pressures on the segment are looming large as an expensive new class of drugs, sodium-glucose cotransporter 2 (SGLT2) inhibitors, which reduce blood sugar through pills taken orally, albeit with monitoring for side-effects, come forward to the market.

	In other words, "value" is the trump card in diabetes care, today and tomorrow. And who is the most important determinant of that value? According to Witz, it is the patient. "We identified a subtle but unmistakable shift from providers to the patient as the ultimate customer in diabetes care." Behind that determination were many of the factors outlined earlier-competition, cost, cures, and compliance, not to mention expectations: as the incidence of diabetes worldwide reaches the 400 million mark, with another 179 million people estimated as undiagnosed, and with treatment consuming 11% of global health costs, the challenges posed by this disease are too large to be devolved to a professional elite-there is no other choice but to put the patient in charge of managing his own condition.

	As part of a strategic business review, Witz and her team brought patients and representative groups to the company to get input on everything from the experiences of family care givers; injection phobias (what's worse: the belly jab or the finger prick?); risk exposures, like the side-effect trade-offs from new oral versions of insulin; and the consumer appeal of miniaturized glucose monitoring devices. Everyone was exposed to the dialogue, right up to Sanofi's executive committee, including the CEO, CFO, and the global leads on R&D and manufacturing.

	The outreach yielded several insights that Witz promptly adopted as a learning tool. One was the sheer range of ideas and options brought forward, which raised the prospect of a dispersed, unfocused effort that would produce only marginal improvements against the status quo. To avoid this, Witz opted to proceed on a step-by-step basis, addressing the "pain points" revealed through the patient contacts first. "We convened our teams responsible for clinical development, commercialization, logistics, product support, and market analytics-each a lead in diabetes, but with different functional expertise-to decide what might really make a difference in how patients handle their condition on a day-to-day basis. I posed it not as a one-off exercise but as a relentless, ongoing challenge: rewiring our thought processes to consider even the most minor things from the patient's standpoint."

	One pain point was the failure of drugs and devices to interact in a way that minimized the time and management burden of keeping blood sugar within prescribed range. Says Witz, "That finding persuaded us to start looking at better drug-device combinations, including miniaturized solutions around injections but also different tools to monitor glucose levels and how both can fit together to provide patients with an easier regimen they can manage almost without thinking."

	Looking through the patient lens also puts a much stronger focus on the biggest drain on drugmaker revenues in diabetes care: adherence to therapy. More than half of patients on drugs or insulin fall off the wagon at some point, a proven data point that has serious public health consequences. "From the patient perspective, we can produce a great new drug, but if it's not designed to ease their burden of care then it leads to only one result: lower adherence and a poorer health outcome, for the patient and society," says Witz. "A development process focused on the patient directs us to create not just a great drug, but a well-designed solution-a solution that allows the patient to act on his own to comply to therapy."

	A second insight Witz drew from the consultations was how patient centricity could drive the larger cultural changes that Sanofi needed to cement its reinvention from a collection of older legacy businesses, with no sum to its parts, to a global innovator in the new science of biopharmaceuticals, vaccines, and consumer health. "Going from a focus solely on the medicine and how we push it to providers, to a focus on the disease and how can we make and deliver that medicine to achieve something of larger benefit to patients-it's more than just a shift in approach," says Witz. "There is a greater sense of purpose, involving input from more people, encouraging the cross flow of ideas and-most important-establishing objectives that can be shared, each of which contributes to a stronger bond among colleagues and, thus, better decisions from the team. The word that defines this process is engagement, which is what every company wants from its workers today."

	And Witz notes that this cultural change dividend will pay out in other therapeutic areas, beyond diabetes, important to the company as well. "The shift to integrated care will only be transformational if it is systemic."

	A final insight for Witz involved getting the organization prepared to accept change. Here, the approach Witz took was twofold.

	First, she used her hiring power to bring in leaders from outside the industry to take a critical look at standard procedures, pose "out of the box" questions that hadn't been asked before, and help transfer best practices. The aim was to create additional channels of product and service expertise to connect to the regular drug development and commercial staff but not be dominated by them.

	Specifically, Witz looked for people from businesses adjacent to pharma, like devices and diagnostics; people comfortable with digital connectivity, big data, and new information technologies, or with special skills in logistics and engineering, each with abilities to apply that to integrated care; and those with a combined exposure to big Pharma as well as more entrepreneurial start-up operations. "Several people I brought to Sanofi have a strong bearing in retail management, including my head of marketing, Jack Smith, who comes from the fast-moving consumer field and also worked for a key payer. Likewise, our new head of global analytics and market research, Michael Schwartz, joined us from Avon Products, which has intimate knowledge of customer motivation written into its DNA."

	Second, Witz leveraged the cross-functional convening power that stemmed from her P&L operational responsibility over multiple disease areas. "It has to be acknowledged that, for many people, system changes and the arrival of outsiders might be viewed as disruptive. Certainly, any model of integrated care raises the bar on the performance of the individual parts. I realized I had to apply my operational mandate to overcome organizational inertia, allow all voices to be heard and drive the process forward."

	Witz also anticipated there might be risks anytime a large organization ventures outside its marked zone of competence. "It's vital that someone at the top is there to give the teams the backing and, thus, the self-confidence to render a good decision, in the best interest of the whole company. I and other members of the senior executive committee reporting to the CEO filled that role. That's why I see one of my biggest achievements to date is simply to elevate the importance of the issue – giving people with fresh ideas the room to succeed."

	With these findings in mind, five Centers of Excellence (CoEs) have been established under the Global Divisions and Strategic Development umbrella to seed cross-functional collaboration and shift Sanofi's focus from pills to the patient. It's a matrix model that makes the CoEs the engine that run across the business segments, geographies, and support functions. The stated mission of each CoE is to "enable, orchestrate, and catalyze new thinking" through the application of integrated care approaches that transfer knowledge from one disease area to another. All report in to Witz.

	The CoEs with the highest profiles are Integrated Care and Patient Centricity. Integrated Care is led by Paul Sekhri, a former head of strategy for Teva, the major player in generics worldwide. His group coordinates company-wide health solutions-based approaches to treatment in key therapeutic areas, including diabetes and CVD. Integrated Care also administers a series of country-level projects (see sidebar) to help diabetes patients manage their condition through data analytics and other technologies. Anchoring this effort is an alliance partnership agreed last June between Sanofi and Minneapolis-based Medtronic, a leading device maker, on drug-device combinations and programs to raise treatment compliance.


	Tooling-and Schooling-for Integrated Care

	Patient Centricity is built around a new position of chief patient officer-the first such appointment in big Pharma-that Witz created in March 2014. It is held by Dr. Anne Beal, a physician and longtime US public health and patient advocate, who served previously as deputy director at the Patient-Centered Outcomes Research Institute (PCORI), an independent government-funded research institute authorized by Congress to study the clinical and social impact of health and pharmaceutical interventions on patients. In addition to building a comprehensive and globally consistent strategy on liaison with patient groups, Beal and her team work to incorporate the patient perspective at every stage of the product development and life cycle, from R&D proof of concept to post-marketing studies and reimbursement access. The mandate also includes special outreach to caregivers, an often neglected element of the patient community.

	The other CoE's cover Marketing, with an emphasis on operational effectiveness; Market Access, which coordinates work on demonstrating value for money and advocating with regulatory and reimbursement authorities; and Global Strategic Development, which pursues investment opportunities around products and services that help advance the integrated care model. Witz cites marketing as a function where it suits to take a page from the fast-moving consumer business and interact with customers directly, in pace with changing market sentiment. "We are in a world now where you don't want to wait on the traditional focus group to give you that long-tail cycle of feedback. Instead, it should be a continuous loop. And you must have all the complementary functions behind a marketing plan to be sitting in one place, which is what we have done through the CoE."

	Witz is a big believer in the use of data to build evidence around products and services. She relies on a simple strategic guidance that is communicated regularly to the development teams: "if one of our great solutions is not affordable to those who will use it, then there is no benefit to it-full stop." Of course, a special challenge to an integrated care model is the ability to show that the whole "solution" works better than its individual parts. This can be difficult because much of the health delivery infrastructure remains siloed. The solution, claims Witz, is reconsidering what kind of data companies collect, and to focus that effort more on demonstrating aggregate measures of outcome. "We can do a lot more with the data we have, particularly in performing a vital task in integrated care, which is benchmarking our performance against a host of known indicators, as well as many new ones. It's not only necessary to measure an outcome, we have to show the stakeholder how much our actions have influenced it. That's where analytics-the interpretive side of data-comes in."

	Looking forward to 2015, Witz and her team will be prepping for US and EU regulatory approval and launch of 

 (trade name, pending approval), Sanofi's much-hyped injectable rDNA glargine insulin successor to 

. A final decision from both the FDA and EMA is likely by no later than mid-year. Launch of 

 will include complementary integrated care protocols to educate clinicians and help patients transition from 

, all of which have been designed from the patient standpoint. Assets that can be coached to patients and their physician include clinically established evidence that 

 is longer lasting, with a 24-hour effect, and does not promote weight gain; more important, it does a better job than 

Pharm Exec profiles Sanofi EVP Pascale Witz, tagged with the assignment to move a lumbering biopharma giant closer to the embrace of the patient perspective in healthcare.

Pharmaceutical Executive-01-01-2015

Supply Chain Analytics: Pharma’s Next Big Bet

Beyond the Blame Game: How Pharma is Learning to Collaborate

Marketing: Beware the Hidden Forces of Behavioral Economics

The Industry's Score on Five Key Performance Measures

What’s Ahead for 2015? Pharm Exec's Industry Outlook

Got Ideas? Go North!

Sanofi’s Big Bet on Integrated Patient Care

A Burgeoning Giant Steps Oute

Country Report: Malaysia