he regulatory harmonization that started in the early 1990s has benefited the pharma industry in a host of ways. Companies can now limit the length and expense of global clinical development programs by conducting large multinational clinical studies at key centers worldwide. Key opinion leaders around the world gain similar product experience with a new molecule months before launch. Most important, the harmonization allows companies to submit product applications that follow the Common Technical Document guidelines and therefore are similar in content and format across all major pharma markets. As a result, new products have indications and package inserts that vary little between countries. 

This evolution is very positive for pharma marketers, who can now develop global brands free of the constraints of multiple labels and indications. In addition, better sharing of breakthrough research-through bigger but fewer international scientific conferences and a handful of prime medical journals-has led to an alignment of treatment guidelines in almost all disease areas, making it easier to globalize product information. 

Yet global marketing departments are still not widespread among pharma and top-tier biotech companies. Pharma companies are usually dealing with the hurdles of historical structures, in which key affiliates, reporting to the CEO or head of business, are reluctant to give up their autonomy and influence. And biotechs like Amgen, Genentech, or MedImmune are often too focused on their local market or are not truly global, having sold overseas rights to their lead products and given up marketing control. And whatever the reasons, the global marketing units that do exist are not always as efficient as could be expected. They often don't have the full set of responsibilities needed to be effective and successful. Their role may be limited to the management of early stage products, while control of the launch and postmarketing phase is left to independent, local country-specific departments. Even when a global unit creates global brand strategies, implementation is too often left to the local groups. 

A global marketing unit can quickly increase product sales and reduce marketing expenses, but only if its role is understood and accepted within the company. The role of global marketing can be characterized by its three broad functions:  								

guide and support their implementation worldwide

maximize products' commercial and therapeutic value.

In addition, global marketers provide guidance, oversight, and collaborative support to local marketers and product managers to create unified brands and to ensure that marketing strategies are consistently applied. 

But before a company establishes such a department, it should understand the possible benefits and limitations. Following are several poten-tial advantages in developing global marketing programs. 			

 Developing one set of brand elements, core promotional materials, and core training manuals in particular, reduces costs at the local country level. Instead of bearing full development costs (multiplied by the number of countries involved), local marketing departments need only budget for the adaptation of core materials. 

Cost savings may also be realized by running global market research studies for positioning, forecasting, message, and concept testing or tracking. The use of a single questionnaire, translated and printed in multiple languages, and one vendor for each study instead of multiple efforts translates into lower market research expenses. Likewise, global promotional or educational programs, such as symposium spin-offs, can result in production efficiencies that decrease per-unit costs. Effective global marketing departments can offset the need for, and therefore the cost of, creating multiple regional marketing groups. 

 When departments such as clinical research, preclinical, regulatory affairs, and manufacturing have only one contact from global marketing, they do not have to deal with conflicting feedback or information overload from multiple marketing groups. Through a global marketing unit, all marketing groups can be represented and heard instead of only the most vocal or influential group. Global marketing departments reflect common needs or issues across the board. They can spend time educating, debating with R&D, and nurturing relationships built on trust, making the exchange of information more frequent and effective. 

 Key Relationships : Global marketing departments can- and should- exchange information with key players in the organization

 Marketers cannot attain global brand identity without achieving consistency over an extended period of time and across multiple markets. Maintaining a common marketing platform around the world helps maintain one unique recognizable brand and company image. This is particularly important for disease areas in which national practice guidelines are aligned and scientific information flows freely across national boundaries. Branding consistency is impossible unless a brand's core message is communicated by all company representatives inside and outside the company, from sales reps to upper management. 

 A marketing program that has worked particularly well in one country can be quickly identified, analyzed, and implemented in other countries. For example, Syntex translated and adapted a successful locally produced brochure on cytomegalovirus (CMV) infection for use in other countries, and Gilead used an Australian pricing dossier as a template for several European countries. By making country-by-country comparisons, global marketing departments can document what works best and help disseminate best marketing practices. Similarly, such units can systematically gather, analyze, and disseminate competitive intelligence quickly and efficiently to any market in the world.  

 By being close to the information source for clinical, preclinical, and manufacturing data, global marketers know more about the compound than local marketers and are best able to communicate how to effectively promote it. That knowledge base includes scientific data, product attributes, market research, pricing, positioning, branding elements, advertising, and sales support materials. However, the advantage necessitates two- to three-year minimum personnel assignments and a focus on internal promotion rather than on external hires. Branding guidelines and scientific and training brochures developed by the global marketing team become important tools for local marketing managers and help them project a uniform brand message to their counterparts in other countries. 

Global marketing may encounter some difficulties, most of which involve cultural and regulatory differences between countries. Companies must understand regional differences so they can determine the boundaries of global marketing programs. 			

 Although regulatory harmonization and increased similarities in local prescription guidelines have minimized some differences in cultural values, economic development, and usage patterns, market idiosyncrasies will continue to exist. In fact, market differences may be more acute in some disease areas-such as oncology-than in others. Taking this market as an example, many older oncology products are not available across all markets. Treatment guidelines often vary because they are based on local experience. And cultural differences, such as being more or less aggressive in treatment approach, further differentiate conventional oncology practices across borders. Global marketers must be familiar with such variations to implement strategies at the local country level or to make difficult corporate recommendations, such as not launching in one particular country. 

 Although these issues are less common, they may still exist for older products or in poorly defined disease areas. For example, products may be at different stages of their lifecycle in different countries, indications can vary, or some product line extensions may not be available in some markets. AmBisome, an IV antifungal first marketed in 1991 by NeXstar, has 12 first-line indications and six second-line indications, none of which is approved in all key countries where it is marketed. Fortunately, this situation rarely occurs with new products. 

 Diverse regulatory challenges exist in different countries. In general, regulatory guidelines surrounding promotional activities are more stringent in the United States than they are in other countries. In the United States, sales aids are typically submitted to FDA's Division of Drug Marketing, Advertising, and Communications (DDMAC) for review (although it is not mandatory) and must be approved by DDMAC if they carry a black box warning label. 

In other countries, sales aids are less regulated, leaving more flexibility in the interpretation of clinical data and the development of product claims. In many European countries, it is customary for companies to sponsor physicians to attend conferences, a practice that is no longer allowed in the United States. On the other hand, direct-to-consumer advertising is not allowed in Europe and most other developed markets, although it is widely used in the United States. These differences require some flexibility in the local application of global marketing and promotional guidelines. 

Global promotional elements, such as visual aids, should include extensive data and alternatives, making it easy for local marketing departments to adapt materials to their own local regulatory guidelines without changing key brand messages. For example, both Viread (tenofovir) and Hepsera (adefovir dipivoxil) global visual aids included scientific data (such as virology or preclinical data) that Gilead marketers knew would not be allowed in some countries but would be strong selling points in others. 

Critics often claim that global marketing programs ignore  fundamental differences across countries and cultures. But these differences are limited, and a good global marketing program will take them into account. Companies should not try to make programs fit all markets and regulatory requirements. If they do, they will end up with conservative plans that are largely ineffective. Instead, global marketing teams must be creative, yet understand that there may be limitations to how the plan will be implemented in some countries. 

To be effective, global marketing departments must oversee the development and management of the company's brands from very early in the clinical program (Phase I) to long after the product has been launched in all key markets (ideally until patent expiration). And company leaders must clearly communicate global marketing objectives to the entire organization. Several other parameters are also critical to the success of a global marketing department. 			

 Companies cannot expect global marketing strategies to be effective without constant input and feedback from local markets. Too often global marketers involve local markets late in the process, resulting in rigid, inadequate campaigns and resistance from local marketing teams. 

The attempt to enforce an inadequate campaign will often result in having local marketers simply discard it and replace it with one of their own. To avoid such mistakes, the global marketing department should create product teams early in the development process, involving managers from at least the top markets. The product team is responsible for ensuring that global strategies and programs can ultimately be implemented locally. The team can also be an excellent sounding board and a source of useful information about various marketing aspects such as local competition, market dynamics, and market needs. 

The product team should meet regularly and at every important step of the marketing development process throughout the life of the product. Team meetings should leave enough time for feedback, local presentations, and discussion. Too often these meetings are used to download information but do not leave enough time for constructive criticism or brainstorming sessions. To strengthen the team and limit frustration, it is important to foster healthy debates and give each local manager a chance to express an opinion. In addition, global marketers should visit local markets frequently. This allows quality time for local feedback and gives the global marketer an opportunity to meet with other important members of the local company, including those from medical, regulatory, and sales. 

 New clinical data that may  affect product strategy must be quickly communicated to local managers with an explanation of the potential implications. In some cases, project team meeting minutes are a good way to communicate important information, beyond just clinical data. Similarly, the global team should ask local managers for feedback (and give them enough time to react) whenever a new market research study is planned. 

Local attendance during market testing is also a good idea. It involves and educates the local manager and has the added benefit of providing quick feedback to the global manager. Indeed, any gathering is an opportunity to share information. For example, international conferences can be a good setting for inexpensive two-hour informational meetings or even one-on-one discussions between global and local product managers. 

 For global marketing strategies to be correctly implemented at the local level, companies must consistently train local managers so that they understand the "whys" and "hows" behind global strategies. They must be given a road map and a set of guidelines that they helped design. Training should be ongoing and should cover products, markets, and marketing. Documents such as global marketing plans or branding guidebooks can serve as useful training elements if they are detailed and designed to give clear guidelines. But simply distributing them is not enough; global marketers must also review and explain. 

Indeed, global marketers should hold yearly training meetings for local product managers and should seek help from members of other functional areas such as manufacturing, clinical, and regulatory to strengthen the quality of the training. External participants can also include advertising and medical education agencies. Clinical data, ongoing studies, regulatory guidelines, market data, marketing strat- egies, brand elements, and promotional and educational programs should all be reviewed during training sessions. 

 Global marketers must have the ability to define a vision for the company's products and motivate people to embrace that vision. They will not only have to persuade local marketing managers but also company management, clinical research, manufacturing, and other functions.  

At Gilead, frequent meetings were held with all parties at every important step of the branding development process. Each option proposed by the global marketing team was explained, discussed, and altered if needed, based on the comments received. The process requires persistence, openness, and the ability to listen to ideas from others. But it has the benefit of rallying the whole company behind the branding strategy. At the same time, irrelevant requests, suggestions, or foot dragging must be dealt with respectfully but firmly.  

In the case of Gilead's new HIV product, Viread, a country affiliate had developed a visual aid that diverged from the global branding guidelines. During a review meeting, the affiliate presented no clear rationale to support the new concept and agreed to correct the visual aid. Ultimately, that country's launch was one of the most successful worldwide. Sometimes, late in the process, local companies express differences of opinion and will try to develop local programs that significantly deviate from global strategies. This is understandable if they have not been involved in the development of the global programs or if those programs are inadequate. But it is otherwise counterproductive and expensive for the company. In such situations, global marketers must be able to reason, explain, and persuade affiliates to stick to the plan. They must also be ready to recognize mistakes and adjust rapidly when needed. 

 At most major pharma companies, the execution of marketing strategies is left to local managers, without commitment or control from company management. This is an incredible waste of time and resources for the company and results in inconsistent programs and a loss of brand identity.  

In today's markets, where harmonization tends to rule, pharmaceutical companies should not readily accept major strategy and program differences between countries. Local managers must be held accountable for implementing global plans and should be required to explain why a particular strategy or program cannot be done locally, if they intend to do something different. Regular prelaunch review meetings with affiliates and brand team meetings, in which local managers present and justify their plans and key promotional programs, are essential to review and evaluate local programs on an ongoing basis. 

Although some companies have created global marketing or branding departments, the value of such units may not be fully understood by senior managers who haven't been exposed to them. Advertising executives say that very few companies have effective global marketing departments. Local markets still have too much flexibility and can often choose their own campaigns without challenge. On the other hand, global marketing departments often forget that their primary responsibility is to develop a vision for the brand that can be efficiently and consistently implemented everywhere. "Think globally, act locally" is the key to successful global marketing. 			

Market differences between countries still remain and should not be underestimated. There is, however, no justification for the absence of a global marketing department. It seems inevitable that in the future many of the differences in competitive environments will be minimized. 

As regulatory harmonization continues and product labels become more uniform between countries, the implementation of global marketing strategies will get easier. Global marketing departments are uniquely positioned to develop and carry out these strategies. Companies that establish these departments will see immediate benefits, including cost savings, greater efficiency, and branding consistency. But to be successful, global marketers must be accepted and valued by all company functions. And to do that, they need a clear definition and understanding of their mandate, their role, and their limitations. 

Articles

Features

Critics often claim that international marketing programs ignore fundamental differences that exist across countries and cultures.

One World, One Voice

t was a landmark year from a cost-containment and pricing and reimbursement perspective. We experienced some major events that will have lasting effects on the pharma industry," says Ron Baynes, Cambridge Pharma Consultancy executive vice-president and co-author of a new pricing/reimbursement report for 2003. Among Baynes' highs and lows for the year: 						

preparations for the enlargement of the European Union

growth of cross - border activity in North America

failure of R & D pipelines to deliver new molecular entities

tightening of the cost containment screw.

Baynes' main concern is the dearth of new products. "Following a brief rally in Europe in 2002, the number of NMEs [new molecular entities] gaining access to market continued to decline in both the US and Europe in 2003," he says. In fact, the top 16 companies launched just 12 new products in the United States and Europe combined, compared with 15 in the United States, plus 16 in Europe in 2002. (See "Bad News for Europe" and "Worse News for United States.") Of the top 16 companies, 33 percent failed to launch a new product in United States, and 25 percent failed to launch one in Europe. "We are unlikely to see a dramatic change in this trend in 2004," Baynes warns. 

With fewer new products coming to market, the industry must squeeze maximum economic value from every new drug-both at launch and during a brand's lifecycle. To achieve that, it is crucial for companies to negotiate optimal price levels and gain rapid market access while minimizing the level of prescribing restrictions. "This can only be achieved by including pricing, reimbursement, and positioning considerations into clinical and health economic studies for the brand at first launch, and also for line extensions and further indications," Baynes comments. 

Bad News for Eurpoe, Worse News for United States 			

But the pricing and reimbursement report also notes that pharmaceutical companies appear to be spending greater resources in developing new indications and line extensions of their existing blockbusters. 

So how successful were the leading companies at driving the economic value of their pipelines in 2003? The picture was different between the continents: In Europe, one-third of launches were priced at a premium to the closest comparable product; in the United States, two-thirds were. (See "European Shortfalls" and "US: Premium Market," page 68.) 			

Overall, new HIV treatments fared particularly well. Roche's first-in-class fusion inhibitor, Fuzeon (infuvirtide), established a new price benchmark in Europe, and both Fuzeon and Bristol-Myers Squibb's Reyataz (atazanavir) were priced at a 70 percent premium to Merck's Crixivan (indinavir) in the United States. GlaxoSmithKline's Lexiva (fosamprenavir) achieved a 20 percent premium in the United States. 

 European Shortfalls,  US: Premium Market			

Another first-in-class entry, Wyeth's InductOs (dibotermin alfa), secured a higher European price point in its therapy area (acute tibial fractures), as did Lilly's Forteo (teriparatide) in osteoporosis and Abbott Labs' Humira (adalimumab) in rheumatoid arthritis, where it launched at a premium to Wyeth's Enbrel (etanercept) in most markets. 

In the United States, Genentech/Tanox's Xolair (omalizumab) established a new biological price benchmark in moderate to severe persistent asthma. But the new oncolytics didn't do as well. Glaxo-SmithKline/Corixa's Bexxar (tositumomab) and AstraZeneca's Iressa (gefitinib) were priced below Roche/Genentech's Mabthera/Rituxan (rituximab) and Aventis' Taxotere (docetaxel), respectively. 

 Although innovative products may consistently achieve premium prices, pricing and reimbursement hurdles hinder market access in both Europe and the United States. Most of the 2003 drug launches in Europe have yet to be granted reimbursement status in the major price-regulated markets of France, Italy, and Spain. And the speed of market access is not improving significantly. "[European Union] products launched in 2003 showed patchy performance in terms of roll-out, but generally accessed European markets slightly faster than the average of the past five years," Baynes notes. "Both Lilly's Cialis [tadalafil] and Bayer/GSK's Levitra [vardenafil] achieved rapid launches, though without reimbursement. The only community product to launch rapidly with reimbursement was Roche's Fuzeon." 

 The current pressure on the industry to create value from thin pipelines means that global or European price harmonization is no longer a strategic objective (if it ever was). Just two products launched in 2003-Fuzeon and Forteo-achieved similar price levels in the United States and Europe. For the rest, the lower price of existing benchmark products in Europe meant a significantly reduced price. (See "The Price Gap," page 70.) AstraZeneca's Crestor (rosuvastatin), Lilly's Cialis, Pfizer's Bextra (valdecoxib), and Merck's Emend (aprepitant), for example, have average European prices that are more than 60 percent below their US prices. 

Despite the public and political rhetoric calling for similar price levels in the United States and Europe, there is little progress on the ground because pricing in Europe is still constrained by price-sensitive payers, prescribers, and health systems. Companies are prepared, more than ever before, to take a high price where they can and deal with the ramifications of wide price differentials as a separate issue. Baynes advises, "Senior management should continue to develop and communicate clear corporate policies regarding differential pricing and be prepared to manage the inevitable political debates that will arise." 

Although price disparity continued, parallel trade growth in the major import markets of Germany and the United Kingdom slowed in 2003. After two consecutive years of 66 percent annual growth, parallel imports in Germany grew just 4 percent in 2003. In the United Kingdom, Europe's largest parallel import market-with 2002 sales of 2 billion euros ($2.4 billion)-growth was 1 percent, compared with an average of 30 percent growth during recent years. (See "Imports Ease Up.") UK parallel trade had been concentrated in a handful of market-leading brands. It is becoming less concentrated. Twelve products accounted for 50 percent of parallel imports in 2002, while 15 drug accounted for half the market in 2003. 

All of which indicates a shift in parallel trade dynamics not entirely explained by price changes and patent expirations. Prices were constant in the United Kingdom and Germany during the period, and although the exchange rate meant that prices in pounds fell relative to the whole Eurozone, some products and companies continued to experience growth in parallel trade. Cambridge parallel trade specialist, Janice Haigh, explains: "For the first time, we have evidence that it is possible to make a difference to parallel trade. Companies with effective supply management strategies are limiting, or even reducing, parallel trade in their products. Companies that do not implement such strategies face a significant increase in parallel trade, as traders look to fill the gaps." 

After many years in which the industry's legal actions backfired in favor of parallel traders, the tide finally may have turned. "The European Court of Justice's final ruling upholding Bayer's supply management system for Adalat [nifedipine] in France and Spain provides further evidence of this sea change," adds Haigh. 

Just as parallel trade showed signs of waning in the European Union's 15 existing member states, the door opened to parallel trade from the 10 new member countries. From the date of accession, May 1, 2004, companies have been able to engage in parallel trade between all 25 EU members-subject to exemptions covering branded generics and copies whose intellectual property status differs between new and existing member states.  

Yet responsible pricing appears to have minimized the threat of parallel trade, at least in the short term. "The pharmaceutical industry's current strategy seems to be to maintain price, possibly at the expense of reimbursement and volume sales in the accession markets," says Haigh. In any case, contrary to perceived wisdom, there is relatively little difference between drug prices in new and existing member states. "The lowest price at which parallel imports can be sourced from the accession markets is rarely significantly below the current EU floor price," she adds. (See "New Members, Same Prices.") 

Yet even though narrow price differences and modest volumes mean that parallel trade will be limited in the short run, east-west parallel trade will increase in the medium term. "Over the next five years, we are likely to see growing volumes and declining prices, which could open the gates to parallel trade," says Haigh. "Like elsewhere in the EU, wholesaler margins are under pressure in the accession markets, and participating in parallel trade is seen as an opportunity by many wholesalers." 

Public finance for healthcare is likely to remain a limiting factor in paying for more expensive treatments in the new member states. As a result, healthcare authorities will have to develop ways of providing access to pharmaceutical products, while remaining within their budgets. Governments in the accession markets are already developing mechanisms to control expenditures and are learning from cost-containment measures elsewhere in Europe. Poland, for example, has adopted Germany's therapeutic referencing and substitution rules and is using volume restrictions similar to those in France. 

France and Germany are in the vanguard of current European cost-containment initiatives. After years of spiraling expenditures, Germany, in particular, has taken a sharpened ax to pharmaceutical spending. "The authorities are looking for 2004 savings of 1.5 billion euros [$1.8 billion], rising to 3 billion euros [$3.6 billion] in 2007-by re-introducing reference pricing for patented drugs that lack a significant clinical advantage," says Cambridge European pricing specialist Chris Sutton. "The need to meet these savings goals strongly incentivizes the authorities to add new, high-cost groups with arguably little differentiation between products to the reference price system." Classes affected could include such mainstays as ACE inhibitors, selective serotonin reuptake inhibitors (SSRIs), inhaled corticosteroids, and atypical antipsychotics. 			

"Previous experience in Germany suggests that patients are highly motivated to avoid co-payments, and companies will therefore need to reduce the price of clustered products to the reference level to prevent rapid erosion of market share," Sutton adds. The combined effect of companies lowering their prices along with periodic downward revisions of reference prices will lead to a prolonged period of downward price movement. Sutton thinks the best way around the problem is to avoid clustering and maintain price freedom through product differentiation. 

"Differentiating new products early in the R&D process will become even more important to avoid reference pricing," he says. "For products already in Phase III, special positioning skills will be needed to reduce the potential for clustering."" 

The United States is also embarking on an unprecedented round of cost-containment initiatives in preparation for the Medicare prescription drug benefit, which will begin in 2006. "Health plans will be motivated as never before to shift usage to generics and offer limited access to expensive brands," predicts Pamela Santoni, vice-president in Cambridge's US division. As pharmacy benefit managers (PBMs) participate in Medicare Pre-scription Drug Plans (PDPs), they will shift their business from a rebate-driven revenue model-which drives drug use toward preferred brands-to a risk-based cost-control model that drives usage to the cheapest products.  							

In addition, PDPs will attempt to extract greater rebates from pharma companies because the additional Medicare population with prescription coverage will add to the volume of drug consumption. Santoni says, "The impact on drug usage among seniors will be determined by two factors: the latitude over utilization control that the government grants to plans and the extent to which the government squeezes plans with reduced capitated payments and increased risk." 

With health plans managing their drug benefits more tightly, "pharmaceutical companies must focus earlier and more creatively on pricing, positioning, and access issues," says Santoni. For example, companies can show that their drug is superior to competitors by engaging in head-to-head trials that should raise ethical questions about access restrictions to the better product. 

Likewise, companies can create compelling stories for employers and patients by redefining product value. This can be achieved by focusing on health outcome messages, coupled perhaps with performance guarantees. "It is no longer the case that broader indications are better for driving product volume," Santoni comments. "Since step therapies and prior authorizations will increasingly become the norm as a means of driving product usage to less-expensive therapies, companies might consider more-restrictive labels as a means of gaining unfettered access to narrower populations and potentially avoiding pricing pressures. And by defining new therapeutic classes, companies can gain mandatory access because PDPs must offer more than one drug per class." 

Until the enactment of the drug benefit-and quite possibly beyond-price-conscious US consumers are expected to continue filling their prescriptions at Canadian internet pharmacies. IMS Health estimates that US importation of prescription drugs from Canada was about $1.1 billion in 2003, an increase of 134 percent from 2002.  			

Despite the numbers, imports remain a small component of total US sales (0.5 percent), but the issue commands a high political focus because it graphically highlights the price differences north and south of the border. "Regulators will have to act soon," says Paul Saatsoglou, Practice Leader, Global Resource/Portfolio Optimization, IMS Consulting. "The choice is between legalizing imports to some extent or an unequivocal statement that imports are not legal and that action will be taken against those involved." 

"Cross-border purchasing could explode if-as seems increasingly possible-a law is passed making the practice legal," he adds. The risks to revenues on high-volume, cross-border brands could be calamitous. For the time being, though, growth appears to be slowing. Internet pharmacy sales were down in the fourth quarter of 2003, compared with the third quarter-most likely as a result of manufacturers' interventions to limit internet pharmacies' access to their products. 

"Companies will continue to manage the supply chain to limit the success of large internet pharmacies by using tactics similar to the supply management systems used in Europe," Saatsoglou concludes. 

In 2003, Big Pharma produced only a dozen new drugs. At the same time, it came under new pressure to create value from those thin pipelines. In that "hot squeeze" of a climate, pharma companies needed price premiums for every product in every market. They were more successful in some countries than in others. Other pricing trends also took their toll.

Pricing Climate Heats Up in US and Europe

ecurity at work is tight. No one waltzes through the lobby without ID. Passwords and entry codes are required within. Firewalls ring the computer network. Transmissions are routinely encrypted. The grounds are guarded, the perimeter fenced. Surveillance cameras abound. The company's prized knowledge assets are beyond the reach of renegades and rivals, right? 

Wrong. A simple phone call to an unsuspecting employee can yield information that a professional intelligence operative can join with other seemingly innocuous fragments to figure out your company's next move. 

Don't doubt that competitors are trying to ferret out your plans. Over the last decade, nearly every top-tier pharma has created a competitive intelligence (CI) function to legally and ethically acquire strategically significant external market information. In fact, according to John McGonagle, managing partner of CI experts The Helicon Group, "CI is probably more widespread in pharma than in other industries." 

So, what have pharma companies done to protect themselves from snoops? Practically nothing. "Fewer than five firms even think about throwing roadblocks in front of their competitors," says Neil Mahoney, president and principal of pharma CI specialists Global Business Management Concepts. For pharma companies to gain an edge, gathering intelligence is not enough. They must play defense too. As William DeGenaro, co-founder of The Centre for Operational Business Intelligence, likes to say, "You don't have to make it easy, you don't have to make it fast, and you certainly don't have to make it cheap for the other guy to find out what you're doing." 

This article outlines what pharma companies can do to better shield their secrets from competitors. 

What does insufficient defensive or counterintelligence cost pharma? "Nobody really knows," says John Verna, executive managing director and principal at Citigate Global Intelligence & Security. But the American Society for Industrial Security reported that during a 12-month period in 2000-2001, US companies suffered losses of proprietary information and intellectual property worth between $53 billion and $59 billion. Some of it was pilfered. But much was published on corporate websites, overheard in an exhibit hall or hotel bar, or glimpsed over someone's shoulder on a laptop. Some simply walked out the door. 			

How do these modest lapses add up to billions of dollars lost? Say company A learns the timing and content of competitor B's new product launch by talking to physicians and monitoring its clinical programs. Company A runs Phase IV trials on its own product. When Company B's competitive product hits the market, Company A is ready to undercut its competitor's claims with a countermessage. According to Mahoney, "This hurts you by diminishing your initial foothold and lowering your acceleration curve. It's not just an initial six-month sales hit, it's a 10-year hit." And that can amount to many millions of dollars in lost revenue. 

How often does this kind of thing happen? More than you might suspect. Verna's firm once had a pharma client that was convinced its competitors "ignored it most of the time." So Citigate, a business intelligence, business controls, and security consultancy, launched an investigation. It turned out that three of five competitors "didn't have much in the way of research capability-odd, considering the industry," Verna says. But they did have extremely active CI functions, including personnel "who did nothing but track our client: its marketing, public relations, manufacturing, customer buying trends, pricing-the whole nine yards-but especially research and science." As for the competitors' research capabilities, Verna says they "had a tiny 'R' and a nice big 'D' because CI gave them a good sense of the most fruitful avenues for product development." What was the client's response? "Those people spend a quarter to half a million dollars just on staff resources alone just to keep an eye on us? We ought to do more to protect what we have."  

CI professionals characterize corporate security as "gates, guards, guns, and dogs." They grant them full credit, McGonagle says, for "stopping the guys with the black hats, the burglars, hackers, and folks who want to firebomb your research center because you do animal testing." But corporate and computer security-and the legal department, which uses civil law to protect intellectual property-will not prevent valuable information from leaking out. 			

For one thing, according to Mark Robinson, president of CI consultants Competitive Strategies, security people "aren't trained in information protection." What's more, security officers know little or nothing about their companies' strategy, says Douglas Bernhardt, veteran CI professional and managing director of Geneva-based iMentor Management Consulting, so "they don't know what they're supposed to be protecting apart from the furniture."

But the real problem, according to Bernhardt, is that "the area of greatest vulnerability, the real danger" lies elsewhere. As CI consultant Leonard Fuld says, "More damage is done by a company being lax about how it handles information than by thieves." The reason? "The most value-added information one collects is from human sources," Bernhardt notes. 

Although corporations are occasional targets of both economic and industrial espionage, their Achilles' heel is inadvertent disclosure. 			

To be clear, CI, if practiced in accord with the code of ethics of the Society of Competitive Intelligence Professionals (SCIP), is principled and legal. It is surprising, though, what the law allows. For instance, it is not a crime to misrepresent yourself, says attorney R. Mark Halligan of Welsh & Katz. Use of a pretext-"I'm a...student, pollster, headhunter, market researcher, potential investor, journalist, customer, member of a user group"-violates no law. It is, however, a crime to falsely declare yourself to be someone in particular. 

Here's an example of how CI works. Bernhardt ran a business out of Geneva that had some Big Pharma clients: "We had people collect information from human sources all day. We planned every project carefully, identified who the targets were, what we wanted from them. We had a methodology and people who were very good. So any target that talked to us was a sitting duck. We never lied. We never misrepresented ourselves. We never used false names. And we always told them who we were. But people like to talk about what they do, scientists and doctors in particular. It has nothing to do with their capability, intellect, or anything else. All the information we collected was from loyal employees who had no idea what they were giving us." 

How do CI professionals get "85 percent of Americans to cooperate and reveal information valuable to your firm," as CI guru John Nolan claims? They use elicitation techniques to subtly guide the conversation. Nolan's catalog of methods, by no means complete, includes: "provocative statements, disbelief, feigned naivete, criticism, encouraging snivelers and whiners to cry on our shoulders." He also makes the most of "the desire for recognition, tendencies toward one-upmanship, and natural tendencies to correct others when somebody makes a mistake." 

Almost anyone can be a target. Robinson says, "Secretaries and new hires tend to be easy marks [because] the lower you are on the corporate totem pole, the more likely you are to talk to someone over the phone." Bernhardt says his firm "seldom targeted sales or marketing people because they're always suspicious. We'd go after scientists. Even people in finance. Bean counters. They know practically everything that's going on and hardly anyone ever talks to them." 

McGonagle says, "The higher people are in the organization, the less they pay attention to being targeted." He attended a meeting of SCIP during which the chairman of Procter & Gamble talked about his company's reorganization then revealed unpublicized details about the shuffling of its CI unit. Everyone's jaw dropped, including the head of the man's CI unit sitting behind him. An acquaintance of McGonagle's leaned over and whispered, "John, does he know where he is?" McGonagle guesses that the chairman didn't understand that information common to him was sensitive to others. 

McGonagle, on the other hand, says pharma's "leaky channels are not R&D scientists and marketing managers but the people they deal with: third-party sales organizations that go out to doctors, HMOs, hospitals." Even confidentiality agreements, he says, "cannot stop people in contract research organizations from talking to each other." Friends, associates, and colleagues will sit around, he says, "at a meeting or bar and complain about what a pain in the neck Company A's clinical trials are compared to Company B's." 			

McGonagle says some pharma CI units are ruled by "codes of conduct that say if someone under an obligation of confidentiality starts revealing something clearly confidential, excuse yourself and leave the room." But information travels. "It goes to doctors and groups of people who have conditions potentially affected by the drug," he says. It gets posted on patient support group websites for all to see. McGonagle contends that companies with policies prohibiting the acquisition of intelligence from sources bound by confidentiality agreements "wind up harvesting the information anyway because it goes through so many hands that its confidentiality is destroyed." 

Why do people talk? McGonagle says, "They don't think. They get flattered. And they want to help. They want to get the product through or approved or working right. They want to help the doctors, the hospital, their careers." 

People are also often unaware of who they're talking to. McGonagle says, "People exchange information in environments where they're comfortable. Context makes people feel safe. Context makes them careless." For instance, people remote from the action may feel freer to talk. Bernhardt's staff would frequently call a far-flung office, say in Malaysia, to find out what was happening in Paris or New York. 

CI isn't a matter of stealing secrets intact so much as projecting from limited facts. "If you had just one piece of a jigsaw puzzle," Bernhardt explains, "it would mean nothing to you, even if it was a picture of your wife or your dog." But that's what CI people do, he says: "They put puzzles together and they solve mysteries." 

Pharma's "quandary," McGonagle says, is that "it's gone from not having to explain anything to actively talking to people-doctors, HMOs, interest groups-because they want to be cast in a good light." Mahoney agrees: "They want to excite the investment community by talking about their pipelines. They want to excite physicians about technologies working their way to market." But, he asks, "How do you not reveal too much too soon so that it can be used to your disadvantage?"  			

The first step is determining what needs to be safeguarded. Bernhardt believes it is important "to assess what it is you really need to protect. You can't protect everything, and you can't protect anything forever." 

In general, the list will consist of confidential indicators of strategic intent, particularly time-sensitive plans. These may include customer lists, marketing plans, research results, intellectual property (patents, trademarks, copyrights, trade secrets), bidding strategies, M&A plans, profit margins, sales plans, recruiting strategies, new product introduction timetables, cost of sales, travel itineraries, negotiating strategies, labor costs, and software code.  

But each company must compile its own roster. "You have to adopt what I call the crown jewel defense," Verna says. "Determine what's truly important to shareholders, to the company's reputation, what you don't want the outside world to know about: formulas, research directions, plans to build a new plant, a forthcoming public relations campaign." The process must be repeated periodically. "It's a dynamic situation," Verna says. "In six months, your PR campaign will be rolling out. You won't need to protect it anymore. You can redeploy assets to something more important."  

Who decides what's important? Mahoney believes it shouldn't be one person: "Get the right group together-patent lawyers, senior marketing people, security, and others-to think about how to balance" various interests. Verna agrees: "You can't delegate it to an internal audit director or director of security. Those are control functions. This has to come from the top because it goes to the heart of the business. The CEO, COO, director of research, VP of marketing, VP of finance-that level. They need to understand business controls and counterintelligence and have a process in place, a very simple process where they get together and discuss business strategy-and a component of business strategy is identifying the crown jewels." 

The next move is implementing what Michael Mineri, an attorney with Kroll Schiff & Associates, calls "the fundamental rule": Access to information should be strictly governed by the need to know. In practice, this means compartmentalization, parceling out different data, tasks, even project names to different teams. That way no single group knows enough to give it all away, wittingly or not. It also allows leaks to be traced to their source. 

The final step is developing appropriate tactics or countermeasures. Top of the list is awareness training, making every employee conscious of what is sensitive so they can avoid revealing it. Further down is putting mechanisms in place to make it easier for them to do this: a screening center to shunt suspicious callers aside, a policy of asking vendors to sign confidentiality agreements, having brand managers "baby-sit" scientists at conferences so that they don't give away the store, scrubbing the company website so that job postings and press releases say no more than they must, having employees sign nondisclosure agreements, conducting exit interviews when workers leave, ensuring that publication and PR strategies complement counterintelligence requirements, and training employees (especially conference and trade show attendees) in the use of counterelicitation techniques. 			

Though Robinson calls for a full-blown information protection or cloaking program, the process itself is incremental. Seemingly small matters can amount to much. For example, Robinson says when he finds executive photos and bios on the web, it cuts his research time in half. The more he knows about a person-where they went to school, the associations they belong to-the better he can work them for information. 

Given its importance, what are the prospects for counterintelligence in pharma? Bernhardt believes that the industry already understands competitive intelligence has a role. But counterintelligence is another story: "I'm not entirely certain that senior management understands the threats they're up against and what should be done to counter them." 

Mahoney says defensive intelligence needn't be costly: "It's just changing priorities and making people pay attention." If you already have an offensive competitive intelligence function, he says, "you already have the skill sets and knowledge" to defend yourself.  

Big pharma companies aggressively gather sensitive intelligence about their competitors, but few, strangely, make a systematic effort to protect their own.

Pharmaceutical Executive-07-01-2004

One World, One Voice

Pricing Climate Heats Up in US and Europe

Stop Giving Away Your Secrets

July 2004 Table of Contents