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Last October, French authorities sent a long awaited message of support to the healthcare industry. As decision makers from manufacturers, researchers, multinationals and local companies gathered for the 4th Strategic Council for Healthcare Industries (

), French president Nicolas Sarkozy, who chaired the event for the first time, declared that the health industry was of premier strategic importance to France.

"Pasteur," by Albert Edelfelt  Courtesy of Institut Pasteur in Paris			

The French pharmaceutical industry received Sarkozy's pronouncement as an extremely positive sign. Indeed, like most of the nation's industrial sectors, pharma reels from the country's trademark government interventionism. According to Hervé Gisserot, president of GSK France, "This was the first time any French president has said this about our industry."

Philippe Lamoureux, Director General of LEEM			

Sarkozy's symbolic keynote speech at the CSIS underscores the government's new understanding that there is more to pharmaceuticals than cost-containment. "We now live in a country where health industries are no longer regarded as a problem but as a solution to the end of the economic crisis," enthuses Philippe Lamoureux, general director of LEEM, an organization representing 98% of pharmaceutical industries in France.  

Breakthrough measures include the creation of Innobio, a €130 million ($161 million USD) biotechnology fund utilizing a combination of funds from France's sovereign wealth fund (

) and multinational laboratories including Sanofi-Aventis, GSK, Pfizer, Roche, Ipsen, Lilly, Novartis, Boehringer Ingelheim and Takeda. 

Pharmaceutical production of the first European producer countries (in millions of Euros)			

Other highly anticipated, and long-awaited, changes include dual pricing for exportation, the possibility to start manufacturing generics before patent expiration, increasing public-private research cooperation, and announcing the national life and health science alliance AVIESAN's new role as the unique interlocutor for private companies willing to cooperate with public research institutions.  

Pharmaceuticals contribute significantly to the French economy. In 2008, pharmaceutical revenues reached €47 billion ($58 billion USD), 45% of which are from exports generating a €7 billion ($8.7 billion USD) trade surplus. The industry is responsible for over 100 000 direct and 310 000 indirect jobs. Until recently, it was creating 2500 jobs per year.  

As Europe's largest producer, and manufacturing powerhouse with over 210 production sites, France has long attracted investment in pharma. Market size, stability, and an exceptionally educated and productive workforce far outweigh concerns about high taxation, and price control that limit profitability (6.7% average in France compared to 15% in the US).

Between 1990 and 2008, retail prices of reimbursable drugs decreased by 18.4%			

France is also a significant market for the international pharmaceutical industry.  In 2008, France surpassed Germany to become the world's 3rd largest pharmaceutical market, despite having a headcount that is 20 million less than its neighbour. These numbers reveal, not wayward over-medication, but attest rather to the country's robust social healthcare system and strong tradition in the medical and innovation field. Indeed, French social health insurance (

), established in 1945, currently finances up to 67.6% of all drug expenses, and universal health coverage was introduced in 2000. 

In an industry boasting such performances, why were there so many worries and expectations?  

Firstly, 2008 marked the end of a decade of strong and steady growth in the domestic market, due to a cocktail of patent-ending and cost-containment measures to minimize healthcare's chronic deficit, which hit €27 billion ($33 billion USD) in 2009. That's just for employees in the private sector.  

Further, there are also fears that France may have lost its attractiveness as a production hub. The sector is indeed facing rough times ahead. Expiring patents will force factories, designed in the 80s-90s era of the "blockbusters" model, to shut, while the country hasn't developed sufficient bioproduction platforms to be able to replace them.  

Lastly, in the country that saw Louis Pasteur discover immunology and Marie Curie medical applications with radioactivity, there are fears that the French public research infrastructure is no longer at the center of growth.

 "France has kept up with the world market albeit with some notable differences, namely in terms of our social security and healthcare systems", explains Jean Pierre Cassan, honorary chairman of the LEEM: "French people have always received good healthcare: you can see your doctor when you want, we have access to the drugs we need, and our generous system caters for all, even the very poor." 

 have guaranteed growth and stability in the healthcare industry, France, like many mature markets, is currently confronted with chronic deficits due to longer life expectancy, demographic imbalance, and rising treatment costs. With blockbusters' patents expiring and poor pipeline issues, newly introduced cost containment efforts are changing the market: stricter price controls, promotion of the use of generics and OTC products promotion.

Breakdown of turnover in France in 2007 + Export			

As a result, French market segments are reacting unequally. While generics, OTC and hospital markets are still growing very fast (between 12% and 15%), the market for prescription drugs sold in pharmacies shrank in 2009 by 0.8% and the overall market slowdown should continue until 2012, directly impacted by a €400 million ($480 million) saving plan mainly targeting reimbursable prescription drugs. A direct consequence is the mutation of marketing organizations with drastic cuts in the number of medical visitors, and a market reorganization along the lines of high tech expensive drugs and "low cost" products.

VÃ©ronique Robours-Mory, General Director of Nordic Pharma France & Belgium			

In a context of regulated prices and cost containment, pricing is obviously significant. Finding the right balance between the system's sustainability and fair prices rewarding innovation is critical. 

French authorities tried to put a pricing system that would focus on innovation and reward real improvement compared to past treatments. AFSSAPS, France's pharmaceutical equivalent to the USFDA, looks to provide a completely transparent view of their operations, which, according to its director Jean Marimbert, is "a necessary action if we want the outside world to trust [us]."  

"It's simple to explain as the market place doesn't work for drugs for quite serious reasons. Primarily, the end-user does not have to pay in our market, so logically when you do not have to pay price does not have an influence. Somebody must interfere in a situation like this which is where CEPS comes in," explains Noel Renaudin, president of the CEPS (health products' economic committee) the organization in charge of setting the prices.  

Renaudin explains: "We reward innovation by pricing through assessment that has been centralized under the High Authority for Health (HAS). When a drug looks to come to market, the company who produces it asks for an evaluation from the commission. There are three criteria in this discovery process, the first of which is satisfaction of medical demand in the market. Secondly, the improvement of medical benefit which we obtain by comparing the new drug against already available options. The grades for this level range from I-V where I means significant step forward for medicine and V indicates no improvement. Lastly, the distinguishing characteristics and size of the target population are examined." 

"Thus for innovations that are considered to be important enough we accept to pay what we refer to as the 'European price' so that the developer is appropriately rewarded. The discussion in this scenario is not necessarily about the price as it lies within the European standard but rather the volumes and conditions. If the new drug does not offer anything interesting in comparison to those already on the market, then we should have to pay less." 

Renaudin believes: "The best approach is to reward innovation through merit rather than allowing money to go indifferently to whatever drug comes to market." The system not only looks great on paper; it actually works and Renaudin has been praised by the industry for his innovative approach.  

Véronique Rebours-Mory, general director of Nordic Pharma France and Belgium, points out the environment's challenges, which go beyond getting a fair price for your drugs but also include a negotiation on volumes and target population. "The competition in this market is becoming increasingly difficult each day and the authorities put a lot of pressure on the sector...for each product there is a strict price negotiation which is long and difficult. If we sell more than planned we have to give some money back.... Having said that, it's undeniable that the French market is still very attractive and the continuous growth of Nordic Pharma France proves that." 

According to Rebours-Mory, France is now leading the group in terms of revenues and has become Nordic Pharma's most dynamic subsidiary. Since 2003 Nordic Pharma has launched more than 10 products in oncology, gynecology and rheumatology on the French market, "but not every new player is as successful as us", she notices. 

Nordic Pharma started with its main focus on the hospital market and its biggest business is with gynecology. But in 2007 it successfully launched Metroject, tapping into the rheumatology market, which was new to the company. "Getting the reimbursement of Metroject was a challenge," Rebours-Mory remembers. "But we were quite happy to get reimbursement at a reasonable price, because we are bringing an important novelty to patients". 

Despite its core focus on innovation, the system's major drawback might be timing. "The process takes six to seven months which can be perceived as a long time to market. As a result, the first patient may not have it as quickly as in the UK or the US," acknowledges Renaudin. "We don't want drugs to come to market quicker. In France, for the most innovative drugs there is a Temporary Authorised Use (ATU) system which allows for the use of these drugs in hospitals even before registration and is free to the developer of the drug. Thus, all the new drugs and technology are available in hospitals. On the other hand, we are of the opinion that it is worth the assessment time before outpatient use. This allows for an examination into whether it deserves an innovative price or not," he explains. 

For Olivier Daubry, general manager of Celgene France, the ATU is one of the best examples worldwide of early access to innovation, allowing patients to quickly receive innovative drugs for life-threatening diseases with high unmet medical needs. This was the case of Revlimid, which obtained a market authorization in France in June 2007 as a treatment for patients with multiple myeloma after prior therapy. It is now a leading therapy for this indication in France, and the #1 brand worldwide. 

Hence the French system seems to fit perfectly with Celgene's overall strategy. "What we try to do at Celgene is to deliver absolute breakthrough innovative medicines. If we understand a project does not bring a significant clinical benefit that dramatically changes people's lives, we drop it," he says.  

Celgene also benefitted from a system with Thalidomide, which for several years was available through the ATU process to patients in first line myeloma for elderly patients but also other rare diseases where patients are desperate to have an effective treatment. Thalidomide was eventually officially accessible to outpatients in October 2009, but within a very strict safety framework. 

"For life-threatening diseases with high unmet medical needs and where patients have used all registered drugs the ATU system allows innovative drugs to be administered in a very controlled process before registration. It is a positive example for early access to innovation," says Daubry. 

"France has a very good system in terms of access to market compared to many other countries so fundamentally, the system of assessing innovation is good. If we take an example in oncology, a study done by a Swedish team last year shows France at the head of Europe in terms of speed to market," concurs Hervé Gisserot, head of GlaxoSmithKline France. With investments reaching €850 million ($1.2 billion) in the past three years, GSK is the largest foreign investor in the sector. 

 "Instead of complaining, the health community has to work together to clearly define what we consider to be innovation. For instance, when it comes to clinical trials we should work not only with clinicians but with regulators and payers, in order to ensure that the design of our clinical trials and the profile of our drugs meet the answers to their questions. In the past getting an approval for your drug was sufficient because access to market was relatively easy so the entire process was focused at getting approval. Now, at the very least, you have to focus on getting access which is why within GSK we have taken to specifically developing a reimbursement file for a drug to make sure it meets these further requirements. In our industry, getting approval without access is basically like getting nothing at all", Gisserot concludes. 

Articles

In France, it took a president's keynote speech to underscore the government's new understanding that there is more to pharmaceuticals than cost-containment

Country Reports : France: The French Pharma Revolution

How do you explain that France has accumulated such a delay in developing its biotech sector?

We will see within five or ten years if we were really late. People should always beware of trends and fashions. I think that when you turn 70 years old you have seen so many things – and heard even more – that you tend to be more skeptical about those new trends! You've seen them live and die, people making mistakes, genetic therapies becoming the industry next big things with billions invested that actually led nowhere.  

 Focus Reports Team with Jean-FranÃ§ois Dehecq			

Which will be the most complex countries to deal with in the future? 

Obviously the most populated ones, such as China, Nigeria, South Africa or Iraq. But the model we developed for the past 20 years, where we would sell our products and states had little or nothing to say, is coming to an end. It's our responsibility to admit it and change our ways, not prolong this model.  

If you look into biotech, the only real success at this stage is with anti cancer treatments. But the pricing of these new treatments are simply outrageously high, and we cannot continue in that direction.  

In an increasingly individualistic world, those who can pay will pay, regardless to what happen to others!

I believe this is a short term vision, as there is a risk of social unrest whenever only a few people actually benefit from development.  

In our western society, the problem is that for the past 10 to 15 years only a handful of individual are getting richer, while at the same time a large amount of the population is simply stagnating. The only progress is the capacity to access credit and get more debt. I am not sure it can be called real progress! 

If extremely rich people want to have access to these treatments so be it, but I think that very soon, social protection programs won't reimburse them. 

Social security will have to tell the industry to divide their product prices four or five fold in order to obtain accreditation. 

But then the industry will say they cannot conduct R&D in those conditions.

Pharmaceutical giants have long fought against the generics, but are now integrating generic companies. What's your take on this?

Eight years ago when I was saying that mass market at low cost is the future of our industry, when I fought to keep our production units in Bangladesh, Pakistan and India, people were smiling. Today we all know that low cost products for mass markets are a large part of the industry's future. Moreover, it will largely be imposed on us by southern countries! 

So there is a good chance that tomorrow's giants are Harbin Pharmaceutical or Beijing Pharmaceutical?

There is a good chance that besides low cost mass consumption products they will also do high technology treatments, which is why we need to think in terms of partnerships and cooperation. I feel the time when we could go south impose our products at prices often higher than in our own markets is over.   

What have been the good decisions taken in the past years?

Definitely those who have chosen to go South, but of course everyone is doing so now. Another set of good decision is the questioning of our research practices, because nobody knows anymore how to manage our huge structures, and we all admit that all we believed in did not turn out quite as performing as we hoped.  

The one thing we have not yet decided, but that we will have to decide, is to earn less money! 

If you were a young man again, would you invest today in the pharmaceutical industry?

National Institute of Statistics and Economic Studies

) list of economic sectors and I identified those that could be long term and generate employment. Very quickly, I identified health, beauty and nutrition.  

I would probably do the same, get involved in this industry, but I would fight much harder than I did about my initial concept: that heath is not only a matter of drugs.  I think that the link between the food industry and the pharmaceutical industry will reappear in the future. 

Focus Reports discusses kep questions regarding France's pharma industry

Q&A with Focus Reports team

Drug safety has emerged as a make-or-break issue for pharma over the past decade. In the wake of media fire storms and congressional investigations into withholding of safety data and deaths and disability linked to the marketing of Wyeth's Fen-phen and Merck's Vioxx, public trust in not only the drug industry but FDA hit bottom—and has remained there. In 2007, Congress took action, instituting a new program at FDA called Risk Evaluation and Mitigation Strategies (REMS) to, as the agency's Web site says, "ensure that the benefit of a drug or biological product outweigh its risks." 

The primary objective of the REMS program is to reduce the danger drugs pose to patients by leveraging the existing communication and marketing capabilities of the pharmaceutical industry in one or more of the following ways: providing adequate information to patients, healthcare providers, and others; confirming that stakeholders are fully aware of the drug's risks; improving the appropriateness of drug use ("the right drug to the right patient"); and monitoring and measuring drug-safety outcomes.  

FDA has created four REMS categories according to the degree and kind of risk a drug is perceived to pose. The minimal requirement is a medication guide (and package insert) to alert patients to the drug's serious adverse events, such as increased risk of suicidal thoughts or behavior. In addition, a communication plan—generally a letter—for healthcare providers to reinforce the warning may be mandated. In some cases, patients may be asked to sign a form confirming that they understand the risks; companies may also be asked to conduct follow-up surveys with patients. 

But often FDA has more serious concerns about a product's toxicity. Drugs deemed approvable only if specific risk-mitigation strategies are assured require an ETASU (Elements to Assure Safe Use) and an implementation plan. An ETASU can require the training and certification of the doctor (and sometimes the pharmacist, while drug's distribution sites may be registered; regular audits of both prescribers and distributors can be mandated. At its strictest level, REMS require screening and registry of patients along with regular monitoring of patient records to create an ongoing database to pick up further safety issues. The patient trades confidentiality of his or her record for access to drug, as in the case of Acutane to prevent its use by women who are pregnant. 

To determine if a REMS is needed, FDA looks for safety signals in clinical data, with risks to heart or liver health high on its list of concerns. The potential for abuse, as in the case of a controlled substance, is a certain trigger, as is the need to minimize off-label usage. A new compound in a class that already falls into any of these categories is likely to require REMS. To make a final determination on a REMS requirement, the agency will consider, during its drug review process, the amount of information known about the product or drug class in relation to the size of the target population, treatment length, number of reported adverse events, and severity of the indication to be treated. REMS may also be requested of drugs that are already on the market due to reports of adverse events via post-marketing surveillance or due to safety concerns arising from new data from phase 4 studies or literature reviews. 

Since the inception of the REMS program in March 2008, a total of 125 drug products have had risk-reduction strategies developed to enhance their safety. In its first 12 months there were 40 REMS; by March 2010 that number had tripled (see figure 1). Yet the proportion of REMS that have required only the minimal category of medication guide has remained constant at 60 percent. A breakdown of the remaining 40 percent that consist of the more complex categories—communication plans, ETASUs, and implementation plans—shows a similar consistency. Still, it is safe to assume that the number of REMS will continue to rise, depending on the rate at which new drugs are approved. 

Certain therapeutic areas are red-flagged for REMS. A new drug developed to treat any of the following eight diseases has a high probability—between 5.5 and 8 percent—of requiring REMS as a condition of approval: diabetes; asthma/allergy/COPD; antibiotics for infections; epilepsy; depression; HIV; arthritis; and opioids for pain (see figure 2). Yet no drug or disease is automatically exempt, and the 125 products with approved REMS span the entire spectrum of medical conditions. Complex REMS programs involving ETASUs and implementation plans are typically sparked by risks related to tetrogenicity, cardiac problems, hematological risks, liver dysfunction, and new or worsened malignancies. 

It's common for drugmakers to rue REMS because they add extra work and cost. In addition, certain REMS can circumscribe a drug's potential market by specifying an appropriate patient profile, with the result that the large-scale prescribing that can turn an arthritis painkiller like Vioxx into a megablockbuster will be far less common.  

Yet REMS can also play a beneficial role in the marketing of a new drug. In that sense, REMS are not just a regulatory requirement. They can also be a strategic driver of change for the commercialization of a drug. While much grumbling has already been heard about the challenges in developing and managing REMS programs, it's worth noting how REMS can not only maximize brand value but help meet the drug development needs of the future. Gradually, the industry is recognizing that in the long run the REMS system can burnish its own value in terms of public trust. 

Physicians, however, are not looking forward to the additional load of paperwork that REMS will entail. Pharma will have to labor to educate doctors about not only the implementation but the potential upside of REMS. The best possible risk-mitigation strategy for a pharma to develop will be one that is the least onerous for physicians, so involving doctors early in the process pays dividends. If successfully executed by the drugmaker and the physician, REMS are likely to ultimately reduce legal liabilities—less harm to patients means fewer lawsuits. 

The most aggravating irritation posed by REMS is predictably that of cost. Maintaining registries as well as data tracking and analysis demand a substantial investment. Failure to plan ahead for the early signal detection of a drug's potential adverse event—and the appropriate follow-up in a detailed submission to FDA for REMS—is likely to result in a delay of approval and a loss of revenue. It also may force the drugmaker to rack up costs as it hurries to ramp up its complex REMS program. 

A post-marketing REMS commitment runs what many may consider an excessive length of time. All REMS programs must include a timetable for submission of assessment at 18 months, at three years, and at seven years. (The timetable to ensure that the REMS is working for drugs granted fast-track approval is still a work in progress.) With the first set of REMS assessments currently coming back to FDA, it behooves pharma to closely watch how the agency handles its reviews. Whether officials will determine that the system is over- or underperforming remains to be seen. 

The length of time of some REMS may rival a drug's patent life. For example, the Novo Nordisk's Victoza, the first once-daily GLP-1 for type-2 diabetes, was approved based on the Danish firm's maintaining a post-marketing registry for 15 years—not an especially promising sign for makers of diabetes drugs. Faced with such burdens, companies will have to weigh the expense involved in the commercialization of a new drug before making the go/no-go decision. The ultimate effect may be to stifle innovation. 

The complexity of REMS will definitely place new burdens on doctors, patients, and payers. For example, Amgen's Nplate for chronic adult ITP and GSK's Promacta for low platelet count—two orphan drugs—require the physician to conduct an elaborate procedure of paperwork before prescribing it. This may result in decreased use of the product (and even suboptimal treatment of the patient) in favor of competitor drugs that are easier to prescribe. 

The distribution of specialty products through a hospital or physician practice can be easily controlled by means of a REMS. Still, REMS are almost certain to reduce a drug's market size—or at least slow its take-up. Nowhere will this be more evident than in the category of controlled substances and other drugs that have a history of abuse—especially when distributed through retail channels with multiple manufacturers involved. Serious safety issues can also limit access. Adolor's Entereg, which was initially developed for opioid-induced constipation, was believed to have blockbuster potential, but its REMS program has restricted use to short-term inpatient settings. And Adolor has already been slapped with a warning letter from FDA for overstating its drug's efficacy in its promotional material as the company struggles to increase sales.  

Payers have expressed concern that REMS may be used by drugmakers to control or close distribution of their products, restricting outreach by limiting access to certain "qualified" outlets. Pharma can use this control as a bargaining chip in financial negotiations with payers, too. Recently Kaiser Permanente, California's huge integrated healthcare system, filed a citizen petition requesting that the FDA take steps to ensure that the REMS process is transparent and that payers are involved in the pre-approval process. FDA has yet to respond to the petition, but its deployment has implications for how FDA handles REMS in the future. (The result in this case, not unsurprisingly, was that the drugmaker and Kaiser negotiated a confidential deal.)  

With the REMS process only two years old, much of its implication remains fluid and unpredictable. It is important that drugmakers work closely with the agency early in the development of a drug to assemble an appropriate REMS program. Equally critical is to watch how the agency's enforcement unfolds.  

Yet enhanced regulation of a drug's use by the drugmaker comes with a definite upside. Above all, the effort to evaluate and minimize a product's risk should result, over time, in a significant increase in the safety of all prescription drugs. This, in turn, can only increase public trust in the drug industry. REMS also provides a unique opportunity for a company to enhance the brand value of a product (see figure 3). Designing, implementing, managing, and monitoring an appropriate REMS program can be leveraged by the firm to communicate that "patients comes first when it comes to drug safety."  

REMS may improve the probability that FDA will approve a drug, especially an innovative one in an untreated area. To this end, close communication with FDA during the development process about the detection of safety signals and other data should increase the agency's comfort level once the REMS program is in place. As a result, pharmacovigilance and other data-mining techniques that detect safety signals are increasingly critical.  

In the post-marketing phase, REMS also improve data collection. Drugs that require registries, distribution tracking, or survey insights on market dynamics provide rich sources of supply-chain information. As the sharing of prescribing data becomes increasingly restricted, a REMS program can lead to superior market intelligence. 

REMS can improve access to and interactivity with healthcare providers and patients. Several REMS programs have already been implemented with specific communication plans to assure safe use—doctors and patients need to be registered, trained, and certified first. The drugmaker's deepening involvement in the doctor-patient relationship may increase positive feelings all around. Patient adherence may increase as well. 

In their capacity to both monitor safety and personalize usage, REMS programs can produce an overall improvement in the value proposition of a brand. Celgene's STEPs program for Thalomid and Revlimid for multiple myeloma and other hematological syndromes and Biogen Idec/Elan's MS drug Tysabri are prime examples. Payers can see the value of a product and opt to cover it if its REMS restricts use for certain diagnosis and patient characteristics.  

An effective REMS programs requires the participation of virtually every division in a company, from clinical to regulatory to marketing. This exercise can help to strengthen pharma's new emphasis on building cross-functional teams. Marketing a new drug with a REMS program will transform the launch, as the drug's safety alert and monitoring become a kind of service that differentiates the product from competitors. REMS programs also provide benefits to marketing efforts, such as better prescriber segmentation and preferred prescriber programs and an improved promotional mix with well-defined roles for sales reps, medical science liaisons, speaker's bureaus, and journal ads.  

The REMS system, in significant albeit select ways, grants the industry some favors that even the most expensive lobbying could not buy. For one, REMS can offer a drug a kind of market exclusivity. Botox's REMS include a provision that no Botox-like product can be substituted for the cosmetic enhancement. Lilly's blood thinner Effient has a REM ensuring that sales reps get face time with docs to explain the drug's special use. And if a company patents its REMS, generic competition could be shut out of the market unless REMS are waived or they develop their own. Distribution restrictions can also make it difficult for generics to acquire branded products for comparative evaluations, leading to entry barriers. 

The primary objective of the REMS program is to improve the safety of, and trust in, pharmaceutical products. REMS programs can protect patients, educate providers, and improve the reputation of the FDA and the industry alike. Because the system presents drugmakers with additional regulatory responsibilities, some heavy lifting will be required and new capabilities developed. In the evolving REMS landscape, FDA and pharma are learning simultaneously; in order to minimize uncertainty companies is advised to constantly assess the challenges and find ways to manage them. Yet it should be clear that more than a few gains will also come pharma's way. In addition, REMS can provide significant opportunities to enhance the value of the brand, including improved probability of approval. If successful, then, REMS will finally lay to rest the notion that safety comes at the expense of innovation, speed, and cost. And that will be good news for everyone. 

 is the chair of, and an associate professor at, the department of pharmaceutical marketing at St. Joseph's University. He can be reached at 

Features

FDA's risk-reduction requirements could be the bridge to a bright new future for the pharma industry.

Road Map for REMS

Life sciences companies are feeling the heat around growing societal expectations of ethical and transparent behavior. A key strategic imperative from this ground swell is integrating internal anti-corruption measures with the commercial strategies built around the murky politics of how to get things done in emerging markets.  In these "pharmerging" countries, the growth potential is high but the regulatory rules of the road might charitably be described as "open to interpretation."   

Consider the basic dynamic: The "BRIC" countries (Brazil, Russia, India, and China) stand out as the most lucrative emerging markets, but they are also ranked at the higher end of Transparency International's corruption level-of-risk rankings. 

Recognizing the momentum of the emerging markets, regulatory authorities around the globe are targeting anti-corruption as a top enforcement priority.  Prosecutors in the US and the UK are particularly committed, with the US Department of Justice (DoJ) stepping up its monitoring and control activities under the 1977 Foreign Corrupt Practices Act (FCPA). More cases have been prosecuted (57) in the past five years than the total number of cases prosecuted over the previous 27 years, and the commitment to move cases forward has been stoked by a successful cash settlement of approximately $1.6 billion in a corruption case against Siemens jointly prosecuted with Germany. Governments of the industrialized bloc of Organization for Economic Co-operation and Development (OECD) are working together to address cross-border corruption, recognizing that the current turmoil in financial markets and associated banking scandals gives them an unprecedented new weapon—public support.    

Using wiretaps, confidential informants, and enforcement techniques previously reserved for organized crime and anti-terrorism, the DoJ is raising the stakes for FCPA enforcement, receiving more funding and "following the money" right to the front door of life science companies.  And when the DoJ announces an enforcement priority, two things happen: more prosecutions and more convictions. DoJ has put the life sciences industry and individual industry executives on public notice:  you are targets and we are going after you.  With 120 FCPA cases in the pipeline and the recent criminal conviction and sentencing of a former company president in another industry to a record 87 months in prison, the trend is clear.  

In a November 2009 address to the Pharmaceutical Compliance Forum, Assistant Attorney General and Chief of the DoJ Criminal Division, Lanny A. Breuer, stated, "Our resolve in the FCPA area will not abate. We will be intensely focused on rooting out foreign bribery in your industry. That will mean investigation and, if warranted, prosecution of corporations, but also investigation and prosecution of senior executives." 

Across the Atlantic, the UK in July 2009 passed an anti-corruption statute that outlaws both government and commercial bribery, making it significantly broader in scope than the FCPA, its US counterpart. 

In this treacherous mix of economic and enforcement pressures, the question clearly becomes, "What are life science companies to do to manage their potential exposure to corruption, where "success" equates to executing a sound, speedy and successful global emerging market commercial strategy?"

At least one piece of the solution is successfully integrating a global compliance anti-corruption strategy with an emerging market commercial strategy. Global life science companies are re-examining how their global compliance functions are structured to align their ability to meet both increasing legal/regulatory requirements and increasing business/operational demands.   

Specifically, the function has to address (1) increasing information/data gathering and governmental reporting requirements, (2) potential for more governmental criminal and civil prosecutions of both organizations and individual executives for violation of anticorruption laws and regulations, (3) implications of cost pressures to improve operational efficiency, and (4) the need to be proactive in helping the commercial business navigate the cultural and economic barriers that must be overcome to succeed in emerging markets.  

To address these issues, global life sciences companies appear to be moving toward a more centralized model that leverages information system technology to link various global regions and business units. The goal is to enhance information gathering, reporting and consistency in policy implementation across all regions and eliminate costly delays in information transfer historically associated with centralized systems. 

The relative size, complexity and maturity of a company's global compliance program are key factors with regard to how that program is structured. Smaller companies may have a more traditional, decentralized, hierarchical structure with compliance officers assigned to each business unit to allow them to be more responsive to local, regional issues. Big pharma companies that have invested to varying degrees in advanced information systems technology are progressing towards a more centralized model, to ensure greater consistency across countries.  However, it is unlikely that any company is either fully centralized or decentralized; as a result, there is a move toward a hybrid structure that is flexible enough to tap the latest technology systems and processes. This transition to "enlightened centralization" seeks to strike the proper balance between speed and consistency for global legal reporting requirements and responsiveness to local business operations. 

Global anti-corruption compliance is but one piece of a much larger mosaic of an effective business strategy for success in emerging markets.  With advances in technology that can link global markets and reduce the cost of information and data capture and analysis, and recognizing the huge costs associated with either a compliance violation or business failure, companies need to put their compliance models front and center in any strategy to support the imperative to build sales in emerging markets. 

 is national managing director, Life Sciences Forensic Dispute Services, Deloitte. He can be reached at 

Europe Report

As they build market share, companies need a plan to limit exposure to steep fines and executive prosecutions.

Emerging Markets Under Anti-Corruption Microscope

It's well known that cost pressures and changes in the customer base are forcing a rethink of pharma's reliance on the in-house sales force to build revenue and market share. What's less evident is the direction companies are taking to cope with this turbulence—especially the impact of emerging strategies such as outsourcing on the bottom line. The following survey of current trends in sales promotion re-deployment suggests that the payoff from outsourcing is significant, with ROI improvements of 25 to 30 percent on direct sales force costs, which for most companies remains their single biggest promotional spend commitment. 

The sales function is under close scrutiny because its key partner has left the dance floor: There are fewer "blockbuster" Rx drugs coming to market, and thus less need for the large, mirrored sales teams that previously saturated the provider community with basically the same message. An increasingly difficult operating environment that demands differentiation adds to the problem. Federal healthcare legislation is already having a major impact, with the industry being squeezed on pricing by an increase in Medicaid rebates from 15.1 to 22.1 percent, and the upcoming 2011 requirement to provide 50 percent discounts on Rx drugs to Medicare patients. Another factor is an uptick in FDA regulations around risk, which requires more diverse clinical evidence and slows the approval of drugs in the pipeline.  

As a result, the industry is addressing its cost drivers by shifting focus away from revenues towards driving profits, and moving to manage the middle of its P&L ledger, thus boosting ROI. For some, this strategy has led to mergers—and for almost all, a commitment to seek cuts in the largest contributor to their product commercialization cost base: the sales force.  

According to survey firm SDI, the total number of U.S. biopharmaceutical sales representatives peaked at 102,000 in 2005. As of the first quarter of 2010, it stood at 80,000—a 21 percent decrease in less than five years. While an effective short-term cost-cutting measure, this reduction in field force is merely a precursor to the focused strategic plan necessary to capitalize on the shifting payer landscape.  

Historically, the industry's SG&A has averaged 30 percent of sales, according to reports by Verispan, JP Morgan, and SDI. A recent report by the Congressional Budget Office put the total field force portion cost at $12 billion in 2008. However, projections by JP Morgan show the SG&A number declining to 26 percent by 2013. This will most likely come from a reduced spend on the field force, cost improvements through more tightly managed marketing spend, and a move to cost-effective strategic outsourcing. Targeted austerity is the theme.  

What's happening in the biopharmaceutical industry today is not dissimilar to what has occurred in other industries such as financial services. If you look back 20 years, the financial services industry was driven by high-priced, high-commission retail brokers. The customer always spoke or met live with the broker to place stock orders and to manage their account. This approach was expensive, inflexible, and time consuming. 

Fast forward to today, and the vast majority of brokerage transactions are conducted online or triaged to different types of brokers based on the level of sophistication of the client, along with their net worth and potential return (ROI) to the investment advisor. Technology and regulatory changes have been the primary drivers for this transformation.  

A similar dynamic is now playing out in the biopharmaceutical industry. With an unprecedented number of representatives taken out of the field in the last five years and the prospect of ever-decreasing physician access time, finding a new model that improves flexibility and information delivery is of paramount importance. This is true from both a cost-contribution standpoint and as a way to meet the needs of an evolving customer base, which now includes not only physicians, but also patients, payers, pharmacists, and various government entities. 

The new field deployment model results in greater "white space" and reduced sales call frequency as some targets lose priority. Meanwhile, internal field forces become smaller, more specialized, and increasingly regionally deployed. Although more cost-effective, this reduced internal bandwidth negatively impacts a company's ability to focus on secondary brands, maximize portfolio potential, or respond quickly to market conditions. As a result, many companies are turning to outsourcing to build flexibility into their sales organization while retaining smaller, specialized internal forces.  

This move towards more specialized field forces replaces the "one-size-fits-all" model that was so popular until the recent downturn. A more robust sales model is evolving; it blends a variety of field representative types having different levels of training and skills and commensurate pay levels, including tele-representatives linked to call centers and even "virtual" representatives. In that way, non-personal information delivery channels, including web portals, e-sampling, mobile messaging, video consultations, and e-detailing, are playing a significant role.  In fact, in 2009 one company engineered the replacement of an entire 400-person rep field force detailing a major brand with a 300-seat call center. It is clear an industry mind shift has occurred. 

Essentially, the industry is acting upon the fact that product loyalties are driven not by the brand or its promotion. Rather, physicians prescribe a brand based on what is best for the patient, not which brand has the best promotion. Their loyalty to the company and its representation are of secondary importance—though it certainly cannot be overlooked. For that reason, in-person detailing will never disappear; there will always be physicians and physician offices that will require scientific information, and updates on reimbursement and local disease conditions, which are best delivered in person.  

The new representative types better align with the varying promotional needs within the brand life cycle, and are therefore more cost-effective, providing values commensurate with revenue potential. For instance, for mature brands, maintaining visibility—and in turn maintaining sales volume—is often the primary promotional objective. When a product is already well understood by physicians, customer service, mature market, or virtual representatives can often achieve a more favorable promotional impact-to-cost ratio than traditional representatives. This type of representation is tasked with dropping off samples and/or reinforcing core messages, and providing updates on managed care coverage to maintain market share and potentially to enhance share of voice as a back up to a more traditional field force. Because they do not require the same experience and/or educational background typical of traditional representatives, these next-generation representatives offer a lower cost, but equally effective alternative. By the same token, virtual representation also offers a lower cost alternative for the promotion of mature or secondary brands, and many non-personal strategies are also flourishing today as a result. 

Other cost-effective approaches to field coverage encompass an account team focused on group practices, representing a complete portfolio of appropriate brands from their company rather than one or two lead brands. This team could include a customer service representative, a primary or specialty representative, and a clinical nurse educator. With this approach, the team is able to leverage existing relationships within various practices, and integrate brands where appropriate for a treatment protocol. 

Regional teams have also made a comeback, with several large biopharmaceutical companies taking the lead. The industry is recognizing that regionally focused teams are better able to address the managed-care environment, differences in disease prevalence and incidence, and patient and provider demographics within their region. Yet being flexible enough to deploy the different rep requirements now necessary at a regional level is difficult with only an in-house team.  

Pulsing/seasonal representatives and syndicated or shared teams are two popular models often supplied by outsourcing partners due to the need to rapidly respond to market conditions, or minimize the disruption of the internal team, particularly when short-term engagements are needed or maintaining cost efficiencies is a priority. 

While this internal restructuring is important, it is a stopgap.  Creating a permanently flexible and scalable sales organization that can withstand the strain of changing market conditions is the true challenge. Most of the industry is now responding with an emphasis on outsourced promotional services providers, which can build in this flexibility at a more favorable cost profile, while maintaining high standards for quality and impact.  

Outsourced promotional service providers have undergone a shift in perception by the industry since their inception, when they were viewed simply as Contract Sales Organizations (CSOs) or "rent-a-reps." Five years ago, outsourced sales representatives accounted for a respectable percentage of the total industry-wide biopharmaceutical sales force. By 2007, their numbers were reduced significantly as the industry cut outsourced representatives first, when they had to address falling margins. However, in light of the various pressures now faced by the industry, outsourced promotional services providers have evolved from a simple vendor-based solution into long term strategic partners. As a result, the numbers of outsourced sales representatives are again climbing, and their role is now more integral to the promotional mix. Expectations are that the number of outsourced representatives will continue to grow, overtaking earlier highs by 2013, as the industry further reduces its internal teams. 

Why this dramatic shift? When sales outsourcing first came to the marketplace to meet the growing need of the industry, outsourced reps were deployed mostly in bolted-on, mirrored team situations to support a launch or growth brand. Teams were self-standing, using outsourcer-provided or client management, or both. Performance expectations were set strictly on the number of details made—reach and frequency—rather than the impact of those efforts on sales. Despite the demand for outsourced sales personnel, many in the industry viewed the CSO representative as inferior to the company's own personnel. Although results often proved contrary to this belief, it was a hard impression to shake, and utilization of sales outsourcing lagged way behind the industry's outsourcing of research, development and manufacturing.  

Today, that has all changed. Due to the availability of downsized, highly skilled sales professionals in virtually every therapeutic category, the quality and ability of an outsourced representative to drive impact are now on par with internal reps. Major  biopharmaceutical companies hesitant to use CSO teams before the downturn have now found reason to strategically partner with outsourced promotional service providers. In fact, most of the major biopharmaceutical companies are now working with at least two different outsourced providers to meet their varied field requirements. Many smaller, emerging companies almost exclusively use outsourced sales reps, not having the resources or risk-tolerance to support the infrastructure necessary to field an in-house team. 

Why is the industry finding outsourcing such a viable strategy as they re-engineer their sales approach? There are a number of reasons, but four factors stand out.  

First, many companies are finding that outsourcing increases the flexibility of field promotion to meet changing market dynamics. A company can adjust up or down rapidly to meet brand, season, region, or territory needs without impact on internal morale, and they can do so cost-effectively. Although outsourced sales professionals are hired at market rates, the fact that there is a surplus of talent on the market is tending to drive that rate down.   

Second, outsourced promotional services providers are able to offer a more permanent cost advantage over internal reps. This is due to the fact that outsource providers are able to leverage the infrastructure of fielding a team—recruitment, hiring, onboarding, training, SFA, fleet management, etc—across multiple companies.  

The result is a 25 to 30 percent reduction in sales force costs. That goes right to the bottom line because as a variable cost, outsourcing will drive top-line revenues while allowing better management of the middle of the P&L, thereby delivering improved ROI. Outsourcing allows the biopharma industry to further manage the middle of their P&L in maintaining strong promotional support for key products and increasing support for promotionally-sensitive but under-promoted products, while reducing fixed field force investments and streamlining related overhead as products begin to near patent expiration. 

Third, many outsourcing contracts today offer a risk-share option, which ensures that the financial interests of the outsourced promotional services provider are aligned with the company's. With market and regulatory pressures bearing down, and the need to be more judicious with resources, the industry is more wary than ever of the risk in field deployments, particularly for drugs awaiting FDA approval. By taking on a risk-share assignment, outsourced providers have skin in the game, leading to a more strategic partnership with the biopharmaceutical company versus a simple contract engagement.  

Finally, the model itself is evolving, giving companies more options in how they use it. Currently, there are a few dominant deployment strategies of outsourced representatives over the brand's life cycle. They are designed to more directly match the industry's field promotional investment to the most relevant promotional drivers for each product in the portfolio, to test and pilot tactics, and to optimize selling effectiveness without disrupting ongoing promotional efforts. These can be in the form of syndicated/shared, flex-time, dedicated, and embedded teams. 

The "embedded deployment" model (positioning outsourced sales representatives within rather than alongside company teams where coverage is needed) has gained momentum because it offers industry a way to balance reduced headcounts while maintaining effective control of field coverage and achieve flexibility by building in a fluid layer within their sales force, thereby acting as a product commercialization risk-mitigation strategy against future unexpected events such as pipeline disappointments, negative FDA action and competitive threats.   

As evidenced by SDI's recent report on promotional spending, which showed a 32 percent increase in e-promotion spending by the industry in 2009 as compared to 2007, the use of non-personal outreach tactics is rapidly increasing. In turn, the outsourced promotional services industry has increased their offerings to include many of these tactics including call centers, direct mail and e-promotions, to name a few. And the ability to leverage the overhead costs of these services over multiple contracts makes the outsourced providers a very attractive alternative to the in-house only model. 

So where is the relationship going? Simply put, outsourcing is here to stay. With this continuing evolution of services to deliver value to the biopharmaceutical industry and their customers, the outsourced promotional services industry has moved strategically into being a central element of the sales and marketing mix. Relationships are being built for the long haul. Although particular contracts may be in force for one to two years, outsourced providers are finding when the engagement is over their team is being moved to support another initiative within the same company.  

 is CEO of PDI Inc. She can be reached at 

Outsourcing the sales representative function can help pharmaceutical companies build on their bottom line.

Managing the Middle

Transparency is the new mantra shaping drug research, regulation, and marketing. Healthcare reform legislation provides more public information on a host of health-related activities, including formulary listings, out-of-pocket costs, and comparative assessments. The new law, as well as FDA and the National Institutes of Health (NIH), seek to shed more "sunshine" on the financial relationships between industry, and scientists and physicians. Some members of Congress would like to go further and mandate broader disclosure of drug prices, as well as hospital and doctor rates, (See "Price Transparency".)  

FDA also has launched a comprehensive Transparency Initiative to build public confidence in agency decisions by revealing more about its policies and practices. Internally, an FDA-Track program will report regularly on the performance of 100 agency offices to improve management, while also emphasizing the breadth of the agency's responsibilities and accomplishments. 

More significant for industry, FDA's Transparency Task Force proposes extensive disclosure of information on field inspections, product recalls, and the status of drug development and market applications. In announcing the program in June 2009, FDA Commissioner Margaret Hamburg stressed the need to dispel the agency's " black box" image by expanding its ability to explain its rules and processes. Under the leadership of principal deputy commissioner Joshua Sharfstein, the task force unveiled phase one of the initiative in January, which established a Web-based "FDA Basics" course on agency activities. Phase three, due this summer, will propose ways to improve how FDA communicates with regulated companies, primarily by streamlining guidance development and increasing meetings with sponsors.  

Much more substantive is phase two, which was published May 21, 2010, and offers 21 proposals for disclosing regulatory documents and actions. Some are quite far-reaching and will require Congressional action to implement.  

Most controversial is whether FDA should drop its long-held policy against releasing information on the status and substance of investigational products. The task force proposes that FDA disclose when a company seeks permission to launch clinical trials or to bring to market a new drug, biologic, animal drug, or medical device. FDA also wants to announce when such applications are withdrawn, rejected, or delayed. The agency also wants to release Complete Response (CR) letters explaining why it is not approving a product, as well as what the sponsor needs to do to get to market.  

Pharma companies often elect to announce when they file an IND (investigational new drug application) or a license application to demonstrate that a development project is moving forward or to comply with financial reporting rules. The FDA Amendments Act, moreover, requires manufacturers to post information about ongoing clinical trials and their results on 

, and dossiers on some products are posted as part of FDA advisory committee deliberations. But FDA itself only announces when it approves a new product. 

That would change considerably under the task force proposal for FDA to disclose IND filings, including name of sponsor, date of application and anticipated indication and trade name. The agency also would indicate when an IND is placed on clinical hold or is terminated or withdrawn. Similarly, FDA would indicate when a company files a market application or efficacy supplement, as well as when such applications are withdrawn or abandoned. Related to this, the task force wants FDA to be able to explain that when a sponsor abandons or withdraws an application for an orphan drug due to internal business reasons, safety concerns, or regulatory issues should not deter another party from developing that needed therapy.  

A significant, and controversial, proposal is for FDA to release refuse-to-file notices and CR or not-approvable letters. Sponsors often will issue a summary of a CR letter and a scenario for reaching the market in the future. But FDA wants to provide full explanations of its delay decisions, and investors and consumers want to see those statements.  

However, the transparency panel decided not to seek disclosure of refusal or CR letters to generics drug manufacturers, or for manufacturing and labeling supplements; these contain considerable trade secret information that is considered less crucial to drug development. 

Transparency also is proposed on the compliance and safety front. The task force wants to indicate when FDA inspects a manufacturing facility or clinical research site, along with whether a site visit uncovers violations or problems requiring corrective action, or if the entity comes out clean. FDA currently makes public some inspection reports that raise important safety or regulatory issues. Otherwise, interested parties have to request this information through the agency's freedom-of-information process, which can take months, if not years. FDA believes that inspection results could help manufacturers achieve compliance, as would posting untitled letters on the FDA Web site; FDA now lists more serious warning letters, and this would expand considerably available information on company violations.  

An important initiative would require regulated companies to inform FDA when they conduct a product recall. This would permit the agency to advise the public on what is being taken off the market, the number of items involved, and cause of product defect. The policy also would help FDA clarify which similar products are 

 being recalled, and when the recall is completed and terminated. Implementing this recall notice provision may require Congress to give FDA mandatory recall authority, a change that could be accomplished by expanding proposed food safety legislation awaiting action on Capitol Hill. 

Another proposal would expand public access to adverse event reports through a more user-friendly information system. And FDA looks to publish weekly listings of enforcement issues that are so important that the US Department of Justice is taking the case to court.  

An important consideration of the transparency initiative, said Sharfstein at a press briefing, is to obtain an "appropriate balance" between expanded disclosure and ensuring confidentiality of trade secret information. The task force acknowledges that protection of proprietary data is key to maintaining investment in biomedical R&D, and that a company's manufacturing methods and product formulations are trade secrets that should remain private. But other data, such as clinical trial results and adverse event reports, may be more appropriate for disclosure. The task force wants to consider the public benefit in withholding or releasing such information, as well as the often heavy cost of redacting trade secrets from to-be-disclosed material. And while FDA is not proposing here to release raw data from clinical trials—as opposed to summary information—the panel suggests that access to such information might uncover safety signals and help sponsors identify new product development opportunities.  

One factor guiding some FDA transparency proposals is the desire to harmonize US policies with those adopted by the European Medicines Agency. EMA already discloses when a company files a marketing application or withdraws one, as well as the agency's evaluation of the product. And the Europeans cite reasons for denying approval of a new product or additional indication, similar to FDA's proposal for releasing CR letters.  

Implementing many FDA transparency proposals will require legislative change. In unveiling this plan, Sharfstein explained that the task force focused on what was the "right thing" to do, policy-wise, and not on the cost or feasibility of taking such action. Now the panel will review public comments on these proposals, which can be submitted through July 20, and conduct a legal and resource analysis for each item. Commissioner Hamburg will make the final decisions on which proposals can be adopted internally and where it makes sense to seek Congressional action. 

's Washington correspondent. She can be reached at 

Washington Report

Drug prices, doctor payments, and FDA regulatory decisions are candidates for expanded disclosure.

Tackling Transparency

Big Pharma has become a complex place lately. Or should I say Big Healthcare? The recent trend toward diversification reduces risk by moving away from dependence on the pure play model. In a world beyond pharmaceuticals, these businesses include diagnostics, generics, OTCs, devices, vaccines, nutritionals, medical equipment, biosimilars—or even electronic medical records, as in GE's growing healthcare business. Managing a wide range of operating units is a new kind of task that may require a new kind of leadership. 

Diversification may be the leading trend behind the recent "title splitting" at the top of some of the industry's biggest drugmakers. Traditionally, the board chair, CEO, and president titles have all resided in a single individual. However, a number of high-profile cases suggest that these titles are increasingly being separated into multiple roles: Daniel Vasella/Joe Jimenez at Novartis; Franz Humer/Severin Schwan at Roche; Jean-Francois Dehecq/Gerard Le Fur (and later Chris Viehbacher) at Sanofi-Aventis; James Cornelius/Lamberto Andreotti at BMS; and, most recently, Richard Clark/Kenneth Frazier at Merck.  

Another, more subtle driver of title splitting may be board and shareholder discomfort with too great a concentration of unchecked power in one leader, accompanied by weak share performance in the market during an executive's tenures. Hank McKinnell and J.P. Garnier, former top execs at Pfizer and Glaxo, respectively, exemplified this problem. 

Developing as a leadership alternative appears to be "team" governance, which is designed to accommodate the dual trends of increasingly complex healthcare business models and the establishment of strict checks and balances in strategic decision-making that supports power sharing and healthy internal debate. 

The new model, in theory, requires each business unit president to have a unique skill set. While core competencies in personnel and financial management are both expected, deep knowledge of the business, its competitors, customers, regulators, and relevant science and technology might also be necessary. This likely has to be coupled with years of demonstrable success in the specialized nature of the unit's ecosystem. Negotiating goals—and the resources to achieve them—with the CEO and board chair is critical as well. 

In practice, the road to the top of a global healthcare conglomerate is not quite so straight. Jimenez came from consumer products, Schwan from diagnostics, and Frazier from law. No longer reserved for a pharma-unit veteran, the role of president is largely focused on achieving short-term objectives to support the stock value, regardless of relevant background or experience. It may be that these roles are merely additional steps in classic succession planning. 

The CEO function is also morphing. Traditional internal roles include setting the vision and mission, elucidating a clear strategy and assuring proper management, allocating resources and developing synergies and alignment across a broad portfolio of businesses. Now, however, the CEO's external roles are becoming more prominent. Quarterbacking a team of c-suite players in communications with the press, the investment community, government, and other key stakeholders is becoming a bigger line on this job description. Unfortunately, the duty of crisis management has been dropped on this doorstep as well. 

The role of chairman of the board alone remains largely unchanged—he or she is responsible for oversight and approval for major strategic decisions. For most publicly held, US-based multinationals, the board is primarily composed of external directors whose wisdom serves—or, at least, should serve—as a guiding light on matters of business ethics, policy, operating principles, and as independent representatives of shareholder interests. However, when the positions of CEO and board chairman are split into separate roles, the two leaders may well see the world from "different sides of the aisle." In this context, the interests of employees, stakeholders, and consumers will lead to divergent opinions, internal tension, and possible conflict. And in the c-suite, the chairman of the board is boss. 

Title splitting offers a credible management structure for pharma's increasingly complex business models. The separation of roles and responsibilities—and the delicate balance of power—is designed to bring a diversity of opinion to strategic decision making; checks and balances should result in better long term decisions, albeit at a slower pace due to the greater difficulty of internal consensus building. 

As pure play pharma becomes diversified healthcare, there will be growing pains. Consultants will be engaged, major restructurings will be implemented, and unintended consequences will be frequent. New forms of leadership will, in turn, challenge traditional corporate cultures. New competitors may enter the space. Some traditional players will adjust, while others will resist change—resulting in new industry leaders and laggards and, potentially, a vastly different competitive landscape. 

 is the president of C. Kalb & Associates, and can be reached at 

Leadership

Once occupied by a single pharma leader, the roles of CEO, president, and board chairman are increasingly being separated. What's behind the trend?

Splitting Image

 magazine delivered a walking, talking Robert Downey Jr. right to its readers' homes. Dabs is letting tech enthusiasts inspect its new Acer Aspire 5738D laptop from different angles before purchasing. Real estate firms are navigating buyers around properties without setting foot in the structure. And while Nestle sold over 2 million cereal boxes printed with an interactive 3-D game, Lego made augmented reality (AR) packaging popular in the US with its in-store kiosks that let customers preview finished models of any Lego kit. 

Many people find augmented reality campaigns such as these to be clever, but few find the technology to be useful. However, anyone who dismisses augmented reality as a fad simply doesn't know enough about it or its potential to forever change the pharma industry, nonprofits, and other health organizations. From educating doctors to supplementing surgical maneuvers to empowering the pharmaceutical sales force, AR applications will provide real value to patients and healthcare professionals alike. 

In order to understand its impact, we must first understand augmented reality. Augmented reality blurs the lines between the physical world and a virtual world by superimposing digital data on a real-world environment. Specifically, augmented reality places computer-generated text or imagery within the context of time and space. Early forms of AR were restricted to static visual augmentations, but more recent evolutions include video and even sound. 

An augmented reality experience requires the following hardware: a camera, a viewing device (webcam, camera-enabled phone, or other such device), and in most cases a tracker or marker that identifies where the augmentation should be projected. The user points the camera at the environment, the environment is displayed on the screen, and the digital data overlays the video feed. Other versions use various forms of headgear to project data onto the user's field of vision. Digital innovation agency Zemoga rendered some code—an image resembling a game of Tetris—to demonstrate to our healthcare clients how augmented reality works. Hold the strange, blocky image up to a webcam, and it becomes a full 3-D rendering of the human heart. 

Examples like the one above have convinced the healthcare industry to start dipping its toes into the augmented reality pond. But there are a few good reasons pharma should go ahead and dive in. 

Augmented reality holds profound implications in the area of medical training and physician education. Through sophisticated depth perception and accurate motion detection, augmented reality has the potential to significantly enhance the training process, producing smarter, better healthcare providers. Augmented reality can assist surgical simulations with 3-D renderings of occlusive organs. Med students practicing complex needle biopsies can benefit from external ultrasound projections.  

Additional features, such as timely narrations and zoom functions, provide even more guidance during difficult maneuvers. So far, physician education has proven to be the most profitable area for investing in augmented reality technology, but what about employing AR at the point of care? 

The implications are many and the potential upside for all of this is significant; however, it takes a strong, multidisciplinary team to manage an augmented reality initiative. Technology may be the driver of new solutions and better outcomes in health, but it is still intellectual capital that will make it succeed. 

It is especially important that pharma recognize the various applications of augmented reality. In the wake of the recent economic recession, pharmaceutical companies have started tuning their ears to technological innovations that will potentially cut costs by replacing sales teams. This is a complete misconception and misuse of technology. Hi-tech applications like augmented reality maximize the value of pharma industry representatives by making them work more efficiently and arming them with engaging tools for effective detailing.  

Sales reps can gain trust through transparency with AR demonstrations of their product's effects on the human body. For instance, doctors will be able to visualize how and how quickly a drug passes through internal organs by seeing the process projected onto a real person. In addition, an AR demonstration can help doctors explain to their patients how exactly a medical device, like an inhaler or pacemaker, works. Augmented reality can also put lengthy information, such as scientific testing and adverse effects, at a physician's fingertips, and make data available for review on the doctor's time. 

One important lesson pharma marketers will need to learn is that augmented reality is not simply interactive by virtue—you have to make it so. This means considering how your target audience already utilizes the technology, and how they can adopt it in a way that enhances their lives. Current applications of augmented reality are location-based, and the healthcare industry is already  experimenting with using AR to navigate patients towards hospitals, clinics, and specialists. Pharma companies can leverage augmented reality to create useful tools that benefit patient education and compliance, and answer questions such as: Where can patients refill their prescriptions, and where is the best place for a patient to give herself an insulin shot? Developing AR software that answers these questions will give your brand the edge over competing drugs by adding value.  

Current applications of augmented reality are location-based, and the healthcare industry is already experimenting with using AR to navigate patients towards hospitals, clinics, and specialists. Another location-based application of augmented reality is to identify high-risk areas during an epidemic. Pharma can also work with doctors to generate brochures and other educational materials about your drug for their patients, help patients undergoing surgery understand the procedure, and illustrate the consequences of improper use of your drug or device. 

Most people find it surprising that augmented reality has been around for decades. But it has been right in front of us all this time. Sportscasters have used it to mark up broadcasts of live games; weathermen use it to make their maps more dynamic. Despite these common uses, augmented reality has stayed under the radar of most major industries. That is, until widespread use of mobile phones and other portable camera-enabled devices generated a renewed interest in AR technology. It's imperative that the pharmaceutical industry not only take notice, but also use augmented reality to change people's relationships with their medications. 

On February 17, 2009, President Obama signed The Health Information Technology for Economic and Clinical Health (HITECH) Act, as part of the federal stimulus package, providing incentives to healthcare providers who adopt electronic medical records (EMR). Augmented reality facilitates the meaningful integration of EMRs into day-to-day operations; with doctors and nurses carrying around camera-equipped mobile devices, they can instantly access the conditions and treatment histories of any patient, and decide who needs immediate care.  

In addition, moving X-ray images can help physicians better understand paralyses and injuries to the human body. Doctors can study skeletal elements such as spine curvature, and perform range-of-motion testing. AR technology can even aid in the implementation and testing of medical implants and other internal devices such as pacemakers and hearing devices. It's already clear that AR will play a major role in revolutionizing the healthcare system. Pharma has plenty to benefit from augmented reality as well. 

 is chief global creative officer at Palio and co-founder of Pixels & Pills. He can be reached at 

Columns

New strategies like augmented reality can increase patient compliance and knowledge.

Pharmaceutical Executive-07-01-2010

Country Reports : France: The French Pharma Revolution

Q&A with Focus Reports team

Road Map for REMS

Emerging Markets Under Anti-Corruption Microscope

Managing the Middle

Tackling Transparency

Splitting Image

Augmented Reality: The New, New Media

Adherence: Missing the Mark

Media Spend Trends

BP and Big Pharma: A Warning Sign

In Defense of the Battered Sales Rep