In management jargon, "the moose" is the problem no one wants to talk about. It's big, it's ugly, it's looking right at you, but nobody does anything about it. The trick, says Randall Tobias, is to get it onto the agenda, to "put the moose on the table"-a motto that is also the title of the new book he published this past spring with his son Todd.	

Put the Moose on the Table: Lessons in Leadership from a CEO's Journey through Business and Life (Indiana University Press) tells the story of  challenges Tobias has faced, most notably as CEO of Eli Lilly from 1993 to 1998. Now that President George W. Bush has nominated him America's global AIDS coordinator, he faces a new challenge: putting to work the $15 billion that the President has pledged toward fighting the disease in Africa and the Carribbean. 	

"Randy Tobias has a mandate directly from me to get our AIDS initiative up and running as soon as possible," Bush told reporters at the White House. "We will set up a broad and efficient network to deliver drugs to the farthest reaches of Africa, even by motorcycle or bicycle."	

At press time, Tobias' appointment still awaited Senate confirmation. Concerned that he was slated for the job mostly to protect pharma, AIDS activists have pointed out that he has no previous public health experience. Conservatives worry that he isn't sufficiently in line with their abstinence-based strategy for fighting the disease.				

It isn't the first time a Tobias appointment has inspired controversy. When he took the reins at Lilly, for instance, he was only the third chairman and fourth CEO to join the company from outside the Lilly family. Despite growing up in Indiana and serving on Lilly's board of directors since 1986, he was an outsider. The press greeted his selection as CEO with skepticism even though his career at AT&T had been long and successful. One analyst said, "This smells like a 'shake-up at the palace.' On the surface, this management change does not make good sense."	

Those were turbulent times for the historically stable, 126-year-old company. Twenty years of explosive growth had culminated in a year and a half of decline. The company's market value had fallen from $24 billion to $14 billion. Rumor had it that Vaughn Bryson, Tobias' 	

popular predecessor, was being replaced by a hatchet-wielding miser. The company's employees feared for their jobs. 	

At the time of his appointment, Tobias had some unfinished business with AT&T, so he hoped to make an easy transition into his new role. But on June 26, 1993, the day after he became CEO, Lilly faced a new crisis. In a clinical trial of fialuridine, the company's promising new treatment for hepatitis B, a patient had experienced profound liver failure. The next Monday, Tobias held his first conference with the company's top executives and scientists. 	

By then, several more patients in the trial had developed severe liver toxicity and were in grave danger. 	

Tobias describes the scene in his book: "All eyes from the two dozen or so in attendance moved in the tracking, collective stare found often at tennis matches and funerals. The mood in the room felt considerably more like that of the latter."	

But Tobias made a speech that day that would set the tone for his leadership at Lilly. "I want to be sure we are focused on doing the most we can for these patients and their families," he said. "Certainly I want to understand the potential legal and financial exposure that could result from this situation. But the patients are our top priority. I would like their well-being to be the driver of our decisions, first and foremost." 	

In the following weeks, five of the fifteen patients involved in the trial died of liver toxicity. But meanwhile, according to a 1995 report by the Institute of Medicine of the National Academy of Sciences, Lilly gave more than $2 million for services to the patients and their families, including the cost of several liver transplants. The report exonerated Lilly, calling the deaths "uniquely and totally unavoidable." 	

As Tobias' career continued, the bottom line would get its share of his attention. But as he tells it, "doing the right thing" goes hand in hand with Wall Street's demands. Companies that keep standards of ethics with or without the law looking over their shoulder, he says, will thrive in the long run.	

In his book, Tobias writes that, although the fialuridine patients were his first priority, the task of informing the public about Lilly's situation was his second. He turned to Clyde Lee, a local television news anchor. A media relations worker from Lilly called Lee and asked him if he would like to interview the new CEO with cameras rolling. At first, Lee thought it was a joke.				

Lee's previous encounters with Lilly had not been so inviting. Before Tobias became CEO, any reporter who asked the company a question could expect the query to become tangled in a spider's web of red tape. Getting answers on a timely basis was out of the question. Lee had become so frustrated in his attempts to get information from the company that he had given up altogether.	

But as questions surrounding the new CEO'S plans loomed over a vacuum of information, Tobias maneuvered to ease the public's worries by allowing Lee to interview him in a company cafeteria with employees looking on. He used the opportunity to share his optimism for the company. "It was a wonderful breath of fresh air when Mr. Tobias came on board," says Lee.	

A more candid-and prepared-approach to the media was only part of Lilly's change of attitude toward the public following Tobias' appointment. Consumers, not just physicians and shareholders, began to receive Lilly's attention. As chair of the company's policy committee, Tobias personally oversaw Lilly's direct-to-consumer communications. (See "Lilly Harvests Its Fields, PE, February 1998.)	

"There's no real in-depth, long-term understanding on the part of consumers about what pharma companies are and what products they are associated with," says Tobias. "The general public still does not have much understanding about why branded pharmaceuticals cost what they do and why generics are less expensive. I think it's going to take a very aggressive effort on the part of the industry to get consumers to really relate to the benefits that they get from the pharmaceutical industry." 	

"When employees are concerned about layoffs, more often than not they are telling you, 'We have too many here and we are afraid that somebody is about to find out and do something about it,'" Tobias told PE in 1998. Among his first actions to revive the company's finances was the elimination of 4,000 jobs. To calm the employees, he implemented a voluntary early retirement program. Though the company lost some good people, the program set the stage for the changes Tobias sought to implement. Any employee who wasn't ready for those changes was free to leave.				

Next, Tobias refocused the company on its pharmaceutical projects by divesting it of non-core businesses. He was concerned that medical device operations drained management time and contributed little to stock value. So Tobias' team established the device enterprise as a wholly owned subsidiary called Guidant and sold 20 percent of its stock in an initial public offering. Lilly then offered its own shareholders the remainder of Guidant's stock in exchange for Lilly stock. With nearly $1 billion in cash, Lilly was ready to beef up its pharma R&D, partner with other companies, and expand its global operations.	

When Tobias arrived at Lilly, he writes, its work–life programs were antiquated. They were geared toward single-income nuclear families, even though a survey showed that only 18 percent of the company's employees fit that category. In response, Tobias and his human resources team developed on-site services such as a credit union and a convenience store, child care programs, medical services, flexible leave, and other ways to help employees enhance their lives.				

Tobias jokes that some employees might consider the coffee bars he installed his greatest legacy. But Lilly's work–life initiatives also won Tobias national recognition. In 1996, Working Mother magazine named him CEO Family Champion of the year. The honor earned him an appearance on NBC's Today. 	

"We recognized at Lilly that everything we did was really the product of our people," says Tobias. "In the pharma industry, most of the value that you are selling is intellectual capital. There's not a social agenda in the work–life initiatives; it's purely a business agenda designed to get the company a competitive edge over companies that are not doing those kinds of things on the theory that we will attract and retain people and enable them to do their jobs more effectively." 	

Nevertheless, becoming the industry's rising star did not shield Tobias from tragedy at home. On May 16, 1994, Marilyn Tobias, his wife of 28 years, committed suicide.				

In his book, Tobias describes trying to help Marilyn in her struggles with clinical depression. She had even begun to take Prozac (fluoxetine), the product that had made her husband's company the first name in antidepressants. But Marilyn, like 30 percent of patients who take Prozac, failed to benefit from it. 	

Personally and professionally, Tobias now works to destigmatize depression and other mental health concerns. In his book, he shares his thoughts on the subject. Within days of its release, he received letters of praise from depression patients and their family members. He says, "I think we all need to recognize how difficult it is for patients and their families who discover that they are dealing with mental health issues to find the right door into America's healthcare system to get help."                                         	

At Lilly, not all of Tobias' management decisions came without criticism. Most notorious was the 1994 acquisition of pharmaceutical benefit manager PCS for $4 billion. But the driving force behind Lilly's merger with PCS-the Clinton healthcare plan-evaporated. Then, concerned that pharma companies would use their PBMs to block competitors' products from the market, the Federal Trade Commission placed a "firewall" between PCS and Lilly products. Lilly eventually sold PCS at a price much lower than it had originally paid for it.				

"The president had made clear that his number-one priority was a new healthcare plan," says Tobias. "Had it gotten implemented in the form in which it was proposed, then having the capabilities that a pharmaceutical benefit manager would have brought to a pharmaceutical company would have been indispensable. As it turned out, that's not what happened. Sometimes the biggest risk is not doing anything." 	

But plenty of Tobias' decisions clearly paid off. Before his 1998 retirement, the company's market value had surged to more than $77 billion. During his tenure, Lilly launched Zyprexa (olanzapine) for schizophrenia, Gemzar (gem-citabine) for pancreatic cancer, ReoPro (abciximab) to prevent complications of angioplasty, and Humalog (insulin) for diabetes.	

Although Tobias has retired from Lilly, he hasn't stopped seeking new challenges. He currently serves on the boards of Kimberly Clark, Conoco-Philips, and Knight Ridder, as well as those of several smaller companies. Soon, if the Senate approves his appointment, he'll be waging an international battle against AIDS. Tobias declines to comment about his upcoming role until he is confirmed by the Senate. In the meantime, he says, "Life is busy and enjoyable and I'm having a good time."	

During his five years at Lilly's helm, Tobias proved his quibblers wrong, but he remembers those who believed in him. In his book, he reflects on the day that Clyde Lee first interviewed him. After Tobias answered Lee's questions and shared his vision for the company, a longtime employee stepped forward. "I knew Mr. Lilly," the employee said, referring to one 	

of the early leaders of the Lilly dynasty who was known for his rapport with the company's workers. "I worked here when Mr. Lilly was in the company and watched him as he would make his way around and talk to employees. 	

I want to say that the things I just heard are exactly the things I think Mr. Lilly would have said. Welcome aboard, Randy."	

Articles

Features

In his new book, former Lilly CEO Randall Tobias explains his ideas about management. Do they work? He'll have a chance to prove it as he takes the reins of America's $15 billion global campaign against AIDS.

The Outsider

The economy may still be suffering from the twin shocks of September 11th and a bursting technology bubble, but pharma spending on promotions continues to grow at a double-digit pace.	

Total spending-including direct-to-consumer advertising (DTC), professional advertising, detailing, and sampling-grew by 11 percent from 2001 to 2002, from $19.4 billion to $21.5 billion. For the first five months of 2003, the pace of growth in DTC expenditures is a bit slower than the 15 percent average annual growth the industry saw from 1996 through 2002, and considerably less than the astonishing 23.6 percent increase in spending that was recorded from 2000 to 2001. But promotional spending continues to represent about the same percentage of pharma sales: 11 percent in both 2001 and 2001, but down from 15.7 percent in 2000 and 13.2 percent in 1999.	

The figures come from an analysis of pharma promotional spending conducted by the research and consulting firm IMS Health and compare the year-end results of 2002 with 2001. IMS collects data from various healthcare sources, such as drug manufacturers, retail outlets, and hospitals, and receives additional information from TNS Media Intelligence/CMR. Tracking firms Verispan and PERQ/HCI also provided data for January through May and June, 2003. 	

Spending on prescription medicine DTC advertising dropped two percent in 2002-the first year it has decreased. But expenditures are up so far in 2003. 

Spending on blockbuster products remained strong.

Journal advertising grew a scant three percent in 2002-a welcome relief for publishers because spending in the sector dropped 11 percent in 2001.

Overall spending and sampling grew 13 percent each in 2002. 

The numbers raise some important questions for pharma: Has DTC finally hit a plateau? Will professional advertising budgets return as pharma companies gain a more sophisticated sense of the return on investment of various media? And how high is the industry willing to go in its detailing arms race?	

"Pharma marketers have become more savvy," says David Blumberg, managing partner for North American health and life sciences at the consulting company Accenture. "They realize which products have more of a consumer focus and which don't, and they react accordingly."	

Spending on DTC advertising for brand-name products dropped two percent in 2002 to $2.64 billion, down from $2.68, according to IMS Health. The fall marks the first ever decrease.				

Linda Cicarelli of the healthcare marketing agency Sudler & Hennessey and a member of the Association of Healthcare Media Directors, says, "Reports started coming out that the return on investment (ROI) wasn't there, and companies pulled back some of their spending because of it."   	

Robert Coen, director of forecasting at the media planning firm Universal McCann, put it more succinctly: "If there's a chance their competitors won't advertise for some reason, they won't either."	

GlaxoSmithKline outspent its competitors in 2002 with $504.5 million in DTC advertising, a five percent increase from the previous year, because of increases in ads for such products as its diabetes medicine Avandia (rosiglitazone). Pfizer's DTC outlays reached $333.3 million, up four percent in 2002 in support of its statin medicine Lipitor (atorvastatin) and arthritis treatment Bextra (valdecoxib), among others. Merck came in third at $319.2 million, a two percent increase for the year, as it continued to advertise the statin Zocor (simvastatin), followed by Johnson & Johnson at $226.6 million, a 27 percent increase to support ads for its arthritis treatment Remicade (infliximab) and antifungal remedy Nizoral (ketoconazole). And AstraZeneca was the fifth highest spender at $205.1 million, up 43 percent, to increase advertising for its gastrointestinal treatment Nexium (esomeprazole) and migraine medicine Zomig (zolmitriptan). For the year ending March 31, 2003, Lipitor generated $6.3 billion in sales, followed by Zocor with $4.2 billion in sales, IMS says. Rounding out the top ten companies were	

Schering-Plough, $144 million, up 12 percent

Pharmacia, $131.7 million, down 33 percent

Bristol-Myers Squibb, $117.4 million, down 31 percent

The wide variations in promotional expenditures among the last three of the top ten spenders were because of several external factors. Pharmacia's DTC spend declined as a result of its pending merger with Pfizer; BMS decreased spending partly because it was mired in financial and legal trouble; and TAP, after paying fines and shedding its legal woes, increased its spend to support the acid reflex treatment Prevacid (lansoprazole). Prevacid was the third highest selling product for the year ending March 31, 2003, with $3.7 billion in revenues. 	

The top 20 companies represented 61 percent of all DTC spending in 2001 and 69 percent in 2002, according to IMS. "The heavy DTC spenders will continue to do so," says David Gascoigne, IMS' consulting practice leader for promotional effectiveness, adding that companies have become wiser about the use of DTC. "What we've seen is that DTC advertising is no longer just a launch phenomenon."	

 Within DTC budgets, online promotions picked up steam in the past year as companies began realizing the benefits of providing electronic coupons on their own websites, larger ads on other sites, and other e-promotions.  	

For the first six months of this year, pharma companies spent $116.2 million on e-promotions, according to Verispan, which began tracking pharma's online expenditures in 2003. Matt McNally, media director for the online promotion consulting company Insight Interactive, says pharma companies are just beginning to use TV ads to drive consumers to websites. He says large pharma companies have begun launching two or three online campaigns per year for their blockbusters.	

Nevertheless, Stephen Smith, president and CEO of online pharma marketing software company Optas, says that pharma companies are "about a decade behind financial services firms when it comes to sophisticated internet marketing." So although online spending continues to grow, the "luster is off" the internet as the hot new thing, and marketers are looking squarely at ROI before committing to large web expenditures. 	

"Companies still need to better coordinate their e-marketing strategies with traditional campaigns," Smith says. "The mantra, 'Do more with less' came through loud and strong in the past year."	

 So far in 2003, Verispan says DTC spend is up, with companies dedicating more than $1.4 billion to consumer promotions for the first five months of the year, an increase of 13.8 percent. 		

"There will be increases in DTC spending overall in 2003 and 2004," says Gascoigne. "But it won't be at the same magnitude as the late 1990s." He also predicts that, besides spending on statin ads, Bayer/GSK, Lilly/Icos, and Pfizer will push the erectile dysfunction category into the top five in 2004, because Bayer/GSK's launch of Levitra (vardenafil), Lilly/Icos will introduce Cialis (tadalafil), and Pfizer will boost advertising to protect its market-leading Viagra (sildenafil).	

Blumberg says companies also will spend heavily on ads for allergy, pain relief, and anti-anxiety treatments because competition remains strong in those categories. "Those types of products translate well to DTC ads because they can talk about symptoms that consumers can relate to," he says. "Patients are acutely aware of what they're feeling, as opposed to hypertension, which is a silent killer. That category is often better served through professional advertising, because doctors are better at delivering the message treatment."	

He cautions that the wild cards during the next few years are FDA and pharma pipelines. Government scrutiny of product ads will likely increase, and officials could become more conservative even though FDA is trying to approve products faster. "And," Blumberg adds, "if the top 15 companies enter a period where they release uninteresting products, DTC spending could erode."  	

Though journal advertising grew a scant three percent in 2002 to $481.2 million, up from $466.3 million, reports IMS, the increase was a welcome relief for publishers because professional spending had dropped 11 percent in 2001, down from $523.1 million in 2000. But IMS' data only includes money spent on ads for prescription medicines.				

PERQ/HCI, a division of VNU, reported a much higher figure for journal advertising in 2002: $752.5 million, which includes ads for non-prescription products. Yet, PERQ/HCI says its figure grew three percent over 2001, the same as the growth reported by IMS.  	

Gordon Hughes, president and CEO of American Business Media, says DTC advertising, the chief rival for pharma's dollars, has yet to reach stagnation despite the decrease in spending in 2002. He says the sector grew so much during the past six years that it is premature to think it has reached its potential. "We know DTC campaigns work to raise awareness," says Hughes, "but it doesn't educate consumers about the products they take."	

Hughes and consultant Mark Rothman, president of Mark Rothman & Associates, believe that about $300 million companies diverted to DTC from the professional ad ranks during the last few years. But they say recent studies show that journal adverting remains the best way to reach physicians. (See "AMP Still Pushing its ROI Report," PE, April 2003.) The Association of Medical Publishers claims journal ads generate the highest ROI when compared with the other advertising channels, DTC, detailing, and meetings and events.	

"We're down a bit but we've basically held our own," says Art Wilschek, executive director of worldwide advertising sales for the New England Journal of Medicine (NEJM). "The last three years have seen an overall downward trend."		

Wilschek declined to discuss specific numbers, but according to PERQ/HCI, NEJM ad revenues slipped 4 percent in 2002 to $17.2 million, as ad pages decreased 7 percent to 2,297.5 for the year.	

He blames the drop on a lack of new products and the DTC shift, but he believes 2003 and 2004 will be better because of Levitra and Cialis, and he expects AstraZeneca to aggressively market its new cholesterol-lowering treatment Crestor (rosuvastatin).	 

And, like Hughes, Wilschek also is confident that some DTC dollars will find their way back to journals. "Companies realized they overspent on DTC because the ROI was low. DTC ads work, but not for what companies were spending on them."   	

For the first six months of this year, journal advertising is up 13.1 percent to $205.6 million compared with the same period the previous year, according to Verispan. PERQ/HCI says the hotter therapeutic categories for journal advertising include diabetes/endocrinology, gastroenterology, oncology, and osteopathy. 	

Hughes echoed Blumberg's warning about the possibility of federal officials negatively influencing spending. "FDA and FCC [Federal Communications Commission]are looking at pharma ad expenditures and whether they are driving up drug costs," Hughes says. "It's a double-edged sword because we in the journal publishing trade want those dollars to come back." 	

Both detailing and sampling grew 13 percent each in 2002, IMS says. The budget for  sampling reached $11.96 billion, up from $10.55 billion in 2001, and detailing hit $6.39 billion in 2002, up from $5.66 billion the previous year.  				

"The key driver of brand performance is still professional promotion," Gascoigne says. "But the question remains, 'How does a company increase face time with physicians?' Detailing and sampling are both up 13 percent each, but they've reached a saturation point."	

IMS breaks the data down by office- and hospital-based doctors. Office detail volume far exceeds hospital visits, but hospital calls grew by a larger percentage. Pharma companies spent $5.48 billion on office-based detail visits, up 11 percent, and spent $908 million on hospital calls, up 24 percent from 2002. The number of prescriptions grew 4 percent to 3.34 billion in 2002.  	

 Industry insiders agree that detailing and sampling remain two of the best ways to reach doctors to increase prescription sales, but the numbers associated with fielding significant sales reps are beginning to work against pharma companies.	

Ron Brand, IMS' consulting practice leader for sales force effectiveness, says the driving force behind detail and sample numbers is the proliferation of pharma field reps, which are fast approaching 90,000. He considers that a saturation point and predicts the number will "flatten out" over the next two years.	

"The issue will come down to which pharma company will be the first to make cuts to their sales force," he says, "because no one wants to lose their share of voice in front of doctors."	

 Brand estimates that, not including sampling costs, the average cost of a detail call-which only lasts about two minutes-climbed to $160 in the past year. And on average, reps cost a company about $175,000 annually, which includes base salary, incentives, training, benefits, and other expenses.	

But Brand questions whether companies are gaining a competitive edge for their money. He says doctors complain that reps are more like salespeople than  providers of balanced clinical and product information, and that they are "generally younger and not as well trained" in various aspects of their products as in the past. "Just throwing reps at a doctor is not the way to go. The value of a call will be based on conveying the right messages to the right doctor."	

Cicarelli agrees. "They might still be among the best ways of reaching physicians, but a lot of money is being wasted on detailing and sampling."	

The economy may still be suffering from the twin shocks of September 11th and a bursting technology bubble, but pharma spending on promotions continues to grow at a double-digit pace.

PE's annual Media Spend Trends

To hear industry leaders talk, a new model for marketing pharmaceuticals to managed care is just around the corner. In the new paradigm, value will be key. Pharma will provide information about their products' superiority-and prove it through pharmacoeconomic data. And managed care will make simple, transparent calculations about which products will be included on the formulary and the level at which they are reimbursed. Contracts, rebates, and guesswork will be a thing of the past. Evidence will rule the process of formulary review.	

It is, in many ways, an appealing picture. But it raises a host of questions: How does pharma transform a marketing process currently dominated by an army of traditional sales reps? Who will provide pharmacoeconomic data, and how will the industry move toward a reasonably standard way of interpreting it?  How will value be defined? And most important, how will stakeholders with very different needs and goals manage the process of moving from the present system to the future one?	

To help answer those questions, this July, Pharmaceutical Executive convened a roundtable of leaders from the pharma industry, public and private payer organizations, and public interest groups. In the course of a vigorous three-hour discussion, the group analyzed the new value paradigm, pointed out obstacles to change, and suggested strategies for aligning the interests of patients, healthcare providers, and industry.	

The session was marked by a diversity of opinion, but some major themes emerged:	

Though value may seem to be a simple concept, it is difficult to define or to apply. One major problem is that quality-of-life issues don't translate into value for payers.

Pharmacoeconomic data are an essential element of the new marketing model. But neither pharma nor managed care is quite ready for evidence-based decision making. 

Some of the most important changes to the reimbursement system will be ignited from payers' management of new large-molecule injectable drugs.

What follows is a summary of the roundtable discussion. For additional information about the issue, see "Show Us the Value," page 80, which is based on the same survey results David Balekdjian presented to the roundtable group.	

The keynote address challenged pharma and managed care organizations to fully embrace a system in which products' 				

reimbursement is based on their value. The executives around the table agreed that value should play a lead role in determining whether and how a particular therapy will be covered. They even decided that the notion of value would define the next era of reimbursement. Yet, although they could settle on the general principals of value, they could not agree on how to apply the concept. After all, pharma's customers each have their own set of needs and concerns which they seek to have prescription pharmaceuticals answer. 	

"The range of players and their particular interests makes me realize we are on the front end of a relatively non-elegant journey," says Jack Bailey, vice-president of Lilly's business-to-business division. "But until we define value, we can't align the incentives, which is really when the healthcare system will transform."	

Pharma companies' journey to defining value for its customers will likely affect their marketing practices. Richard Reece, MD, pathologist, editor of Physician Practice Options, Quality Indicator, and author of A Managed Care Memoir: A Physician's Whistle-Stop Journey, notes that industry "has historically defined its value proposition through consumer advertising and by 90,000 drug reps visiting doctors' offices."	

But today, payers take the lead in defining value. John Seman, PharmD, and CEO of the reimbursement agency HealthBridge, says "The payer's power base is increasing by virtue of new drugs coming to the market, increasing healthcare costs, buyers or employers pushing back on those costs, and payers answering that by pushing more generics and other low-cost drugs and employing more cost-containment strategies."	

But payers are a diverse group and use different endpoints for determining value. Joan Henneberry, director of health policy studies at the National Governors Association, analyzes state management of pharmaceutical programs and benefits. She says, "Private purchasers such as employers have additional incentives for quality and outcomes-like more productivity and better attendance at work-than a public purchaser like Medicaid might have."	

That's in stark contrast to non-US models built around one payer. "The European Union and the United Kingdom's NICE [National Institute for Clinical Excellence] model have decided what value means to them," says Suzanne McDonald, division vice-president, general manager of Abbott's managed care franchise. "They clearly establish 'Is this therapy worth the number of life years that I might get from this particular product?' And that is not a position that payers in this country, up to this point, have been willing to take."	

Sharon Levine, MD, a pediatrician and associate executive director of the Permanente Medical Group, represented RxHealthValue-a coalition that seeks to ensure that consumers get full health and economic benefit for their prescriptions-before the US House of Representatives last fall. She claims, "There is a standard definition of value in healthcare. It's quality divided by cost. How much health are you getting for every dollar you spend?"	

But who defines quality? After all, patients and physicians may demand it in ways that don't accrue to payers. "For patients, it is ultimately about how important drug therapy is to their life, mobility, and ability to be productive in the workplace," says John Seman. "And it can vary by patients. Therapies that work with some patients may not work with others. How do we mark one therapy as high value when there is a group of patients who do not respond to it?"	

When companies decide that achieving a preferred formulary status is important to their commercial goals, they may employ strategies to translate value into terms payers can understand. "As long as formularies are in place and use mechanisms such as patient out-of-pocket differentials that guide and affect patient choice of therapy, then pharma companies must consider formulary placement within the overall strategy of selling their products," says Kathleen Kaa, PhD, RPh, director of payer policy at the Lash Group consultancy. "But with preferred formulary status may come trade-offs, such as price and program concessions." 	

"To me, that's really the value paradigm," says Michele Pesanello, associate partner for IBM Consulting Business Services, which outlines changes to the pharma industry in its report "Pharma 2010: The Threshold of Innovation." "Companies must look at what they have to do-whether it is pharmacoeconomic studies, contracts and rebates, marketing programs like DTC ads, and other services-that make the perceived value of the product higher than the actual clinical value." 	

A recent Datamonitor report pegs industry's poor performance in communicating product value to its inability to understand what payer decision makers' needs are. That's true, according to David Balekdjian, who notes from his survey that payers are increasingly relying on pharmacoeconomics to guide their formulary decisions, but that pharma companies are not yet "up to snuff" on providing that type of information.				

Part of the problem is industry's slow response in shifting its business to fit the emerging paradigm. Steven Avey, MS, RPh, Foundation for Managed Care Pharmacy executive director, says, "We realized that the pharmacoeconomic models aren't going to be very good in the beginning because industry needs more experience dealing with them. Quite frankly, the United States is very late getting into the game. Pharmacoeconomics and health outcomes evaluations have been going on in Europe, Canada, and Australia for a long time." 	

MCOs also need to gain experience in integrating those studies into their methodology for formulary decisions and expertise in analyzing and comparing models from different companies. To that end, Kaa says she often "has to come to the defense of pharma. A managed care organization can demand certain information, but until they show how they effectively use it, there is going to be some push and pull in providing it, given the very real resource issues manufacturers face to provide this information in the required formats. Payers should be capable of saying, 'Here's the information that we require companies to submit. And here's how we actually use this information.'"	

Although an entire roundtable could be dedicated to the lack of communication between pharma and managed care, attendees hailed from organizations replete with examples of effective working relationships. 	

Tracey Gerthoffer, PhD, RPh, senior manager of outcomes research for Pfizer, noted that those conversations are happening at Pfizer. She says the company invites managed care organizations to partner with them and provide input into their economic models well before launch. Gerthoffer also stressed the importance of reaching out to payers to find out what programs matter to them and what their issues are, throughout the product lifecycle. 	

Cynthia Pigg, RPh, MHA, vice-president of pharmacy for Cigna, claims that relationships with health plans develop "just like in any other business relationship. There are some pharma manufacturers that you come to trust because you have worked with them in the past, so you tell them to come in with their pharmacoeconomics model. I'll give them a lot more attention than somebody that I don't have an established relationship with or that hasn't worked to the betterment of all of us." 	

Pharma companies can help build trust by tailoring formulary submissions to promote appropriate use to specific populations. Steven Lo, senior director of managed care for Genentech, says, "If a manufacturer can work with the payer to help identify the appropriate patient for their therapy, a greater level of trust can occur. For those products that have a diagnostic-Herceptin is an example-companies can define an appropriate patient, like a HER 2 positive patient."	

Ceci Zak, director of customer marketing for Roche, says that the company's strategy in developing the hepatitis treatment Pegasys (peginterferon) is another example of an effective way to build relationships. "We focused first on the payer, because if the payer is not going to reimburse or the challenge for them is how to handle this product, the patient will never get it. We designed the clinical development of the product and different studies to show the economic value of Pegasys. We established efficacy first, safety second, and based on the clinical trials, we established different dosing regimens for hepatitis patients which provided additional value to the payers."	

But health outcomes studies may not be enough in crowded therapeutic categories. Levine says, "The pharmacoeconomic part of the AMCP dossier is still quite primitive, and there are things that hamper the robustness of the use of pharmacoeconomics studies. They are handicapped without head-to-head comparisons of drugs in a class or different therapeutic classes to treat the same condition."	

Despite the rare instances in which pharma conducts head-to-head trials, MCOs welcome them with open arms. Dub Sitton, national director of managed care for Sankyo Pharma, points to the company's angiotensin II receptor blocker (ARB) treatment Benicar (olmesartan), which enjoyed significant uptake among managed care providers, despite the numerous competitors in that class. He says that, because Benicar was a late entry into the market, Sankyo demonstrated the product's value by conducting head-to-head studies that showed Benicar had superior efficacy over Merck's ARB market leader Cozaar (losartan) and Pfizer's widely prescribed Norvasc (amlodipine). 	

But given that most companies are still struggling to conduct effective pharmacoeconomic studies and that many managed care pharmacists must still undergo extensive training to analyze those models, PE editor-in-chief Patrick Clinton asks: "Are pharma companies the most appropriate stakeholder to provide health outcomes data for products? Might it be more effective for payers to analyze their databases to find out which therapies offer patients the most value?" 	

Kaa says, "Staff model MCOs, like Kaiser Permanente, are particularly good venues in which to conduct those types of analysis. They have claims and experience data, as well as access to other patient data like quality-of-life, productivity, risk assessment, and satisfaction levels. Clinical trial work is traditionally not 'real life' experience and evaluations depicting real life experiences are warranted in healthcare evaluations. 	

"Others don't have those resources. But even though pharma might be willing to provide MCOs with dollars to do those studies, some MCOs don't want to. It might be because they don't have the infrastructure. Or it might be because there is a struggle between MCOs and pharma and biotech groups about trust and appropriateness of information use." 	

Art Levin, MD, is medical director of HealthPlus, a Medicaid managed care company in Brooklyn, New York. He believes that "managed care organizations may be a logical place to conduct pharmacoeconomic studies. But we're not set up to do research or scientific investigations at the present time. And if we did them, we might be criticized for being biased. 	

"It might be that the best people to do those kinds of studies are neither the pharma nor the managed care companies, but someone who cannot be criticized for being biased, like a university." 	

Steven Lo agrees. He says, "Here's a real simple analogy: An employer that's buying a fleet of cars for its field force isn't going to hire mechanics to take it apart. But they're going to take the word of Consumer Reports, or some other reliable data source. Why should it be any different for systems that are buying healthcare products?"	

Although nonbiased parties may be the best way to conduct health outcomes studies, Ceci Zak says it still comes down to the age-old question: "Who is going to end up paying for it? That's the part that we struggle with, because there is no one else right behind pharma companies that will help make pharmacoeconomic studies happen."	

In fact, consumers may fund health outcomes studies, because they stand to benefit from having that information at their disposal. John Rother, director of policy and strategy for AARP, says, "There are drugs that represent such marginal improvement that it staggers the imagination to think any informed buyer would pay out money for, let's say, Nexium. On the other hand, there are products like statins that represent dramatic increases in value. How are consumers supposed to evaluate that? On the basis of TV ads? Health outcomes information held within the managed care community will not be as powerful until it gets out into a public realm. So it's inevitable that taxpayers will have an interest in funding these studies in order to give consumers the power of the information to evaluate their options."	

Albert Wertheimer, PhD, MBA, director of the Center for Pharmaceutical Health Services Research at Temple University, has conducted studies on the value of prescription drugs on behalf of the National Pharmaceutical Council. He notes, "There is a more fundamental problem of communication because much of what people are asking for is out there. There is a very sophisticated expert group in Texas that does pharmacoeconomic analysis for the Army. The Blue Cross association has a group in Chicago that's getting off the ground-Rx Excellence. NICE has a tremendous database. The VA has done studies. The pharmaceutical industry has produced some. Plus all of the HMOs have done one or two studies.	

"There really is a lot. Yet, maybe we're guilty of that 'not invented here' syndrome or we think other people can't do it as well as we can. But much of the data-the guts of it at least-that we're bemoaning isn't there is. It's just that we have to apply, borrow, and take it."	

There's always the chance that the call for pharmacoeconomics is a party line. Because, in spite of its ability to simplify reimbursement decisions, payers haven't yet incorporated it in that way. 	

Michele Pesanello notes, "It's great to say, in an ideal world, that formulary decisions are made based solely on pharmacoeconomic or clinical data. If that were the case, everybody from the pharmaceutical side of the table would cheer because that would eliminate the need for rebates or discounts, and companies could then just plow that money back into clinical instead. It may come down to pharmacoeconomics in the future. Right now, though, pharma companies aren't positioned to do those because they haven't done them in the past, so it will be more of a long-term investment."	

Given the cost, the management of biologics is payers' number one issue in 2003 and beyond. But overcoming the disconnect between pharma's high-priced advances in science and payers' ability to manage those prices-exemplified in headlines such as "Last Hope for Lymphoma, $28,000 a Dose" (Wall Street Journal, June 18, 2003)-is a challenge to all stakeholders.				

At the most basic level, health plans are wrestling with how they manage those products by altering benefit design. "Biologics can fall under the pharmacy or the medical benefit, which has implications for how it is billed to the health plan," says Lo. "Pills are always covered on the pharmacy benefit side. But we're seeing a trend where managed care organizations are shifting self-administered biologics to the pharmacy benefit side-while those biologics that are administered in physicians' offices are billed under the medical benefits-which gives health plans opportunities to try to manage them by putting together a biologics/injectables formulary."	

The challenge to industry is that each payer deals with advanced therapies in a different way. "Orals are simple," says  Zak. "The review process is consistent and when they put pills on formulary, it is fairly transparent throughout the industry. But injectables are continually changing-how payers review them, put them on formulary, and what that status is-and they are starting to look at how to manage them as a whole." 	

However, benefit design philosophies and strategies, such as the emergence of fourth and fifth tiers on formulary and co-insurance schemes, mean that MCOs are jockeying into position to pass those costs onto patients. After all, no matter what benefits look like, it is unlikely that payers can sustain a $5 patient co-pay for a $25,000 drug. Therefore, pharma companies must pay close attention to how MCOs manage relevant therapeutic classes so they can include their value proposition as well as reimbursement information in their professional marketing campaigns. 	

"We know that the way physician office-administered drugs are going to be reimbursed is a huge issue around the success of these biologics," says Kaa. "We've got products that are in the middle of either succeeding or failing, simply because of what's happening at the physician office over reimbursement. In some cases, patient preference may not matter as much as it has traditionally. There can be instances when a physician may not administer a product due to their own reimbursement issues and feelings that their services will not be adequately financially recouped."	

Because the net of therapeutic categories that contain injectables or biologics is widening, it behooves all stakeholders to figure out how to more effectively manage their cost, administration, distribution, and reimbursement. 	

"A lot of biologics and pharmaceuticals are coming out for diseases that have never been treated with an injectable before-dermatology, HIV, and osteoporosis to name a few," says Zak. "The challenge that we all have is how does a practitioner handle them, because, with everything that's been going on in the field of reimbursement today-sometimes, they back off and manage with what they have."	

Pharmaceutical Executive challenges 21 experts to grapple with the future of the healthcare system.

A New Deal with Managed Care

I suppose, when you get right down to it, I've gotten used to the idea that in this country we don't actually debate issues. We holler and call our political enemies names. We play elaborate games of spin control and do our damnedest to ensure that every question of policy, no matter how straightforward and practical, gets linked in the public mind with abortion rights, gun control, and a half dozen other completely intractable hot-button issues. But discuss rationally? Not really. As I said, I'm used to it. We're all used to it.	

So I was surprised this summer at how infuriating I found the uproar (Should we really dignify it with the word "debate"?) over drug reimportation. Here was an extremely important subject, one that should have laid the groundwork for a whole sequence of discussions over the future of healthcare. And it was handled atrociously.	

The worst offender, for my money, was Congress, where it was rare to hear a word that displayed any kind of intellectual integrity. It's not easy to single out the worst failure of logic or responsibility. Maybe it was the absurd assumption that if a few people in border towns can save money by buying their drugs from Canada, then everybody can save by buying drugs from Canada. Maybe it was the insincerity (common enough in the House of Representatives) of politicians who felt they could please their constituents by casting a vote that they knew would never have any practical effect. Maybe it was my own pick-the notion that somehow it was okay for the US to borrow someone else's price controls rather than construct its own.	

Pharma for its part didn't fare much better. Industry pronouncements about product safety, though they contained more than a little truth, mostly came across as self-serving and insincere. (What's worse, they put American pharma companies in the position of seeming to argue that their own products, once they cross the border, are somehow life threatening.) And the succession of news stories in the Washington Post and elsewhere revealing industry funding of groups such as the Traditional Values Coalition-which outrageously attempted to tie reimportation to abortion, alienating even hard-core anti-abortion groups in the process-were an ongoing embarrassment.	

In the long run, the strongest case for pharma is one built on value. (See pages 66 and 80 of this issue for stories that explore the concept.) It won't necessarily be easy to sell to the public-a case built on numbers rarely is. And it won't necessarily benefit every company and product; some drugs really are overpriced. But this is an industry that creates products that by and large work, that improve people's lives, and that are often the key to controlling healthcare costs. If you believe that-and you should-why would you want to defend the industry any other way? Who knows, once the public gets to hear some facts in public debate, they might develop a taste for them. Factual discussion in American public life? It's not the kind of cure pharma usually provides, but it would be a welcome one.	

From the Editor

I suppose, when you get right down to it, I've gotten used to the idea that in this country we don't actually debate issues. We holler and call our political enemies names. We play elaborate games of spin control and do our damnedest to ensure that every question of policy, no matter how straightforward and practical, gets linked in the public mind with abortion rights, gun control, and a half dozen other completely intractable hot-button issues.

Matters of (Re)Import

Affordable healthcare has become a leading political and social hot button in the United States, and managed care organizations (MCOs) have responded by seeking to reduce pharmaceutical expenses to rein in rapidly increasing costs. Historically non-aggressive,  MCOs are now behaving like true consumers and demanding that new drugs bring value to the overall healthcare system, relative to the cost and effectiveness of cheaper, older alternatives.	

That seemingly simple objective-to link pharmacoeconomic value to formulary access-has resulted in a dramatic paradigm shift called outcomes-based access. OBA policies, which include programs to promote generic drug use and restrict brand-name sampling, are forcing pharma companies to reevaluate the basics of their business model. 	

The Bruckner Group (BGI) has tracked the inception and growth of outcomes-based access for the past five years, including the 2001 release of a "Format for Formulary Submissions" from the Academy of Managed Care Pharmacy (AMCP). (See PE, "Raising the Bar," November 2002.). In June and July 2003, BGI surveyed executives from the largest MCOs and pharmacy benefit managers (PBMs), representing approximately 80 percent of covered lives. (See "Payers as Decision Makers," page 84.) This article analyzes the results of that survey and highlights how payers perceive the progress of OBA programs and how well pharma companies comply with them.	

In designing the study, BGI specifically sought to understand				

the present state of the formulary decision making process

the impact of OBA programs (including use of the AMCP format) on the payer sector 

how MCOs and PBMs perceive their interactions with pharma companies throughout the formulary evaluation process 

how communication and cooperation between MCOs and manufacturers can be improved to balance their often conflicting needs. 		

The study's results confirm that outcomes-based access is becoming an established industry standard. 	

Evaluating value. Nearly 100 percent of MCOs and PBMs now analyze a drug's value when making formulary decisions. To do so, they use use pharmacoeconomic models that are based on outcomes research data and that incorporate the fundamentals of a clinical evaluation: efficacy, side effects, and safety. The analyses seek to determine the relative value of a treatment, both economic and therapeutic, compared with the standard of care: available brand-name treatments and especially generic alternatives. When treatments demonstrate unfavorable value relative to the standard of care, MCOs often reject them for preferential formulary inclusion. And if they do make them available, patients must pay a substantially higher co-pay or the full retail cost.	

The AMCP format.  MCOs and PBMs, representing approximately 65 percent of covered lives, have officially adopted the format, and nearly all payers use it to some extent. The majority of those using the AMCP format will not review a noncompliant submission unless it represents a breakthrough treatment. The issue of compliance is somewhat moot, however, because survey respondents say 80 percent of formulary submissions are prepared in the AMCP format. Non-compliant submissions come largely from small companies that are unfamiliar with the process.	

Lack of substance. Although nominal compliance with the format has been largely achieved, the substance of submissions is more problematic, especially in the key areas of evidence-based outcomes data and "value propositions." Virtually every MCO and PBM in the survey expressed dissatisfaction with the quality and quantity of submissions' outcomes data, pharmacoeconomic arguments, and value propositions. Most have found that when value propositions exist at all, they fail to demonstrate adequate value or are otherwise incomplete or misleading. 	

That shortfall may result partly from companies' lack of outcomes research capabilities and comprehensive outcomes data. Many of the clinical trials for recently submitted drugs were not originally designed for intensive pharmacoeconomic scrutiny. Companies often scramble to assemble reasonable composite models after the fact.	

Fadia T. Shaya, PhD, associate director of the Center on Drugs and Public Policy and assistant professor at the University of Maryland School of Pharmacy, is an expert in outcomes research and has a great deal of experience preparing and conducting pharmacoeconomic studies for both managed care and pharma companies. She says, "It is a learning process for pharmaceutical companies as well as health plans. The process will be better streamlined when there is a critical mass of producers and users of pharmacoeconomic data." 	

Driving the actions of MCOs is their belief that the affordability of healthcare is  at risk. "Manufacturers are producing many higher cost products that eclipse other products that have come before them that work very well," said study participant Dr. Robert Seidman, Pharmacy Director of WellPoint Health Networks. "The effect is to add cost to the healthcare system without adding any value." Another respondent, Matt Hosford, Advance PCS Director of Medical Affairs, concurred. "Where there is a large generic class, there tends to be not much value in the branded products."  					

No one denies that pharmaceuticals can reduce costly emergency and critical care. But from the payer's perspective, many of those benefits have already been realized and are available from proven and cheap generics. Managed care executives argue that in many disease areas, expensive new treatments are little different from existing, cheaper alternatives. They feel strongly that manufacturers must provide evidence-based data to demonstrate that new therapies produce equal or better patient outcomes and have a favorable effect on the overall cost of treatment. Otherwise, they need to be priced in line with equally valuable competitor products. 	

Yet many survey participants expressed skepticism about whether pharma companies are genuinely serious about addressing those concerns. One pharmacy director said frankly, "They act like they get it, but then they go home and they laugh at us."     	

Payers are uniformly asking for the same thing: products that offer more compelling value. Specifically, payers are looking for more Phase IV trials, head-to-head studies against the standard of care rather than placebo, and better communication with companies throughout the product development process. 	

Medicare, the single largest payer, also seems to be moving toward a value focus. Consider the following developments: 				

Thomas Sculley, administrator of the Center for Medicare Services (CMS), publicly called for greater value in pharmaceuticals, specifically citing AstraZeneca's Nexium (esomeprazole) as an "embarrassment."

FDA and CMS created an ad hoc liaison office that appears to advise CMS on economic decisions. 

Medicare declared that Aranesp (darbepoetin) is a functional equivalent to Procrit (epoetin alpha), essentially leaving Amgen with no choice but to re-price its second-generation product.

Congress has made repeated rumblings about revamping Medicare's average wholesale price-based reimbursement system. 

Although a Medicare prescription drug benefit is still uncertain, the huge expansion of Medicare's mission will undoubtedly include the introduction of a formal value methodology to stretch scarce dollars as far as possible. 	

Although pharma companies have taken some steps toward providing managed care providers with what they want, many have reservations about doing so. For example, most manufacturers fear conducting head-to-head studies because they see them as highly risky-because the results are unpredictable and potentially unfavorable.	

Those fears, though undeniably real, are self-defeating. Pharma companies need to appreciate that there is far greater risk in not conducting such studies. If a company initiates a head-to-head trial, it will have complete control over the dosing regimens, population, and endpoints-resulting in hard data demonstrating the clinical superiority of its product over competitors'. Free to frame the marketing debate on such solid footing, the company can expect at best a weak "sore loser" attack on the details of their study design, pending a competitor's reactive head-to-head trial. 	

Another trend in MCOs' push to cut expenditures is the promotion of generic drugs. (See "The Truth About the On/Off List," page 86.) Those programs include widening the gap between generic and brand-name co-pays by as much as $30, providing samples of generics, and dispensing materials that tell patients how they-and even their doctors-can be a team player in the fight against the high cost of healthcare. Every managed care company surveyed indicated it had programs to promote generic drug use, but two companies discussed relatively new initiatives that are more assertive. 				

United HealthCare launched a program within the last 18 months that sends letters to patients who use certain classes of brand-name drugs for which a generic equivalent is available. The letters inform patients of the specific alternatives and cost savings that would result from switching to the generic. Executives from UHC claimed that the program is a success, and although they were unwilling to provide actual numbers, they said simply that they are seeing "a high response rate." 	

Aetna has launched a similar program, generating a 10-15 percent response rate. Coupled with other initiatives, the company now has a 30 percent generic substitution rate. A sample of its promotional copy reads: You can save $300 per year on just one prescription medication by switching to a generic drug! As you can see, the choices you and your doctor make regarding prescription drugs affect how much you pay for them.	

The managed care industry seems to be trying to work with pharma companies to address product development and value concerns. But if the cooperative approach doesn't work, MCOs have the ability to take aggressive unilateral steps that will address their needs.  				

One new development that makes those steps possible is that an increasing number of MCOs and PBMs, including Advance PCS, Health Net, and Aetna, have drastically changed the responsibilities of pharmacy and therapeutics committees by separating economic decisions from P&T committee decisions. Under the new model, the committee, frequently composed of a majority or entirely of non-employee voting members, is exclusively responsible for deciding safety and efficacy issues. Once the P&T committee has completed its review, a separate internal group, composed entirely of MCO employees, then considers the economic merits of treatments before making final coverage decisions.	

It's worth noting that survey participants would not explain the economic review process, either citing it as an internal matter or simply refusing to provide any specific information. What's clear is that, if pharma companies do not independently comply, MCOs will find it that much easier to limit physician and patient access to drugs that do not demonstrate adequate value.	

Additionally, annual therapeutic category reviews have taken on new meaning. In the past, they were a relatively benign tool used to assess overall coverage, particularly efficacy and side effect issues, within a particular category. Yet, several survey participants indicated that value discussions have not only entered those reviews, they have often produced formulary changes. They reported that coverage decisions have been affected by new value propositions within a therapeutic class. Manufacturers, which have traditionally focused on getting their products on formulary, must now take steps to ensure that their products remain there.	

Survey participants noted that certain companies-Merck, Pfizer, and Roche were frequently mentioned-have shown serious intent to address the managed care industry's needs. Merck, in particular, has demonstrated a high level of responsiveness to payer requests and a willingness to engage in meaningful dialogue. CEO Raymond Gilmartin stated in March 2003 that Merck's strategic focus and mission-critical goal is to develop products that offer compelling value. "Where the competitive advantage can be gained is the ability to deliver true value," he said. "That is, proven outcomes, true advancements in patient care, and being able to price it competitively." Although the company still has a good deal of work to do to solidify that position, MCOs praise its progressiveness, attention to the realities of the US healthcare market, and ability to build trust through cooperation.				

Other companies, including Schering-Plough and AstraZeneca, were cited in the opposite light. Schering-Plough was not only criticized for its aggressive promotion of Clarinex as a follow-on product to Claritin, but survey participants also cited the company's poor pharmacoeconomic and outcomes research data, its tone-deafness in dealing with MCOs and PBMs, and its credibility issues, which stem from the mismanagement of numerous products. AstraZeneca was similarly mentioned.	

Pharma companies face a clear fork in the road. Some will continue straight ahead, using a business playbook that has produced phenomenal success in the last 20 years. They believe that whatever changes MCOs and PBMs institute, their companies can use sophisticated marketing programs and other actions to circumvent them.				

The alternative road goes in a different direction, and those that choose it, will likely become-or continue to be-industry leaders that experience growth greater than the industry average. The payer community is speaking with one voice and calling for products that offer pharmacoeconomic value. When customers clearly say they have an unmet need, suppliers would be wise  to take notice and find a way to fill that need before a competitor does. 	

The first pharma companies to solve the OBA business problem will become the new industry leaders. Those that consistently develop and market therapies that offer compelling value will create high barriers to competition, build a self-sustaining competitive advantage, experience growth in excess of industry averages, and become the darlings of Wall Street with resulting market capitalizations. Those that continue to conduct "business as usual" will experience short-term success but medium- and long-term marginalization.	

 Considering the pressures of Wall Street and the attractiveness of "lower risk" franchise extensions and proven markets, the value path is not easy to choose. However, the OBA shift fundamentally alters the risk equation. Franchise extensions are now more risky than many in the industry may realize. Compare, for example, current offerings in the lipid-lowering class versus available treatments for Alzheimer's disease. (See "The Real Risk Factors.") Products that offer only a marginal improvement over cheaper alternatives will, at a minimum, cause friction with customers/ payers and, at the most extreme, be excluded from formularies altogether.	

Developing innovative therapeutics for pressing healthcare needs-the pharmaceutical industry's core mission -will restore companies' long-term vision, produce the greatest stability, and result in great rewards for manufacturers and the entire healthcare system. 	

Outcomes-based access does not neuter the marketing process but, in fact, creates a new and exciting playbook. In the past, pharma companies' goals were to be the most visible, the most vocal, and the most often seen-especially in physicians' offices. That has not changed. What has changed is the content. With patient outcomes and value propositions taking center stage, the most critical marketing battles will be fought in medical journals on the basis of medical data. That information will serve as the basis for marketing messages that differ in style and content according to the needs of payers, physicians, and patients. 	

Outcomes-based access also will have a major impact on sales force strategies. Physicians want sales calls that provide meaningful information and medical data. If companies develop a reputation for delivering such information, physicians will make time to listen to them and respond positively. 	

To successfully instill the pharmacoeconomic focus, executives must ensure that the effort is company wide. It is not enough to enhance the resources available to the outcomes research department and leave it with the mission of spreading the value mantra.				

Astute companies recognize that value creation begins in development. GlaxoSmithKline's innovative Healthcare Information Factory, an initiative that brings together high-end database technology with pharmacoeconomics to focus development efforts early on toward high-value products, is a great example. Development is a critical place to start, but the effort must not end there. Companies must structure clinical trials to include a wide range of outcomes measurements, including quality-of-life data, that are needed to create compelling pharmacoeconomic arguments and value propositions. 	

Marketing departments need to think in terms of multiple value messages for different audiences and more rigorous conversational and data-driven approaches to disseminate them. Salespeople will need extensive retraining so that value becomes a central component of their sales discussions with physicians and payers. A mastery of basic pharmacoeconomic principles will be as important for sales reps as cell phones.	

Affordable healthcare has become a leading political and social hot button in the United States, and managed care organizations (MCOs) have responded by seeking to reduce pharmaceutical expenses to rein in rapidly increasing costs.

Pharmaceutical Executive-09-01-2003

The Outsider

PE's annual Media Spend Trends

Table of Contents

A New Deal with Managed Care

Matters of (Re)Import

Show Us the Value