These are turbulent times for innovative drugmakers. After years of high margins and deep pockets, the pharmaceutical and biotech industries are now in an era of slower growth and belt-tightening. But drugmakers increasingly recognize that one-time cost cutting isn't enough—their problems run too deep for just a Band-Aid. As senior management searches for new business disciplines that will improve efficiency and productivity, the Toyota Production System and other "Lean" approaches to operational excellence look more and more appealing, with the promise of truly transformative, company-wide change. Just as Toyota revolutionized automaking with its Lean production system, pharma executives are aiming to secure their industry's brave new future by adopting the Lean philosophy and tools. 

(NEW VISION TECHNOLOGIES INC / GETTY IMAGES STEPHANIE DALTON COWAN / GETTY IMAGES)			

For example, GlaxoSmithKline Bio, applied the concept of "one roof" development from carmaker Renault to its vaccines business by centralizing development in one location. The results were less waste and faster cycle time for decision-making, resulting in the launch of its HPV vaccine, Cervarix, 18 months earlier than the original projection. Other big pharmas are also using Lean to get leaner—though the tendency so far has been toward greater emphasis on manufacturing processes. Last month, the Financial Times reported that AstraZeneca had hired two experts from Jaguar Land Rover to increase efficiency at one of its main factories. Nor are drugmakers the only healthcare industry looking to Lean principles and techniques. According to a September USA Today report, hospital CEOs nationwide are adopting the Toyota Production System concepts and Six Sigma to identify and eliminate waste—initiatives that are likely to expand to meet the cost-cutting requirements of healthcare reform over the next decade.  

The drug industry's need to transform its business model, operations, and culture is acute. With challenges on all sides—R&D productivity, rising costs, increasingly complex technologies and product portfolios, competition from generics, and growing regulatory scrutiny—industry market capitalization has declined by two-thirds of a trillion dollars since 2000. Unlike Toyota, which developed its Lean production system over a period of 50 years, pharma doesn't have much time. With an unprecedented number of products going off-patent within the next three years and few blockbusters waiting in the wings, companies are under the gun as never before. If they hope to achieve breakthrough change through the Lean approach, current efforts will have to accelerate and expand. 

When Toyota created its Lean production system in the late 1950s, the Japanese company built a lasting competitive advantage, not just with high-quality, low-cost automobiles but through a fundamentally new approach to business. The foundation was its production system—a total view of how to design, produce, and sell cars that engage the entire company in a shared way of working and a common set of principles.  Since then, Lean techniques have moved far beyond the shop floor. And still, the principles of Lean remain the same: an integrated, end-to-end process that combines the concepts of waste elimination, just-in-time inventory and information management, built-in quality, and worker involvement supported by a cultural focus on problem solving and the use of tools such as kaizen (continuous improvement), kanban (ongoing replenishment), and poka-yoke (error-proofing). 

Could Lean be what the ailing drug industry needs? As pharma executives increasingly recognize the imperative to fundamentally rethink their operations and culture, they look to other industries for new models. Lean has the power to deliver this high degree of transformation. It can streamline core processes, cut cycle times and costs, reduce waste and complexity, and engage the culture in pursuit of continuous improvement, while preserving the innovative spirit that drives the industry.  

Yet Lean's basic principles fly in the face of much of pharma's culture. For one thing, pharma has only recently come to appreciate the values of productivity and efficiency. Years of high margins and large budgets engendered a less cost-conscious culture. Another problem is pharma's fiercely independent functions, divisions, and geographic units. The silo mentality remains deeply entrenched at most drug companies. Yet Lean is all about teams, process thinking, and cross-functional collaboration. What's more, Lean's "just in time" principle is at odds with pharma's historical "just in case" culture. 

Success requires understanding and managing these challenges. For companies that are up to the task, the potential payoff is sizeable. Well-executed Lean programs in manufacturing can shorten cycle times by 60 to 90 percent, reduce inventory by 40 percent, and cut costs by 10 to 30 percent. New product development, sales force productivity, and marketing effectiveness can also improve.  

Before embarking on a Lean program, pharma companies must take to heart a critical lesson from Toyota: Start with a clearly defined business system, including distinct customer segments and their needs, processes for sourcing, developing, producing, marketing, and delivering products, and a well-designed support organization. Designing the blueprint for this system is the responsibility of senior management, not front-line employees. Once this system is in place, Lean programs can optimize it; without it, the full potential of Lean programs will never be realized. 

Although the industry has made progress in shaking free from last century's blockbuster business model, most companies are still struggling to define themselves in new, more rational terms. Unlike Toyota, which was operating within a sharply defined framework, the global drug industry is fast-changing and  far-flung—and only growing more so with new customer segments, new markets in emerging economies (such as China, India, and Eastern Europe), differing regulatory requirements, customer needs, and market potential. This daunting complexity can lead to Lean programs that are poorly targeted and deliver little strategic impact. 

Case Study: Clinical Supplies MANAGEMENT			

Before applying Lean techniques, senior management should ask whether a function or activity should exist at all. Does it have value to the customer? Is it on a critical path? Projects that aren't aligned with customer needs or business strategy may eliminate waste or improve cycle times, but the lasting effects will be minimal. For instance, if the goal is to speed up product development, reducing the cycle time of certain toxicology studies won't make much of an impact. Nor will improving operations at a manufacturing plant that's about to lose patent protection on its major products. If capacity utilization is poor, overhead costs are high, cycle times are long, and factor costs are misaligned, the first step should be to analyze whether it would even be possible to match competitors' pricing after patent expiry and a likely loss of volume. And if the answer is no, the right decision might be to make structural changes such as outsourcing or off-shoring production—not launching an intensive Lean effort.  

Lean can also transform critical "systems" such as product development. By looking at the end-to-end process and fundamentally rethinking everything from funds allocation to new product introduction, pharma companies can drive major improvements in cost, cycle time, and quality. It took GSK-Bio's one-roof vaccine-development experiment only two or three years to prove its value. 

The relevance of the Lean approach to pharma is at first most evident when applied to manufacturing. In high-value areas where one output becomes an input for the next phase of the process, streamlining, standardization, and cross-functional coordination offer a solution to chronic problems such as long cycle times and excess inventory. By standardizing processes and platforms, Lean efforts can increase the productivity, efficiency, and flexibility of a global supply network. But inventory management poses special challenges. "Too much inventory" is not necessarily a bad thing when the inventory is a lifesaving drug. Moreover, stock-outs in the early, high-margin days of a blockbuster drug must be avoided at all costs. But this is not true of all products. Having large stores of expired products is costly; so is wasting capacity on low-demand, low-margin products. Lean programs aim to optimize global capacity and inventory while ensuring an uninterrupted supply of needed medicine. 

Reducing Waste in Clinical Supplies Management			

Many of these principles also apply to sales and marketing, where excess inventory and waste takes the form of unused research data, idle sales aids in the car trunks of sales reps, a large number of reviews in the process of developing commercial materials, or downtime of the sales force during visits to physician offices.  

Although success of R&D is driven by innovation, other underlying processes are also critical—and lend themselves to Lean optimization. Many activities in drug discovery, development, and life cycle management are repeated, such as protocol review and approval, clinical study data processing, or medical review of sales aids. Lean can standardize and speed up these common processes, and at the same time make it easier for scientists to create customized development pathways for individual compounds.  

While waste shows up typically as excess inventory in manufacturing, it can also take the form of masses of unused data in R&D and, later, in sales and marketing. These functions tend to front-load activities in an attempt to compress time lines. In R&D, this includes pre-ordering clinical supplies for future studies, conducting drug-drug or food-drug interaction studies before proof of concept, and commissioning large market research studies many years before filing.  

Given the high failure rate of drug development, much of this work and capacity ends up as waste. Lean reduces this waste by focusing attention on experiments and investments that lower the risk of programs, rather than on executing a standardized new product development path with stage-gate checklists and undifferentiated investments. By embracing a "fail fast" approach to drug development and customizing the path to each compound, scientists and managers can become more thoughtful in how they evaluate risks, make decisions, and use resources. 

Seven Types of Waste in the R&D Process			

Leadership is integral to successful Lean efforts—especially in the pharma industry, where only senior management has an end-to-end view of the whole system and the authority to drive transformation. The most effective approach is a tailored, top-down model followed by broader, bottom-up engagement. Once leadership has communicated its vision for a new business system, employees from throughout the organization should be encouraged to engage, understand, challenge, and come forward with their own ideas for adding customer value, continuous improvement, and greater levels of efficiency and effectiveness.  

When beginning a Lean transformation, focus on strategically relevant projects. Many pharmas make the mistake of applying Lean techniques to administrative processes such as regulatory approval—an area that is notoriously slow and bureaucratic. But these redesign efforts tend to be slow. Teams are often large and cumbersome; the effort takes months, and the end result is only a shorter cycle time with fewer sign-offs. Applying the same effort to sales and operations planning, for instance, could make a lasting impact.  

Lean programs must be far-reaching to be transformative. Don't settle for only incremental or continuous improvements. Aim for high-value, high-impact projects that drive major improvements in performance, as these will help build momentum across the organization. To help prioritize, make sure that every activity either fulfils a customer need or shortens time to market. Don't try to do everything at once, however. Keep scale small at first, then build on the Lean capability and expand the footprint. Broad-scale project proliferation can exhaust an organization before value is realized. Pharma doesn't have time for this. 

Drug companies have a complex mix of customers—patients, physicians, hospitals, payers, and regulators—and the needs of each are increasingly segmented and variable. For instance, many pharma companies are serving developed economies and emerging markets from the same central organizations. Moreover, product portfolios typically are composed of both on- and off-patent drugs, even though the competitive dynamics of branded and generic markets are vastly different. Know who your key customers are, what they need, and, most important, what they'll pay for. Encourage employees to question the status quo in order to find new ways to add customer value. 

Too often, drug companies limit the impact of their improvement efforts by staying within the boundaries of organizational silos. Greater gains can be made through cross-functional thinking and cross-enterprise efforts. Seek to understand the business system as a whole before optimizing the pieces. This broader perspective will help people see the effect their decisions have on other areas of the organization and overall profitability. Train and motivate people to do what's best for the system, not the silo.  

Change mind sets with metrics and incentives 

Transforming old ways of thinking and behaving is the toughest challenge. To drive sustained change, performance metrics should be tied to the overall goals of the new business system. Develop new incentives and salary structures that promote teamwork and system-wide thinking. This will require looking closely at the mechanisms that reinforce the current silos and counter-productive behavior. Without addressing these fundamental issues, any gains will be short lived. For example, a "fail fast" philosophy in R&D aimed at quickly weeding out products with low potential won't survive if the culture continues to reward progress through stage gates rather than hypothesis-driven decision-making.  

Lean can help drug companies do far more with fewer resources. It can also engage and transform the pharma culture in far-reaching ways. These changes won't happen overnight, though—it took Toyota 50 years to refine its Lean production system. Pharma doesn't have that luxury of time, but ambitious, persistent companies with a clearly defined business system can get it right a lot faster than that—and the payoff will be worth the pain. 

Adam Farber is a partner and managing director in BCG's Boston office; he can be reached at 

. Ulrik Schulze is a partner and managing director in BCG's Zurich office; he can be reached at 

. Kim Wagner is a senior partner and managing director in BCG's New Jersey office; she can be reached at 

Articles

Features

The business philosophy and tools that revolutionized Toyota could save the ailing drug industry a lot more than just time and money. But is pharma really capable of getting lean?

Lean Comes to Pharma

Sales reps cost pharma companies billions of dollars and drain scarce physician time. They help educate physicians, yet provide little of the results-based information demanded by providers, patients, payers, and regulators. So, what would happen if pharma's sales reps went away?

Well, since nature abhors a vacuum, it would allow for an army of independent representatives, or non-captives, to rise from the ashes.

These free reps would be beholden to no single company. Instead, they would pitch prescription drugs for multiple pharma companies, devoid of any brand-based messaging. Non-captive reps would focus on science, outcomes, and value. They would devote themselves to helping decision-makers choose the most appropriate drug without the marketing spin while saving the industry an estimated $12 billion annually.

While physicians remain highly influential, other stakeholders have an increased say in prescription decisions. Payers have greater influence due to increased competition in crowded therapeutic areas, payer consolidation, global transparency, and their focus on ways to more efficiently allocate finite resources. Increasingly knowledgeable patients are assuming greater responsibility for their own health influenced by rising copays and greater access to information. US healthcare reform and changes in Medicare and Medicaid policy, coupled with the influence of national reimbursement authorities outside the United States, are increasing governmental influence as well. The current commercial model hasn't responded sufficiently to these burgeoning forces.

The bottom line is that today's commercial model is not serving the needs of stakeholders. Physicians feel that sales reps provide minimal value beyond sampling, and their messages must be looked upon with suspicion given their branded nature. Payers are increasingly demanding evidence of product value beyond safety and efficacy to balance access and pricing against expected benefits. Patients are frustrated by a belief that they pay more for prescription drugs simply for expensive marketing tactics and pharmaceutical profits. Governmental agencies and regulators remain concerned about the ethical pitfalls of the sales rep model. Even if pharma companies found a way to make this outdated model work, they'd still be left to contend with sky-high commercial costs.

Non-captive reps would focus on a specific therapeutic area, rather than an unrelated collection of drugs whose only link is production by the same company. This would allow reps to be free as well as deeply educated in their therapeutic area. They would possess different backgrounds and skill sets with greater clinical expertise such as an MD, PharmD, NP, PA, or RN.  In order for these independent reps to maintain their unbiased image, pharma would not be able to compensate differentially for branded treatments.

Here's how a meeting might go between a non-captive rep and physician. To start, the rep might show up armed with information detailing patient outcomes, not a glossy brochure. The meeting would morph into a discussion focused on the clinical merits of each drug, potentially leading to chart reviews of specific patient profiles and outcomes. The information gleaned could be passed on to savvy patients, who would welcome the increased focus on performance. Such unbiased data might go a long way to restoring patient trust. Under this model, the volume of doctor—rep meetings would fall while the duration and quality of interaction would increase.

In effect, pharma companies would readjust their efforts toward developing compelling value propositions to demonstrate clinical differentiation as well as cost advantages in the midst of competitive options. Beyond enabling the non-captive reps with studies and product information, pharma companies would focus on other constituents, such as payers and reimbursement authorities, and product value propositions.

Outcomes-based data may be shared with health plans, providing the pricing and efficacy data payers need to make coverage and reimbursement decisions. Non-personal promotional tactics would be utilized to deliver information to physicians and other customers. Regulators, meanwhile, would be satisfied with the model's potential to decrease the cost of care and increase transparency.

The non-captive rep model also has the potential to reduce pharmaceutical sales spending by 80 percent. That's quite a windfall, considering pharma companies spent $15.6 billion on captive sales reps in 2008. This money could then be reinvested in innovation and studies that improve optimal utilization.

 is a Principal, Life Sciences & Health Care Industry Deloitte Consulting LLP. 

 is Senior Manager, Life Sciences & Health Care Industry Deloitte Consulting LLP

Last year 90,000 pharma sales reps stopped in at hospitals and doctors' offices to woo doctors and dish out free samples. What would happen if they all went away? The answer is simple: everyone would be better off.

Free the Reps

It's well known that many drug safety problems arise because people fail to take medicines as prescribed or pay attention to warnings. Food and Drug Administration officials seek to improve communication about the risks of medical products by the agency, industry, and interest groups through a Strategic Plan for Risk Communication unveiled September 30.

The plan outlines ways to strengthen the science behind effective risk communication on food and medical products, explained Janet Woodcock, director of the Center for Drug Evaluation and Research (CDER), at the Food and Drug Law Institute's (FDLI) September advertising and promotion conference. It offers specific strategies for improving risk messages and for coordinating actions to better manage safety information, product recalls, and food safety alerts—without scaring consumers, Woodcock noted.

The last section of the plan proposes to "optimize" safety policies by taking a fresh look at FDA's legal framework for regulating drug advertising along with labeling and sponsor interactions with health professionals. The agency wants to reassess whether drug labeling laws designed for promotion directed at healthcare professionals fit the world of DTC advertising, or if they foster overly technical messages that block an understanding of risk issues. FDA will weigh whether recommended changes can be accomplished by revising current regulations, or if new legislation is needed.

If the latter, there are lots of proposals on Capitol Hill that curb drug marketing, including a ban or limit on DTC advertising for two years after product approval. An Institute of Medicine expert panel backed such a move in its 2005 report on drug safety, and the policy almost made it into the FDA Amendments Act of 2007 (FDAAA). The American College of Physicians recently backed the two-year DTC ad limit, along with another IOM proposal that all new drugs carry a special "just approved" symbol on their labels for two years to alert patients and prescribers that only limited information is available on the drug.

Other measures before Congress would require comparative effectiveness information on drug labels and ban the commercial use of prescriber data. A drug marketing "death penalty" proposal, says attorney John Kamp, would curb DTC advertising by eliminating the tax deduction allowed pharma companies for advertising expenditures. Even though such a policy supposedly would raise billions to support health reform, the proposal has not gone far because of staunch opposition from broadcasters and publishers.

The Strategic Plan also proposes to streamline and improve the system for providing useful written information on drug use and side effects directly to patients. The current system is confusing and inefficient, with patient package inserts, medication guides and other communiqués. Pharmacists evidently hand out required documents to patients, but much of the information falls short of being "useful." Despite years of writing rules and guidances and holding public meetings on the subject, the surveys show that consumers don't read the information they get and don't understand what they do read.

FDA weighed new options at a two-day workshop in September on promoting patient access to timely and accurate information on drug risks. The current thinking is to replace the various hand-outs with a single standard document for communicating "essential information" about prescription drugs. That concept has considerable appeal, but still raises questions about which drugs warrant special consumer information and how to make the documents useful and readable. Manufacturers have long objected to requiring written information on all drugs, and pharmacists don't want more pieces of paper to store, track, and distribute. One solution is to provide the information electronically, but pharma companies are nervous about third parties changing content and language in the process. For now, FDA plans more studies on the format and content of written patient information, and more discussion to follow.

The value and content of written consumer information on drugs has become a hot-button issue as FDA establishes more Risk Mitigation and Evaluation Strategies (REMS) that require distribution of these documents. FDA has approved 63 new REMS in the last two years, Woodcock noted at the FDA Regulatory and Compliance Symposium in September. Of those, 47 require MedGuides, while the others involve more restrictive risk management programs. CDER now seems to require some kind of REMS for most new molecular entities, and that trend promises to greatly expand written patient information.

A one-document policy for drug handouts may inform ongoing efforts to revise the brief summary of risk information required in print drug ads. The conventional wisdom is that this document is neither "brief" nor an informative summary, and that it needs a complete makeover to be a more useful tool. CDER's Division of Drug Marketing, Advertising and Communications (DDMAC) has been examining brief summary options for years and continues to test patient response and comprehension of different formats, reported Helen Sullivan of DDMAC's research team at the FDLI conference. Pollsters evidently are asking overweight people in shopping malls to look at different types of ads with brief summaries for a fictitious diet drug and indicate which format they like and understand the best. A design that resembles the "drug facts" label for over-the-counter drugs seems to come out on top, but the old dense format doesn't do too badly either.

DDMAC researchers are very busy these days. In addition to the brief summary survey, there's a study underway evaluating whether TV commercials should include a toll-free number for consumers to report adverse events to FDA. FDAAA required call-in information in print ads, but held off on broadcast to assess whether adding this message would detract from conveying risk information in commercials. FDA is revising study designs with an eye to rolling out a survey next year.

Another research project is examining how visual effects in TV commercials distract consumers and impede comprehension. The results should help FDA set standards for how marketers can best present a "major statement" on drug risks in DTC ads in a "clear, conspicuous and neutral manner," another FDAAA provision that should produce a proposed rule next year.

A related study will examine how well consumers understand clinical efficacy information in print and broadcast ads. The plan is to survey physicians and consumers to see how differently (or similarly) they perceive such information. Also on DDMAC's agenda is a plan is to assess whether adding quantitative information on risks and benefits can help consumers understand risk and efficacy claims and end point information. And another FDAAA-required report will assess how well DTC advertising communicates information to population subsets, such as the elderly, children, and ethnic minorities; DDMAC director Tom Abrams expects it to be out soon.

Meanwhile DDMAC is ramping up enforcement efforts to ensure proper disclosure of drug risks. Abrams reported at the FDLI conference that it had issued 33 regulatory letters as of September 15, 2009 (10 warning letters and 23 untitled letters). Omission and minimization of risk information is the most egregious violation, followed by promoting unapproved uses.

FDA hopes to reduce those violations by finalizing guidance on presenting risk information in drug and device promotion. FDA issued draft guidance in May 2009 that covers the risk-communication waterfront: safety disclosure in ads and labeling for both drugs and medical devices, directed to both consumers and health professionals. The guidance cites multiple examples of promotional pieces that omit or minimize risk information, even for products with boxed warnings and serious adverse events. FDA discusses in detail the content and format of promotional materials and how it will look more at the "net impression" of whether risk information is fair and balanced.

's Washington correspondent. She can be reached at 

Washington Report

FDA and Congress weigh policies for improving drug safety via ads and written information.

Risk and Restrictions

A key source of competitive advantage in today's crowded therapeutic space is knowing what the customer wants. That's a mind set that starts not today, but yesterday. In fact, it depends on the capacity to anticipate need with the right mix of product, data, and support services that can yield coveted status as "partner of choice" with an increasingly powerful community of payers. To help readers make sense of this new environment, Pharm Exec looks at two recent product introductions, highlighting what to do—and what to avoid—in managing this business-critical function. — The Editors

Just a few years ago, most companies looked at reimbursement considerations as the last step in the commercialization process. Only after a product was close to launch was consideration given to reimbursement—and even then it was addressed bluntly, as in "What price can we get?" The reimbursement function was all but divorced from the product plan, the "red-headed stepchild" of the pharmaceutical business.

Evidence to Enhance Value: Pfizer Sets the Pace in Specialty Care 

This approach may have been effective when physicians, pharmacists, and care sites were the dominant decision makers in selecting pharmaceuticals. Today, however, payers are driving the agenda and demanding sophisticated clinical and economic data before agreeing to a price for reimbursement. The industry is now being challenged to demonstrate a strong value proposition for its products, and payers are helping drive the agenda.

Simply stated, the objective of a reimbursement strategy is to support increased sales and premium pricing. But when companies develop and implement reimbursement strategies late in the product development process, the best opportunities may have already been lost. At that point, detailed product communications with external decision makers (e.g., government agencies, payers, customers, public advocacy groups, industry associations) should have been going on for years. These are not idle conversations, since getting appropriate reimbursement coding from the US Center for Medicare and Medicaid Services (CMS)—or its foreign equivalents—and securing a place on insurance formularies are keys to realizing the commercial potential made possible by market authorization.

Building a product's case for reimbursement must draw on evidence-based medicine that focuses on reduced cost and/or superior quality of patient outcomes. Demands by payers to support claims of superiority require that those responsible for reimbursement strategy become involved in data collection, organization, and presentation.

But the process has to go back even further. Effective reimbursement planning requires more than asking how to convince payers to reimburse at an acceptable price. The reimbursement strategy must provide quality input into company investment decisions. To ensure that the company builds a portfolio of products with good reimbursement potential, the function must shape the overall reimbursement environment, creating networks that influence payer thinking, establishing internal management processes that accurately guide and inform senior management's stage-gate decisions, and bringing a broad range of skills and functions into planning R&D's pre-development design specifications. 

There are important lessons to be learned from "early adopters" in managing reimbursement as a strategic priority. Cordis Corporation, a Johnson & Johnson company based in Florida, achieved a landmark reimbursement success with its drug-eluting stent, Cypher, in April 2003. It was the first medical device ever to be assigned a coding classification prior to attaining FDA approval. (Typically, there is a delay between FDA approval and coding classification because the CMS has been unwilling to discuss reimbursement classification until a product has been approved for safety.)

In influencing CMS to become engaged earlier than required by law, Cypher's project team reminded them of instances where the agency had come under fire for a slow reimbursement coding response to revolutionary new technologies that had gained FDA approval. The team convinced CMS that this was a situation where expediency was in both the agency's and the population's best interest.

To accelerate time lines, the project team repeatedly encouraged CMS to consider reimbursement eligibility as soon as each round of data became available, going so far as granting CMS permission to look at reports submitted to the FDA for consideration. Not only did they share available clinical data with CMS, the Cypher team also built an economic case. Using actual Medicare data, Cordis showed that even if the agency paid more for the drug-eluting stent up front, the clinical value—in the form of fewer repeat interventions—would make long term costs even more efficient.

In addition to the collaborative approach to CMS, Cordis also structured and implemented outreach to other key constituents that could influence CMS's receptivity. They initiated communication to medical societies, encouraging them to contact CMS after the proposed rule came out. They called on key private payers, presenting them with the clinical and economic case they'd made to CMS. Finally, they set up a hospital awareness program, stressing physician surveys that showed practitioners would be eager to use it.

Not only was coding achieved prior to FDA approval, the project team managed to attain a new coding classification for its technology that carried with it a significantly higher payment rate than products at the current standard of care. Near total and immediate payer coverage translated to many additional months alone in an attractive competitive space. Lacking competitors with similar developed/approved products and boasting an incremental reimbursement payment, Cypher achieved high volumes and premium pricing. 

Having successfully received new and unique coding for their product from CMS, Cordis next realized that if physicians' notes didn't reflect exactly what was done, and coders didn't enter the new code, the hospital couldn't be reimbursed at the proper rate. (This would then impede adoption of the Cypher stent.) So the project team implemented extensive reimbursement training of coding staff and physicians, confident that it would provide a high return on investment for the company through accelerated adoption.

Cypher owes much of its positive reimbursement results to exceptional planning and use of data to build an effective clinical and economic value case for its product relative to the current standard of care. Their outreach to multiple constituents and astute positioning of their product's value also stand out. Despite receiving very positive outcomes, the Cypher project team continued to develop economic models in an attempt to improve data and achieve still better outcomes evidence. For example, a new economic model and analysis was developed as soon as a competitive drug-eluting stent was launched since there was now a new appropriate comparison product.

As the first combination therapy for age-related macular degeneration (AMD), an eye condition that can eventually lead to blindness, Visudyne, like Cypher, represented a first-to-market breakthrough technology. In contrast, Visudyne's road to reimbursement was a long and bumpy one, marked by numerous gaps between what CMS wanted and what was delivered.

Biotech company QLT developed Visudyne specifically for "wet" AMD. In patients with this disease, abnormal blood vessels grow in the eye and then leak, ultimately resulting in blindness. Roughly a quarter of a million Americans over age 65 were afflicted. Visudyne was injected in the eye then activated using a laser administered at a specific frequency. Visudyne couldn't stop the disease, but it significantly slowed its progress. Novartis acquired the Visudyne trademark in late 2000 when it bought CIBA Vision.

FDA and CMS recognize different indications within wet AMD. These are known as "predominantly classic" (CNV), "minimally classic," and "occult," based on lesion size. Predominantly classic cases, which are easiest to detect, account for roughly 25 percent of potential patients, while the occult segment accounts for roughly twice as many patients. Visudyne received FDA approval for predominantly classic wet AMD in April 2000 and CMS approval for this same category in November 2000.

But since many doctors began to prescribe the drug off-label for occult and minimally classic lesions, the company continued to seek CMS reimbursement for off-label use. In subsequent reviews in November 2000, October 2001, March 2002, and January 2004, attempts were made to broaden coverage; all were rejected on the basis of methodological shortcomings in the data presented.

CMS' national coverage decision highlights the kinds of concerns that were raised. The time frame for data collection was deemed too short (no data was available after 24 months). Definition of treatment outcomes that would prompt cessation of Visudyne use had not been provided, and no guidance was given for the appropriate frequency of additional treatment. The Visudyne project team had suggested that additional treatment be given if CNV leakage was detected by a fluorescein angiogram. However, because there was no patient follow-up beyond the two-year trial period, it was impossible to estimate the implications this guidance would be expected to have on the average number of required treatments per patient or how additional treatment would improve patient outcomes. The fact that fluorescein angiograms are quite subjective and can lead to false negative and positive diagnoses was a strong factor in CMS' 2000 decision to restrict coverage to patients with predominantly classic CNV lesions.

Ultimately, in 2004, CMS approved Visudyne for occult and minimally classic types, but only under specific circumstances and monitoring conditions. CMS' reimbursement conditions are over and above FDA guidelines, and have had the effect of restricting coverage to a little over 50 percent of those patients who might otherwise have been eligible.

From the perspective of QLT, the broadening of coverage to include off-label indications and up to 50 percent of the target population was a victory. Similarly, much of the "gap" between what CMS wanted and what QLT provided by way of data has been ascribed to the novelty of the treatment area for wet AMD and the evolution of CMS' requirements as it became familiar with the clinical details.

Still, from a strategic reimbursement perspective, waiting four years to get coverage for half of the total projected market was a clear failure that blocked this product from obtaining its financial objectives. As it could not promote off-label use, QLT was constrained in its marketing, and patients had to pay for treatment out of their own pockets. Delays and restrictions on CMS coverage also indirectly constricted Visudyne's success in the US, as its decisions have a strong influence on other payer decisions.

While the project team scrambled to gather more suitable evidence and various constituents initiated legal proceedings to pressure CMS to reconsider Visudyne's case for reimbursement, the competition began to catch up. Pfizer's Macugen received FDA approval in December 2004, and CMS coverage in February 2005. Less than one year after Visudyne gained coverage for a sizable chunk of CMS' AMD patients, Macugen had gained coverage access to all of them. QLT's shares had risen to $115 after FDA approval in mid-2000, reflecting the market's anticipation of a new revenue stream. Since then it has slid. As 2005 drew to a close, it was below $8.

The lesson? Particularly for companies with a limited product portfolio, narrowly defining reimbursement strategy can carry significant costs. 

The ascendancy of payers as a negotiating power, the focus of healthcare reform on limiting costs, and the growth of cost-effectiveness agencies with a mandate to screen medicines for access to patients suggests that reimbursement strategy will be vital to commercial success in the future. Decisions that don't show hard evidence of economic and clinical value are a receding memory; companies will have to reorient their thinking about the business along the lines of value delivered.

That said, what conclusions can be drawn from these two examples on what constitutes best-practice in strategic reimbursement?  

Reimbursement planning no longer begins at the point of commercialization; it has to be part of the portfolio development process. As new information becomes available in clinical development, reimbursement input should inform decision making.

Strategic reimbursement must establish and maintain close contact with payers, government agencies, and relevant professional and patient organizations, soliciting and using their input across the product development process. Equally important, the development of trust and credibility is an important base on which to build the case for both approval and reimbursement.

As commercialization approaches, strategic reimbursement must play a role in articulating value propositions appropriate for all relevant constituencies, and in formulating plans to communicate them.

Strategic reimbursement must drive fresh thinking about the collection of data on economic and clinical value, and effective presentation of such data to position products for reimbursement.

The evolving strategic role of reimbursement call for a significantly broader range of competencies and a new set of expectations than has been the norm. Such "gaps" will need to be addressed through a thorough redefinition of reimbursement roles, requirements, and key accountabilities, along with selection and development processes to support staffing.

Given the increased centrality of the function, reimbursement should be reconfigured as part of a strategic market-access function to ensure that its visibility and input are appropriate to evolving market demands.

Marketing and reimbursement need to take the lead in establishing a value-driven approach to the business that ensures identification and focus on economic, clinical, and other benefits to critical constituencies that can be used to influence overall regulatory, reimbursement, and market acceptance of the product. Among other approaches, this can include tactics like "service wraps" that bring additional value to key channel segments to differentiate and enhance product attractiveness.

 is managing partner of Numerof & Associates. Rita Numerof is president of Numerof & Associates. They can be reached at 

In today's "show me the money" marketplace, reimbursement strategy must innvolve more than seeking a good price based on ability to pay.

Marketing's Stepchild No More

Picture this hypothetical, but common, situation: It's a typical Monday morning at the clinic, and Dr. Smith writes seven prescriptions for his patients. Of these, only four are being filled with the brands he prescribed and end up in patients' hands. Up to this moment, the marketers of these products did everything right, including significant investments in physician and patient education and managed care. 

As the result of the high copay, the payer rejected one scrip and another was swapped for a competitive product at the patient's request. Furthermore, one scrip was actually refused by the patient at the point of purchase.  

Patients across geographic and therapeutic areas are increasingly refusing their approved prescriptions due to higher copay costs and non-compliance, a phenomenon known as reversal or abandonment. Brand managers must have deeper analytic insights at the physician level in order to implement more effective strategies to tackle this increasing problem. 

According to a recent Wolters Kluwer Pharma Solutions analysis of the US pharma market, prescription abandonment increased by 34 percent in 2008 compared to 2006 (from 5.15 percent to 6.8 percent.) Analysis of the top 10 therapeutic classes based on 2008 retail prescription sales reveals that patient reversals are happening regardless of drug tier, often at a rate that is as high as, if not higher than, health care plan rejection rates. When you combine these two forces, pharma companies are looking at millions in lost revenues daily across a wide spectrum of brands and therapeutic classes. (See chart 1). 

Many marketers assume that higher copays equate to higher reversal rates. In fact, research shows that patient sensitivity to pricing varies by geography and therapeutic class, and some abandonment "hot spots" are in areas where copays are the lowest.  

A case in point is the rescue inhaler market. A 2009 Wolters Kluwer Pharma Solutions study of the top 10 albuterol inhalers found that several brands lost more than 15 percent in revenues when factoring in the 6.9 percent of prescriptions denied by health plans and the 8.3 percent abandoned by patients. 

Logic would dictate that the volume of abandoned prescriptions increased as the copay amounts increased across regions, especially among new prescriptions. In many cases that was true. However, applying advanced analytics at the regional level revealed important and surprising insights about patients' copay responses, and that average cost—which varies by geography—is only a piece of the equation. (See chart 2). 

For example, a metro area in Chicago has the highest average copay for one brand, suggesting that it should have the highest reversal rates. However, when abandonment rates are overlaid with average copay costs in Chicago, New York, Philadelphia, Pittsburgh, and Seattle, the cities with the lowest copays (Philadelphia and Pittsburgh) accounted for the highest number of abandoned prescriptions. Chicago had the lowest reversal rate.  

These counterintuitive findings demonstrate that Tier 2 placement doesn't guarantee success anymore, and that brand managers may be focusing copay assistance efforts in states with low abandonment rates, instead of areas where abandonment is the highest. 

"Price sensitivity is clearly a factor as consumers decide to forego certain prescriptions altogether, including some for chronic conditions," said Mark Spiers, president & CEO, Wolters Kluwer Pharma Solutions. "However, price sensitivity varies by region, and there are cities where high abandonment is occurring despite lower copays, suggesting that there are socio-economic factors at play. This disturbing trend may have serious health implications and seems poised to continue as the economy remains under stress." 

 article, starting in 2010, the industry will face a tsunami of patent expirations affecting dozens of top-selling drugs, such as Lipitor, Plavix, and Advair. With an estimated $67 billion in revenues at stake—roughly half of the companies' combined 2007 US sales—brand managers of these products must maximize every dollar spent before the waves of patent expirations begin.  

Here are three actionable strategies that brand managers can take to reverse the trend of prescription abandonment:  

Gather data that quantifies the problem by region and product Examine pharmacy data using advanced analytic techniques. These techniques will identify data patterns pointing to a disproportionate share of patients with prescriptions that have been abandoned, reversed, rejected, or substituted at retail pharmacies. Ensure that behavior patterns are properly examined in conjunction with and independent of managed care considerations. 

Make the data actionable Brand managers can blunt reversals by possessing abandonment insights and aggregating them to the physician level. Physician-centric insights should be in formats that are intervention-specific and easily applied. Customized tools will allow brand managers to dial-in on physicians with attributes best suited to specific interventions or goals, and to match those results to resource constraints, or to re-allocate resources as necessary.

Implement new, more focused strategies to effect desired change For example, more than 20,000 physicians in California treat asthma. Even by focusing on high prescribers, there remain roughly 9,000 who may appear to be targets for copay assistance programs. But, when abandonment is analyzed at the physician level, the number of targets narrows dramatically to approximately 2,500 physicians.

Brand managers are concerned about patients not receiving physician-recommended treatments when their products are abandoned. Reducing reversals means that the patient receives appropriate therapies and that the company's investment is being returned. Reversal issues are no reason to abandon ship.

If your boat starts to sink, find the exact spot where the leak is, and repair it. Armed with advanced analytics, marketers can take similarly decisive and effective action. Pinpoint the problem areas and reversal "hot spots," plug the leaks, and right the ship.

 is CEO of Qforma, Inc. He can be reached at 

Columns

Executives should embrace design to discover new markets and find new ways to server customers.

Reckless Abandonment

Looking to the next decade, the world's emerging market countries are in every pharma company's playbook for easy revenue gains.  The assumption is that strong growth linked to rising discretionary incomes will compensate for aging demographics, patent losses, and tougher payer controls in the US, Europe, and Japan. CEOs on both sides of the Atlantic—from Chris Viebacher of Sanofi to Pfizer's Jeff Kindler—extol the potential of these markets, while IMS and other data forecasters project double-digit growth for years to come, boosted by the dividend of a vast, unregulated private-pay market for drugs.    

But is this a sure bet? New developments in two pace-setting countries—China and Turkey—suggest that marketers are overlooking a rich and well-worn global currency in ideas for restraining drug margins. Emerging countries have the intellectual capital to import them all, regardless of whether anyone thinks the impact on industry is good or bad. Sales may jump but the profits that sustain global innovation could blur the gaze of starry-eyed manufacturers.  

The Official Story ... Within five years, eight of the Top 20 Pharma Markets will be Emerging Market Countries 			

To help defray the cost of comprehensive health insurance reform, 

 has toughened its strategy on the monitoring and control of drug prices by placing its essential drugs list at the center of policy and cutting prices for nearly half the products on the list.  According to the government, policy will be focused on slashing the high percentage of health spending devoted to medicines, making the essentials list an informal—but still critical—benchmark for pricing of all drugs, and phasing down the premiums given to patented, innovative medicines produced largely by foreign-based companies. R&D companies want to avoid having the essential drugs concept, geared to building access for the poor, override domestic support for innovation.      

, the government last month reacted to a surge in the public sector deficit with a sharp reduction in what R&D-based companies can charge for medicines referenced against a basket of prices in 10 European countries. Not only is the benchmark set at the lowest price in the basket minus 11 percent, companies will now have to lower that price by an additional 13 percent. As noted in the local daily 

, Turkey has set a path where it will now seek not simply to be an "average price" country for rewarding innovation, but "the lowest priced country." And there is potential for even more spillover, as price cuts could increase Turkey's allure as a source for parallel imports in Europe, effectively undercutting prices in a region that still hosts more than a third of the global market for medicines.  

It's an important reminder that predatory pricing is contagious; because information is increasingly transparent, the impacts are cross-national. With funding support from European governments, the World Health Organization is building a database on drug prices that developing countries can use in their approaches to price regulation. 

Another looming challenge is persuading the emerging markets to spend more. Most are punching well below their weight in the proportion of GDP devoted to health. Policies that subject patient status to price considerations are also problematic.      

In addition to assessing the business impact of unplanned regulation, developments in these two high profile countries reveal the need to build a strong local market access capability. But the key question for strategists is whether—or how soon—the emerging markets will look like the rest of the world. Can we expect novel payer-partnership approaches or a rehash of the imposed regulations typical of "mature" Europe and Japan?  It also suggests the pivotal importance of the US as the one market where flexibility in pricing is still the norm—and raises the stakes for industry on the outcome of the healthcare reform debate in Washington.  — William Looney 

Back Page

Emerging country markets are the new black in great expectations for pharma.

The Incredible Shrinking Margin?

Weak economic indicators and tepid earnings reports can seem daunting to corporate chieftains and their direct reports. But there are valid and compelling reasons to believe that the long-awaited upturn is coming, and if you can hang on without making deep cuts to staff or losing too much market share, your employees, customers, and stakeholders will reward you during the rebound.

Which, in fact, has already begun. In September, Federal Reserve Chairman Ben Bernanke said, "From a technical perspective, the recession is very likely over." He added that although the job market remains weak, there is a broad consensus that we are in a recovery.

The question is, how much further do we have to go, and what can we do until we get there?  Here's a quick survey of some bullish economic trends and what they mean for today's business leaders.

After a steep drop, American business is back in the black. For the past two quarters, corporate profits have been on the rise, according to the Bureau of Economic Analysis. Meanwhile, the Commerce Department projects that businesses will bring in nearly $1.3 trillion in profits this year—well above the annual rate estimated during the fourth quarter of 2008.

Business leaders should show those figures to skeptical employees as evidence of a turnaround. Employees are not always attuned to the broader economy, and the mood around the office has more to do with the specific conditions of the labor market, such as direct pressure on salaries, workloads, and benefits. Unfortunately, the job market remains weak and is trailing the broader recovery, so it is incumbent upon managers to remind anxious employees that business is improving.

When an NDA is filed, when a new product is launched, or if your firm lands a big account, share the news quickly. If a client expands an order, spring for lunch. Remind your staffers that they are a part of the rosier picture.

Consumer spending represents two-thirds of the gross domestic product in the US, so reopening the American wallet is critical to a return to economic growth. The good news is that the Gallup Consumer Confidence Index rose to a reading of minus-20 for the week ending September 27—that's up 40 points from the same period a year ago and its highest level in 21 months.

What can leaders take away from this data? Broadly, they can justify bolder decisions about their supply chains and inventory, predicated on the idea that demand is coming back. Managers can afford to tinker a little with their tactics. Maybe it's a marketing push to a new segment. Maybe it's a strategy that includes broader distribution. Go ahead: take some risks.

Capital markets froze last winter after Lehman's fall, but deals have picked up again in recent months and the lending environment is improving for small businesses. According to the Small Business Administration, the average weekly loan volume in federal 7(a) business loans rose sharply from March to September. At the same time, banks have increased their mailings of credit card offers to business owners.

For managers, this means it's time to start thinking BIG again. Growth plans might be within the realm of possibility. At the very least, these signs suggest leaders should begin to prepare for when funding is more widely available. Have an idea that costs money? Draw up a prospectus, and take it to the CFO and CEO. You might be surprised by who says "yes."

In September, Ford Motor Company drew back the curtains on Figo, the auto giant's first compact to be produced in India. Starbucks began selling instant coffee across the country. As of this writing, Microsoft is on track to launch Windows 7 before Halloween. While other companies merely cut costs to appease investors, these firms held fast to the development of new products. Now those investments are paying dividends in the form of new revenue streams.

Managers would be wise to take a cue from these companies. Don't pare back research budgets. Keep innovating, or launch an innovation procedure within the company, and you'll position your firm for a big bounce when market indicators turn around.

And that's going to happen sooner rather than later.

 is managing partner of Flaum Partners and chairman, Fordham Graduate School of Business, Leadership Forum. He can be reached at 

Column

The economy is turning around; leaders need to position their companies now for the market bounce.

Time to Step Up

REMS programs. Megamergers. Generic encroachment. New sampling guidelines. The "unknowns" in the pharma industry have never been more prevalent or complex. But despite volumes of lagging prescription data and recall-based market research, pharma is still struggling to understand and anticipate how each new industry issue will impact current and future success. The key to understanding these issues lies in an area that sales and marketing teams, surprisingly, often overlook: the real-life, in-office dialogue between patients and physicians. 

Critical information about naturally occurring patient–physician interactions at the point of care allows pharma to understand how industry issues truly affect or do not affect patients and physicians. Equipped with these insights, pharma can deliver meaningful strategic and tactical support to physicians, helping them educate and negotiate with patients—ultimately enabling pharmas to protect their R&D investments and drive physician and patient adoption of their brands. 

To be successful in today's economic climate, pharmas need to focus on how macro industry conditions are playing out at the 

, interactional level. This micro focus allows pharmas to better position themselves as the industry narrative changes from dominance to relevance, where the future of brand marketing is characterized less by blockbusters and more by battles for the hearts and minds of physicians and patients. By monitoring the authentic dialogue between physicians and patients, pharmas can position themselves as relevant participants in the health care exchange.  

In order to become more relevant, pharmas will need to lay down stakes with smaller, more targeted physician and patient populations, developing a grounded understanding of the needs, values, attitudes, and beliefs of specific groups of physicians treating specific groups of patients with unique physiologic profiles, life situations, and health attitudes. Pharmas that fail to position themselves in terms of relevancy risk being viewed as intrusive in the physician–patient relationship, jeopardizing the physician–pharma/brand relationship. 

Here's how brand teams can leverage patient-physician dialogue to overcome a few of today's most challenging industry issues. 

The financial burden of healthcare, particularly in the current economic climate, is significant. Meanwhile, the acceleration of patent expirations will result in significant decreases in Big Pharma revenues. With approximately $157 billion in sales exposed to generic erosion by 2012, pharmaceutical companies will face revenue losses of 2 to 40 percent. Physicians and patients are keenly aware of the cost of patent-protected treatments and of the time frames in which generic options will become available. And patients are not afraid to ask for generic alternatives.  

Even when generic alternatives are not available, it is not uncommon for physicians to provide patients with a time line of when generics will become available. This tendency of physicians to simply acquiesce to requests for generics suggests that they are either unwilling or unable to reasonably argue the need to remain on branded therapy. Marketers can help brands become more relevant to the patient–physician interaction and maximize true brand potential at the point of care by:  

Providing efficacy and outcomes data on branded versus generic products to physicians 

Providing clear, illustrative anecdotes and analogies to help physicians transfer this information to patients 

Putting patient assistance programs at the forefront of their outreach and awareness campaigns. 

For many pharmas, brand marketing expenditures like DTC and sampling have not translated into maximum brand potential and brand loyalty. Even putting the spend issue aside, new insights into physician–patient interactions and the dynamics of diagnosis and treatment decision making are calling into question the intended effect of many marketing efforts. A closer look at DTC carry-through and sampling shows that they are not influencing treatment seeking, prescribing, and adherence behaviors as marketers may think.  

When DTC does achieve its intended effect of raising patient awareness and driving brand requests, it is not uncommon for physicians to assert their authority in ways that undermine brand messages and steer patients toward physician-preferred treatments. For example, take this scenario: 

DR: See, these companies like Yaz, Ortho used to advertise all this for Tri Cyclen; it's great for your complexion. These companies, their pills are no different really than everybody else.

DR: They went out and spent a fortune showing the FDA that women's complexions, for example, are better on these pills. Not that they're not on other pills, the other companies just didn't spend the money to show the FDA.

DR: So they can legally advertise it on the back of your magazine and say this is good for a woman's complexion.

DR: Well, they're all good for your complexion but they just didn't spend the money to show that.

DR: So while it's true, it's not the whole truth.

By countering or elaborating on messages delivered to patients via DTC, physicians are defending their authority against external agents seeking to influence treatment decisions. As shown in the above example, the patient has been primed by messages leveraging self-image. The physician neutralizes the patient brand request, and the emotional DTC message, by asserting that all tri cyclens will benefit complexion. Due to the power imbalance between physicians and patients, the patient drops the request.  

This example further illustrates that by positioning against one another in terms of socio-emotional benefits, brands risk being seen as not relevant to the physician–patient relationship in which clinical concerns trump socio-emotional concerns and physicians trump patients. In examining hundreds of physician–patient interactions containing explicit references to DTC, we find that physicians typically cite DTC at one of two points in the treatment discussion: as a preface to an explicit treatment recommendation or as a mechanism to support a recommendation that has just been made. 

The third most common way physicians reference DTC is as a complaint. That's because of its potential to disrupt the physician-patient relationship by either seeking to undermine the physician's clinical judgment or by arming patients with incomplete information. It is important to note that physicians have found DTC to be a relevant resource to draw on in order to achieve their own interactional goals during office visits, but that physicians will defend against DTC when it runs counter to these goals. 

Sampling is one marketing tool that has been meaningfully integrated into the physician–patient relationship. Behavior in thousands of interactions shows that physicians make brand recommendations prior to offering samples, suggesting that samples support—rather than drive—treatment selection.  

Physicians go to the sample closet with a specific treatment in mind. If desired brand samples are not available, it is common for physicians to write a prescription for the desired treatment rather than offer samples of a brand that is in stock. The act of providing samples to patients is a symbolic gesture through which many physicians indicate their concern for the well-being of their patients and empathize with cost burdens patients must shoulder. In this respect, samples can be seen as the counter-weight to impersonal clinical objectivity: If objectivity allows the physician to project his/her authority by impartially educating patients on treatment options, the giving of samples allows the physician to demonstrate his/her humanity. In this way, samples are seen as relevant to not only the physician–patient relationship, but the physician-sales representative–relationship as well. As shown in this example, the physician helps reduce the cost burden of treatment by offering the patient samples. 

The physician further points out that sales representatives have his own best interests at heart when they provided his office with extra samples to accommodate a company downsizing and limited access to samples in the future. 

As evidenced by the DTC and sampling examples, the most successful in-office promotional tactics are ones that can be integrated into the natural physician–patient dialogue, facilitating rather than disrupting a mutually productive physician–patient relationship. Successful brand marketing is best achieved when tactics help physicians maintain their desired status as authorities while also establishing and building patient trust, which ultimately drives patient compliance and adherence. 

Listening to target customers, physicians, and patients in their natural environments provides pharmas the opportunity to quickly reveal how key industry issues are playing out at the clinical point of practice. Moving forward, brand teams will succeed by understanding and catering to the respective values and needs of specific physician and patient segments, equipping each with the tools necessary to facilitate productive transactional (providing/receiving care) and interpersonal (developing/maintaining relationships) talk. This is the promise of brands in the emerging pharma landscape: to be reliable, relevant participants in the healthcare exchange. To realize this promise, brand teams must understand what really goes on when a physician meets a patient behind the closed door of the clinical exam room. 

 is co-founder, president and CEO of Verilogue. He can be reached at 

 is director of Verilogue. He can be reached at 

Conversational marketing is a great resource for understanding and influencing physician–patient dialogues in the emerging healthcare environment.

Talk of the Town

An overarching theme of this month's issue is keeping pace with a disruptive business climate. By embracing the concept of "lean" in manufacturing, or finding new ways to engage payers with better evidence, pharma is building the capability to internalize the business practices required for long term profitability.

But as noted in our cover feature on the latest anemic cycle of M&A activity, that certainty ends at the boardroom door. Government policy toward the industry has spurred pessimism over future growth—and surprisingly it is the US where the uncertainty is most acute. The big imponderable is what the Obama Administration refers to as "health reform," but in fact amounts to an industrial policy for restructuring one-sixth of the $15 trillion US economy.

Management is coping with an information drought on the most durable elements and definitive impact of health reform. The million—excuse us, billion—dollar question is: How will health reform shape the way drug companies do business? Here are a few simple guideposts for evaluating what's coming.

Universal coverage will lead to more government control

 A mandate to insure all means that healthcare becomes a full-blown obligation rather than simply a business service— and as guardian of the public interest, government must step up to the plate. The experiences of other countries reveal what comes next, the most important of which is adoption of fixed annual budgets for health spending (the US remains the outlier here) and more emphasis on cost containment.

The true cost of reform will be higher than projected

 It's simple economics:  increasing the demand for healthcare (by extending access to the uninsured) without increasing the supply (absent incentives to build more health facilities or add to physician ranks) will further inflate the cost of healthcare. The only question is which stakeholders—employers, industry, government, patients or providers—will end up paying the bill. Despite its success as a proponent of reform, the drug industry, whose main offering is a product easily siloed against other health services, remains vulnerable. Again, experience abroad shows just how often the industry becomes "lender of first resort."

Reform will have different impacts on different business segments

 Expanding access could yield more sales for primary care medicines linked to preventable chronic conditions, while high-cost specialty medicines targeted to smaller groups of patients suffer due to increased patient copays as well as cutbacks on the diagnostic procedures that are critical adjuncts to the physician decision to prescribe.  It's worth speculating if PhRMA strategies on reform are sensitive to the industry's increasingly complex product profile: one policy no longer fits all.

Faith in a "disinterested expert" approach to policy could be dangerous

 It is tempting to believe that putting healthcare above politics through the creation of a Medicare Commission to decide on coverage and value will be good for industry. But the opposite is often true. Outside the US, decisions are made by elites insulated from the political pressures that allow companies to harness potent forces like "patient power" in obtaining market access.

Stalemate on health reform will produce much the same outcomes

 Irrespective of whether comprehensive reform passes, pressures on the sector are structural. The only difference is that an impasse will heighten a "beggar thy neighbor" dynamic and raise expectations for piecemeal reform experiments at the state level.

Whatever the result, the stakes are high. The US will still set the pace for profits: at $320 billion in sales, it is far and away the world's largest single market for medicines—twice the size of both the "pharmerging" bloc and the big five of Europe. Our legislators in Washington have an enormous responsibility on their hands: no less than the welfare of a new global generation of patients.

From the Editor

Despite its success as a proponent of reform, the drug industry, whose main offering is a product easily siloed against other health services, remains vulnerable.

Pharmaceutical Executive-11-01-2009