Value Extraction: Mining for Gold in Late-Stage Products

Article

In the second of three blogs on how digital strategy and a “data culture” can help define and deliver value, David Ormesher focuses on Value Extraction.

In the second of three blogs on how digital strategy and a “data culture” can help define and deliver value, David Ormesher focuses on Value Extraction.

The concept of “value” in healthcare means very different things to different people, depending on whether you are buying or selling.

Pharma is a seller of health products. For pharma, value is continually redefined throughout the lifecycle of a therapeutic product, from Value Creation during the research and development phase to Value Capture when the product is brought to market.

But there is one more phase in the life of a drug.

At the point when a drug loses its patent protection, called Loss of Exclusivity (LOE), its price typically drops quickly as generic competitors enter the market. During the last few years in the run-up to LOE, there is often enormous pricing pressure from competitive products and aggressive health plans.

In addition to these external pressures, there is also internal competition for attention and resources, usually from a promising launch product that requires more cash.

Given these environmentals, working on a late-stage product isn’t as much fun, and the best brand leaders will jump ship to join the next launch.

Even if a workhorse product still has a few more years of productivity, with increasing pricing pressure and falling market share, it’s easy to surrender to lowered expectations. 

However, there is still opportunity for the pharma company to recognize value in these last few years. I call this stage “Value Extraction.”

Unlike the disciplines of Product Innovation and Customer Intimacy that we saw in the first two phases of Value Creation and Value Capture, the business strategy during Value Extraction is Operational Excellence.

In this phase, data and digital technology have a unique and important role to play.

The role of data during Operational Excellence is to increase efficiency. Here is where we use everything we’ve learned about the marketplace during the life of the drug to inform how we manage its end of life to maximize margins.

Our goal is to extract as much value as possible and deliver margin back to the company to invest in the discovery and commercialization organizations for the next generation of products.

Maximize margins

Maximizing margins at this stage in a product lifecycle is principally through reducing costs. Realistically, the growth phase is over and revenue is in decline. This puts extraordinary pressure on direct and indirect costs to maintain profitability.

Since development costs have long since been amortized, the chief cost now is sales and marketing. This is where digital can play a very strategic role.

Digital sales and marketing through non-personal promotion can become an effective substitute for sales rep promotion. By replacing expensive personnel costs with lower cost digital channels, we can reduce overhead costs but still maintain market share. This results in margin expansion, creating a source of cash flow for supporting R&D.

We have seen this strategy of Value Extraction work to not only slow market share decline but turn products around and begin to grow revenue. This strategy demonstrates the important value of data intelligence and the power of targeted non-personal promotion.

The long tail of data

We have seen the value of data insight and its influence on decisions during product development and on go-to-market strategies during launch. It’s the result of investing in understanding customers on the individual level and learning to treat different customers differently – CRM at its best. This same insight platform can also be used to manage non-personal promotion throughout the launch, growth and decline of a product. 

This longitudinal view of individual physician needs and preferences over years of sales and marketing interactions is a corporate asset, as useful at the end of a product life as during its heyday.

It can specify how to maintain personalized share-of-voice in the marketplace for an older brand without the expensive overhead of a full sales and marketing team.

It can power a migration strategy for moving HCPs from an older product in decline to its up-and-coming replacement.

And it can cost-effectively support those loyalist physicians who show signs of being migration-resistant and still want and need access to the old brand.

Divest or harvest?

This approach to Value Extraction doesn’t necessarily make the corporate development decisions any easier. What may have been a cleaner decision to divest of an underperforming asset is now more complicated. Hold and manage for cash flow? Or use the new revenue multiple to increase its valuation as part of a sales transaction?

What is clear is that a deep commitment to a culture of data collection, analysis and insight-driven decision making will provide pharma leadership with many more options.

Data as corporate strategy

Managing the business based on a structured approach to data insight will offer a greater degree of confidence in taking and managing risk. Scenario planning will create stories and alternate futures based in evidence and not just conjecture.

Disseminating proprietary market insight throughout the organization will encourage alignment around a “single source of truth.” Accountability for business goals can be shared cross-functionally knowing there is a common understanding of reality.

And lastly, embedding key metrics and insight-based business rules in your CRM platform will enable a new level of multichannel marketing automation. Agency partners and brand leadership will share in and contribute to a unified and centralized database of customer activity.

From discovery to commercialization to end of life, Value Creation to Capture to Extraction, data has a fundamental and unique role to play. To those who embrace it not just as a project or a curiosity but has an end-to-end foundation of business transformation, there is great opportunity for competitive advantage, and in some cases, industry disruption.

To these leaders belong the future.

David Ormesher is the CEO of closerlook, a strategic marketing firm specializing in pharma. He can be reached at dormesher@closerlook.com or on Twitter @ormshr 

Related Videos
Related Content