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Envisaging a paradigm shift in strategic marketing of pharmaceutical in India

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PricewaterhouseCoopers (PwC) recommended, about three years ago, in mid-2007 that for sustainable business performance the research-based global pharmaceutical companies should move a part of their significant expenditure from marketing to research. They also recommended that the drug prices should be related to incremental efficacy that the products would provide.

The report titled ‘Pharma 2020: The Vision’ commented that the business model of the global pharmaceutical companies is “economically unsustainable and operationally incapable of acting quickly enough to produce the types of innovative treatments demanded by global markets.”

Undergoing a paradigm shift:

As we witness, the global pharmaceutical industry is undergoing a paradigm shift. More drugs are going off patent than what the innovator companies can replace with the new products. The research is undoubtedly failing to deliver.

At the same time, the business growth in the developed markets of the world has been declining over a period of time. The growth in the top two pharmaceutical markets of the world viz, USA and Japan had gone negative. IMS predicted in their recent ‘CEO Conclave’ in Mumbai that low growth trends in these markets will continue even beyond 2013.

In the same conclave IMS predicted that within ‘Pharmerging’ markets, China is expected to record highest CAGR growth of over 25%, followed by India and Turkey around 12-14% each. With such a scorching pace of growth China is expected to become third largest pharmaceutical market in the world in 2013 with India holding its 2008 ranking of no. 13.

Global pharmaceutical ‘Marketing Expenditure’ is increasing:

The publication titled “The Cost of Pushing Pills: A New Estimate of Pharmaceutical Promotion Expenditures in the United States” co-authored by Marc-André Gagnon and Joel Lexchin estimated from the data collected from the industry and doctors during 2004 that the U.S. pharmaceutical industry spent 24.4% of the sales turnover on promotion, versus 13.4% for research and development. This was as a percentage of US domestic sales of US$ 235.4 billion in that year.

The researchers used 2004 as the comparison year, as this appears to be the latest year in which information was available from both IMS Health and CAM Group, the two international market research companies that provide the marketing and sales data together with those of consulting services. IMS obtains its data from pharmaceutical companies, while CAM obtains its data from the doctors. This study appeared in the January 3, 2008 issue of PLoS Medicine, an online journal published by the Public Library of Science.

The above findings though highlight that the US pharmaceutical industry is overall marketing-driven, also argues strongly in favor of a shift away from this direction.

Another publication named, the ‘Triangle Business Journal’ reported the findings from another study of ‘Cutting Edge Information’, a pharmaceutical research company based in Durham, North Carolina, USA. This survey reported, “the companies marketing the six blockbuster (turnover US $ 1 billion in the first year) drugs it studied spent an average of $238.5 million to market each product.”

The “Pharmabiz” of April 2, 2007 also reported, “The study of top 15 global pharma giants revealed that the marketing expenditure as percentage of total sales of these companies worked out to 30.5 as against the R&D expenses as a percentage of total sales of 15.1.”

Such high marketing expenditure is not sustainable in the long run – alternatives being explored:

As reported by IMS Health, in 2009 though the global pharmaceutical market recorded a turnover of US $ 837 billion with a growth rate of around 6.4% compared to 11.8% in 2001, the moot question remains, whether such type of marketing expenditure is sustainable during the era when the “patent cliff’ is pushing the global pharmaceutical industry to the brink.

This situation gets further aggravated when IMS Health reports, as the world’s 10 top selling prescription drugs go off patent, it will be difficult to replace them in terms of single-product value turnover. These brands are as follows:

- Lipitor, US$13.5 billion (Pfizer)

- Plavix, US$7.3 billion (sanofi-aventis)

- Nexium, US$7.2 billion (AstraZeneca)

- Seretide/Advair, US$7.1 billion (GlaxoSmithKline)

- Enbrel, US$5.3 billion (Amgen and Pfizer)

- Zyprexa, US$5 billion (Eli Lilly)

- Risperdal, US$4.9 billion (Johnson & Johnson)

- Seroquel, US$4.6 billion (AstraZeneca)

- Singulair, US$4.5 billion (Merck)

- Aranesp, US$4.4 billion (Amgen)

The business focus is now on the emerging markets like, India:

Thus the business focus of the global pharmaceutical majors are now on the key emerging markets, like India not only with their patented products, but more importantly by having a robust fast growing branded generic portfolio to more than offset the loss of revenue and profit from the blockbusters, as they go off patent.

Publicly expressed expectations of some Governments of the emerging markets:

Governments of some of these emerging markets expect local benefits out of the evolving growth opportunities of the global pharmaceutical companies from their respective countries. Various reports indicate that there could be following two key issues in these markets:

• Local manufacturing of products
• Pricing

Local manufacturing:

Out of these emerging markets, Indonesia has clearly spelt out its intention by specifying that the pharmaceutical companies marketing their products in Indonesia will need to establish local manufacturing facilities. The new rule is directed towards local job creation.

The Health Minister of Indonesia had commented, “If they want to get licenses (to sell their products) they have to invest here also, not just take advantage of the Indonesian market.” The Minister further added, “They can’t just operate like a retailer here, with an office that’s three meters by three, and make billions of rupiah. That’s not fair.” It has been reported that India and China may ultimately come out with similar requirements for their respective countries.

U.S. Chamber of Commerce has registered a strong protest in this matter with the President of Indonesia and has urged a reversal of this decision. However, the country appears to have taken a firm stand in this matter. This is evident when in response to the report that some global pharmaceutical companies have threatened withdrawal of their business from Indonesia because of this reason, the Health Minister retorted, “If they want to go away, go ahead.”

Pricing:

Anticipating such moves in the emerging markets, some global companies like, GlaxoSmithKline (GSK) and MSD have already started implemeting differential pricing strategies for their patented products in the emerging markets like India.

Some visionary global CEOs like, Andrew witty of GSK strongly believes that such differential pricing will enable more patients in the emerging markets to afford his company’s products. Consequently the increased sales volume will not only offset the sales value loss but will also create a substantial goodwill for the company in these markets, over a period of time.

Quoting Andrew Witty the ‘Wall Street Journal’ (WSJ) reported that in Philippines, GSK had reduced the price of 28 products by 30% to 50%. In other emerging markets of Asia including India, Malaysia and Thailand the company has reduced the prices of Cervarix, its cervical cancer vaccine, substantially.

India has also witnessed such differential pricing strategy by other innovator companies for their patented products in the country.

Prescribing four new key strategic changes in the new paradigm:

In the new paradigm, almost in tandem, four new key strategic changes, in my view, will gradually unfold in the Indian pharmaceutical market. These are as follows:

1. An integrated approach towards disease prevention will emerge as equally important as treating the diseases.

2. A shift from just product marketing to marketing of a bundle of value added comprehensive disease management processes along with the product will be the order of the day.

3. Over the counter (OTC) medicines, especially those originated from natural products to treat common and less serious illness, will curve out a sizable share of the market, as appropriate regulations are expected to be put in place adequately supported by AYUSH.

4. Most importantly, the country will move towards an integrated and robust healthcare financing system, as already articulated just in the last month by Mr. Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission of India, which will usher in the following changes:

- Doctors will no longer be the sole decision makers for prescribing drugs to the patients and the way they will treat the common diseases. Ministry of Health/ Healthcare providers/ Medical insurance companies will start playing a key role in these areas by providing to the doctors well thought out treatment guidelines.

- For a significant proportion of the products that the pharmaceutical companies will sell, tough price negotiation with the healthcare providers/ medical insurance companies will be inevitable.

- Health Technology Assessment (HTA) or outcome based pricing will gradually play an important role in pricing a healthcare product.

- This could well mean lesser role of the Medical Representatives in the demand generation process for the pharmaceutical products, which could possibly have a positive impact on the cost of marketing and sales promotion, incurred by the respective pharmaceutical companies.

Conclusion:

With all these changes within the Indian pharmaceutical industry, it may not be easy for the local players to adapt to the new paradigm sooner and compete with the global players on equal footing, even in the branded generic space. In my view, those Indian Pharmaceutical companies, who are already global players in their own right and relatively well versed with the nuances of this new ball game, will have a significant competitive edge over other domestic players. The global-local companies, in my view, will offer a tough competition to the local-global players, especially, in the branded generic space and at the same time will be able to bring down their marketing expenses significantly.

So far as other domestic players are concerned, the fast changing environment could throw a new challenge to many of them, accelerating the consolidation process within the Indian pharmaceutical industry.

We all should be well aware, just as today’s pharmaceutical business dynamics in India are not replica of what these were in the yesteryears, tomorrow’s pharmaceutical business dynamics of the country will not be a replica of what these are today.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Prescribing medicines by generic names…a good intent… but is it a practical proposition in India?

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Parliamentary Standing Committee for Health and Family Welfare in their recommendation to the ‘Rajya Sabha’ of the Indian Parliament on August 4, 2010, recommended prescription of medicines by their generic names.

This recommendation appears to be based on the premises that the cost of ‘Brand Building’ exercise of the generic drugs in India, including varying degree of presumably ‘high sales and marketing expenditure’ incurred by the formulators towards such efforts, can be easily eliminated to make medicines available to the common man at much cheaper prices.

This recommendation, on the face of it, makes immense sense. However, the moot question remains, “Is it a practical proposition to implement in India?”

In the following paragraphs, let me try to deliberate on this important issue.

Generics and Branded Generics:

As we know generic name is the actual chemical name of a drug. The brand name is selected by the producer of a formulation and is built on various differential value parameters for its proper position in the minds of health professionals as well as the patients. Thus, brand name offers a specific identity to the generic drug.

The prevailing situation in India:

In India, over 50% medicines prescribed by the physicians are for Fixed Dose Combinations (FDCs), spanning across almost all therapeutic categories. Thus, it could be difficult for them to prescribe such medicines in the generic name and could equally be difficult for the chemist to dispense such prescriptions.

Moreover, in case of any mistake of dispensing the wrong drug by the chemist inadvertently, the patients could face serious consequences. It is well known, the concentration of ingredients in the fixed dose combination of any two medicines, many a times, differs from manufacturer to manufacturer. There are over 50,000 odd formulations in the Indian pharmaceutical market and it would be almost impossible for any doctor to keep track of exact concentrations of each of these drugs and prescribe in their right strengths.

Current prescription practice:

Currently doctors use brand names to differentiate one such formulation from the others. Different brands of even single ingredient medicines may have inherent differences in their formulations like, in the drug delivery systems (controlled/sustained release), kind of coatings allowing dissolution in different parts of alimentary canal, dispersible or non-dispersible tablets, chewable or non-chewable tablets etc. Since doctors are best aware of their patients’ conditions, they may wish to prescribe a specific type of formulation based on specific conditions of the patients, which may not be possible by prescribing only in generic names.

Other Patients related issues:

Patients also could face other difficulties due to generic prescribing. As is known, different brands of FDCs may have different proportions of same active ingredients. If chemists do not know or have the exact combination prescribed by the doctor in their shops, thye would possibly substitute with a different combination of same drugs, which could well be less effective or even harmful to the patients.

Conclusion:

Prescriptions by generic names instead of brand names could likely to lead to substitution of the medicines at the chemists’ outlets because of the reasons, as mentioned above.

Thus, the major concern with generic prescriptions is that a chemist will then make the choice of the manufacturer while dispensing a medicine. There could only be one criterion for the choice of such medicines by a chemist i.e. to select what gives them highest margin of profit. In such a case, the ultimate decision making authority for the prescription medicines shifts from the physicians to the chemists, which could make the situation far worse for the patients. For the interest of the patients, it is, therefore, extremely important that the government, regulators, physicians, chemists and even the patients’ groups are aware of such risks.

Considering all these risk factors, in my view, if the prescriptions of medicines are made mandatory by their respective generic names in India, it could compromise with patients’ safety, very significantly.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

‘Prescription-brand’ loyalty and engaged field force – exploring the direct relationship.

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Well known English writer and one of the most prominent members of the famous ‘Huxley family’, Aldous Huxley once said in the context of nature, “Everything has a cause and the same cause usually produces same effect. The law of cause and effect is fixed.”
‘Cause and effect’ relationship between ‘employee satisfaction’ and ‘customer satisfaction’:Following such ‘cause and effect’ relationship, there are many studies, which establish a direct correlation between ‘customers satisfaction’ and ‘satisfied employees’. Within the pharmaceutical industry, it has now been well established that there is a cause-and-effectrelationship between Doctors’ prescription-brand loyalty and a satisfied or properly engaged sales & marketing staff.

For most organizations, the objective of improving the satisfaction level or increasing the degree of engagement of an employee in the organization is an article of faith. Research studies on this subject indicate that building customer loyalty has a significant impact on profitability of the organization. A study based on 46,000 business-to-business surveys reports that a “totally satisfied” customer contributes 2.6 times more revenue than a “somewhat satisfied” customer.

‘Walking the talk’ is the name of the game:

It is extremely difficult if not impossible to create a critical mass of loyal doctors’ base for a brand or brands without a creating a team of satisfied, engaged or loyal sales & marketing team. The best employees usually prefer to work for companies where managers ‘walk the talk’, set examples and deliver superior values.

Acid test of leadership:

A work environment of such kind helps to create employee satisfaction, loyalty and engagement, which ultimately gets translated into building customer loyalty. Ensuring employee loyalty and creating employee satisfaction is, therefore, considered widely as the acid test of leadership.

Creating a positive psyche within employees is important, usual skill training is just not enough:

To create employee loyalty the organization will need to understand the mind of its employee and always try to have a positive influence on their psyche. Usual skill training will not help to achieve it.
Just as sowing a seed is no guarantee that it will grow into a plant, a highly skilled sales person is no guarantee that it will contribute to the growth of the organization. Just as one will need to create an environment for the seed grow into a plant, the organization will need to create an environment for employee satisfaction to enable them contributing towards the growth of the organization.

In HR invest resources where the mouth is:

It is very important for the managers to devote more resources both in terms of money and time to play the role of a mentor to each one of his or her direct reports to improve their satisfaction level with the organization. These satisfied employees will in turn help create a core group of prescription brand loyal doctors for the organization.

‘Charity begins at home’:

However, ironically most of these managers do not realize that attempts at their end towards this objective, many a times, are just cosmetic in nature. As the saying goes, “charity begins at home”…real enhancement in the level of customer services, indeed starts from extending superior services, support and satisfaction level to the sales force, the bedrock for generation of prescription demands for the prescription brands.

Facing the ‘moments of truths’ of every day positively:

Pursuit of an organization in providing great services to the patients through doctors ultimately depends on the people who provide those services…the sales force. It can only happen through one’s willingness to go beyond what is required of people who serve on the front lines.

Excellence in organizational performance takes place through efforts of frontline employees who make up their minds to face the “moments of truth” of every day, as positively as they possibly can. Such enthusiasm, loyalty, or devotion none will be able to impose on any one. These ordinary people are transformed into ‘brave hearts’ and highly satisfied top performers only through well articulated “shared values”, which take their deep roots within the organizational environment. In a situation like this one can easily make out the visible passion and pride of the frontline staff, emanating from deep within, of each one of them.

Some research findings:

Following are some examples from various research findings, which reinforce the hypotheses that there is a ‘cause and effect’ relationship between ‘customers satisfaction’ and ‘satisfied employees’:

• “For every one percent increase in internal service climate there is a two percent increase in
revenue”.

• “In cardiac care units where nurses’ moods were depressed, patient death rates were four times
higher than in comparable units”.

• Emotional commitment of the sales force and sense of identity with the company are key factors in
providing excellent service to the doctors.

• The reason of poor prescription demand of a company’s products is related to the degree of its sales
staff turnover.

Conclusion:

Therefore, one tends to believe that “a company’s external customer service is only as strong as the company’s internal leadership and the culture of commitment that this leadership creates”.

To transform one’s organization from “Good to Great” it is of utmost importance to build a team of loyal and satisfied ‘internal customers’ by creating a commensurate organizational culture, work environment, ethics and values. Various training & development programs or seminars, aiming only at employee ‘skill development’, are just not enough.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.