Untitled

FOR GLOBAL BUSINESS AND MARKETING LEADERS NoMarginfor
Companies that will be forced to
cut back on sales and marketing
spending must focus on value, not
volume. Here’s how to reduce your
spend where it matters the least.
BY MASON TENAGLIA AND PATRICK ANGELASTRO
Mason Tenaglia is managing director of The Amundsen Group. He can be
reached at mtenaglia@amundsengroup.com. Patrick Angelastro is senior
vice president, strategic development at ImpactRx. He can be reached at
pangelastro@impactrx.com
2 PHARMACEUTICAL EXECUTIVE
Calculating PMI The payer mix index shows how
two territories may have similar volumes, but different value.
Territory A
Since the mid 1990’s, every division vice presi-
dent of a US pharma company has watched aseach of the major parts of the organization—brand marketing, sales force, and managedcare—has expanded and competed for Medicaid
resources. Growth in the spending of each of these areas now exceeds revenue growth. Industry’s spend- ing on all parts of its promotional arsenal—professional Margin Index
detailing, direct-to-consumer (DTC) advertising, and managed care discounting—has increased so significantly 87.80 pmi
that it now finds itself stumbling under the weight of theseinvestments. It’s time to cut back. But how? Territory B
There are quick, obvious ways to reduce the cost of Medicaid
selling. Some companies, like Wyeth, will cut sales forces across the board. Others (think of TAP and its Prevacid brand) will slash DTC advertising or “just say no” to the Margin Index
trend in managed care rebates. These solutions may reduce costs, but they make no distinction between pro- 76.40 pmi
motional investments that produce a high return and thosethat don’t. Perhaps the worst solution of all: Some firmsreduce sales territories through attrition, leaving opportu- Reducing Sales Effort Based on Margin
nity-rich field positions unfilled while racking up costs for By plotting a territory’s potential against the payer mix index,
executives can strategically scale back resources to the areas
Pharma has known for a while that each physician that contribute the least amount of value.
detail is not created equal. A physician may be in the top A PharmExec Graphic
decile, but he won’t generate much in the way of sales ifyour brand has a third-tier co-pay and patients won’t payit—or if more than half his patients are affiliated with state health programs or insurers that get deep discounts. Twoproviders can look identical in terms of their script-writingprofiles, but one may be worth two or three times as muchto the company. That’s not a new idea. Large pharma now recognizes that the one-size-fits-all sales force model has outlived itsusefulness. But three things have changed recently to make U.S. Average PMI=77
that model even more obsolete.
» The Medicare drug benefit’s multi-region structure is
putting a new focus on geography, and new pressure on Payer Mix Index
» Companies now have access to data, from both internal
and third-party sources, that let them look far moreclosely at drug prescribing and purchasing. One keyadvantage: It is now possible to estimate average margin » Because of Medicare and the increased aggressiveness of
managed care organizations, access is emerging as a keyissue in planning pharma sales strategies.
These trends point to an approach that makes it possi- Market Potential (in dollars per territory)
ble to cut marketing and sales costs rationally. Instead ofslashing across the board, companies should take a tar-geted geographic approach to reducing the type and depth be pulled in an integrated way to drive company profits. However, of sales force and promotional expense. In particular, two they do not yet exist throughout the industry. Instead, they are the emerging models provide a roadmap to do this effectively.
necessary future for companies that want to reallocate promotional The first focuses on margins, and helps companies cut spending in a way that focuses on value—not volume—and offsets spending in territories where net sales margins are lowest.
the growth of other sources of controllable spending.
The second is an opportunity-based approach in whichpharma organizations reduce sales and promotion Negative Thinking
expenses in specific geographies where managed care has You can’t underestimate how important it is to control promotional spending when you consider that pharma has deployed between These business-planning approaches consider sales 90,000 and 100,000 sales reps and increased its spend on DTC to force, DTC, and managed care rebates as levers that can But what has really pushed these expenses past the tipping nities is creating a payer mix index (PMI) at the territory level. point is pharma’s spending on managed care rebates and con- To create a PMI, you break down your sales in a given terri- tracts. Over the last 10 years, the dollars pharma has rebated tory by payer: the patient, third-party MCO, or Medicaid (and back to MCOs, PBMs, and national insurers has grown at two perhaps, down the road, Medicare). Then, determine the mar- to three times the rate of companies’ revenues, depending on gins you make on each revenue source. MCO discounts and sup- the product portfolios involved. When those rebates are com- plemental payments can be differentiated on a state-by-state bined with Medicaid’s “best price,” consumer price index basis, while the average commercial rebate in a state can be used (CPI) adjustments, and state supplemental discounts, rebates as a close proxy to the actual rebates paid to each account. Some for many manufacturers today represent a cash outflow that is exceptions, where commercial rebates are outside the norm, now greater than all their direct-selling expenses combined, should also be incorporated into the PMI. Finally, calculate an and may represent about 20 percent of gross sales. average margin for each territory, weighted by payer type.
Of course, many companies, particularly in crowded thera- “Calculating PMI,” page 80, gives an example of how the peutic markets, feel it’s worth it. They often justify payer bids process works: The two territories have similar sales volumes based on a belief in a commensurate “spillover”—in other words, but very different mixes of payers and margins.
that providers apply their script-writing behavior under deeply The PMI provides a way of looking past sales volume to discounted contracts to prescriptions not covered by that given value. “Reducing Sales Effort Based on Margin” on page 80 ALL OTHER
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California:
Shakedown
The most obvious
impact of Pacificare’s
and Aetna’s preference
for the generic lovas-
tatin—instituted
through low or no
co-pays— is on Crestor
and Zocor.
A PharmExec Graphic
Pacificare
Employer Caremark Wellpoint
Wellpoint Express
When rebate strategies
spillover argument, so when rebate strategies are coupled with sales force
results in what’s euphemistically called “mar- and DTC spending, it results
gin-negative” business—sales that bring in in “margin-negative”
less than the marginal cost of selling, promot- business—that is, sales that
bring in less than the marginal
were limited to federal programs, such as the cost of selling, promoting,
VA, and a few aggressive state Medicaid pro- and manufacturing the drug.
grams, such as MediCal and MassHealth.
However, the growth of supplemental rebates for state programs, the increasing power of MCOs, as shown by territories would you eliminate? It’s pretty obvious that low- WellPoint, and the expectation by Medicare Part D providers that PMI territories need to go first. They may be generating sales, the exemption from best price will translate into deeper discounts may mean that as much as 50 percent of all prescriptions in some That is, of course, opposite of what most companies would concentrated markets will be margin negative.
do today. Without territory-level data on profitability, theyfocus on volume. Most eliminate low-volume territories and The Payer Mix Index
continue to detail their least-profitable customers. The key to managing promotion in the new environment is to Without reconfiguring the entire sales force, executives can look closely at margins and access at the territory level and gain an understanding of what territories contribute the least evaluate how much you’re likely to make from selling the profit at the margin. In applying this practice, companies should drugs, and identifying areas where you are unlikely to succeed. look at geographic clusters of low-margin territories and deter- Let’s look first at margins. The easiest method to better mine if they should consolidate two or three low-value territories align companies promotional resources against profit opportu- into one or two. In addition, PMI should be combined with othervolume, potential, or workload information to identify outlier PHARMACEUTICAL EXECUTIVE 4
» What was the relative detailing
Written vs. Dispensed
When NDC’s longitudinal data is combined with
» What products did the physician
Territory-level analysis is par- Impact Rx’s detailing and “new written prescriptions”
ticularly useful in allocating information, it is apparent that although Crestor
resources for a sales force. But and Zocor are detailed as much or more than other
» Of the written new-patient starts
the same analysis can be used at competitors, those drugs get a disappointing share
the prescriber level as well. By of the prescriptions written and filled.
gin into the physician-profiling Lipid-Lowering Agents, California Q1 2005
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pull-through from detailing efforts.
Written Dispensed
A PharmExec Graphic
ropolitan statistical areas (MSA) or states—will also provide extremely crowded and noisy, with several Big Pharma compa- insight on opportunities to reallocate other promotional spend- nies backing extensive selling efforts and DTC promotion.
Formulary access varies widely by product. Most MCOs placeLipitor (atorvastatin) and Zocor (simvastatin) on preferred Is the Opportunity There?
status, while Crestor (rosuvastatin), Vytorin (ezetimibe/simvas- Companies can also take a more comprehensive approach to tatin), and Zetia (ezetimibe) are most frequently non-preferred sales and marketing resource allocation by identifying where brands on patients’ formularies. This category also has one managed care rebates trump direct selling. Companies that generic—lovastatin (Mevacor)—and will soon have two oth- have products that are currently in the crosshairs of managed ers, simvistatin and pravastatin. In some markets, notably care—proton-pump inhibitors, angiotensin-receptor blockers, California, payers require step therapy with generic lovastatin, statins, and antidepressants—will see the greatest return from while other insurers encourage the use of the generic through exploring this opportunity-based approach.
Many companies already adjust territory quotas or per- Using longitudinal patient data for California, manufactur- formance targets to reflect access to a drug in that market.
ers see the obvious impact of Pacificare’s and Aetna’s prefer- However, few differentiate selling strategy or sales effort where ence for lovastatin, most notably on Crestor and Zocor.
their products are at a significant competitive disadvantage or AstraZeneca and Merck clearly know that their market share is lower in California, and possibly in these two payer This approach is based on a methodology that combines accounts. However, without understanding how altering their several data sources at a state or regional level, including longi- promotional effort will affect prescribing, neither company tudinal-patient and dispensed-prescription data sources like will risk changing their detailing effort from the national NDC or Verispan, and real-time competitive detailing and pre- norm. (See “California: MCO Shakedown,” page 82.) scription information captured in the physician’s office from However, when this longitudinal data is combined with ImpactRx’s detailing and “new written prescriptions” informa- By matching physicians in both data sets, companies can tion, companies are able to quantify the results of their detailing aggregate de-identified patients by physician to connect pro- efforts. (See “Written vs. Dispensed.”) Crestor and Zocor are motional detail efforts to what medication is dispensed by the detailed as much or more than other products in the category, but pharmacy. It also enables companies to understand: those drugs get a disappointing share of the prescriptions written and filled. The opportunity to affect share per-formance is simply not available because of Companies can finally quantify the relative importance
physicians’ preference for prescribing lovastatin of formulary status and pull-through from detailing. In so doing,
they can identify geographies where detailing makes
southern New England where both formulary the most impact—and where that effort is neutralized by
status and physicians’ strong preference for formulary position. It is in these markets that companies can
Lipitor combine to neutralize the effect of the drastically reduce selling effort without affecting sales.
sales force. But in other states, such as 5 PHARMACEUTICAL EXECUTIVE
SEPTEMBER 2005 www.pharmexec.com
Alabama and Tennessee, selling effort still trumps formulary (But better information is set to become available from CMS status for this class. (See “Same Share of Detailing, Different under Medicare Part D, making this approach more practical on a lower level of geography.) In addition, these approaches AstraZeneca and Merck can use these data to identify require companies to adjust many core business processes, regional-targeting strategies that maintain their current share such as physician targeting, which they’ve institutionalized with a far lower level of resources. In the case of California, around volume, and which don’t incorporate measures of Merck and AstraZeneca could simply cut detail effort to physi- profitability in reps’ compensation program. Assuredly, there cians who prescribe a high share of lovastatin, and lose little in will be pushback from both sales management and operations the way of scripts. (See “Guiding Physician Targeting.”) before these value-based approaches can be adopted.
Margin- and opportunity-based approaches require an Perhaps the greatest challenge will be getting the three increased sophistication in planning and execution. Most com- silos—brand management, sales management, and managed- panies will resist implementation because it requires them to markets organizations—to develop a common understanding tap into parts of their businesses they never understood, of this model. However, companies that are successful can through data they mostly have never used. There are other direct savings into higher-return activities, such as the health challenges. Limitations in available data mean the opportu- outcomes research that will be increasingly demanded from the nity-based approach now works best at the state or MSA level.
largest and most circumspect payers.
In southern New England, formulary status and physicians’ strong preference
Same Share of Detailing, for Lipitor combine to neutralize the effect of sales force. But in other states,
Different Results
like Tennessee and Alabama, selling effort still trumps formulary status.
Massachusetts [+ CT, VT, RI]
Tennessee & Alabama
California
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A PharmExec Graphic
Using the opportunity-based approach, Merck and AstraZeneca could
cut detail effort to physicians who prescribe a high share of lovastatin,
Guiding Physician Targeting and lose little in the way of prescriptions.
High Lovastatin Plan Physicians
Average Lovastatin Plan Physicians
Low Lovastatin Plan Physicians
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A PharmExec Graphic
Reprinted from PHARMACEUTICAL EXECUTIVE, September 2005 Copyright Notice Copyright by Advanstar Communications Inc. Advanstar Communications Inc. retains all rights to this article. This article may only be viewed or printed (1) for personal use. User may not actively save
any text or graphics/photos to local hard drives or duplicate this article in whole or in part, in any medium. Advanstar Communications Inc. home page is located at http://www.advanstar.com. physician behavior. SalesFx is a new addition to thecompany product portfolio and provides Senior SalesManagement with detailed analysis to help them betterunderstand how their sales forces are performing rela-tive to the competition. ImpactRx® now also provides customized consultingservices to its clients through a newly formed Solutions ImpactRx® provides critical insight to the pharma- Group with support from the Advanced Analytics ceutical companies on the efficiency and effectiveness Center at ImpactRx®. As illustrated by this article, of their sales and marketing investments. ImpactRx® is now ready to help its clients optimallyallocate resources by analyzing and mapping regional Since its inception in 2000, ImpactRx® has maintained differences in promotion response and managed care an expansive network of primary care and specialty physicians. Through its physician network,ImpactRX® tracks over time the metrics that matter topharmaceutical companies. Impact Rx® captures all of the industry’s promotional activity as well as the treat- ment decisions physicians make in response to that ImpactRx’s major products include PromoLink and OncLink, which provide brand management withunique measures of market dynamics and changes in of today’s pharmaceutical sales and marketing envi-ronment and can help you navigate the daunting chal-lenges that lie ahead including: - shifting from national to local market management –strategies, resource allocation, tactics and messaging- measuring both volume and margin across customers It is a harsh new world for pharmaceutical compa- nies. New channels are putting unprecedented pres- - integrating all marketing and sales investments sure on margins. Sales and marketing expenses are including sales force, programs, sales and rebates growing faster than revenues – creating the biggest - incorporating patient characteristics into physician challenge to profitability that the industry has faced in decades. In the tempest to come, traditional datasources and performance measures will point in con- Today, pharmaceutical marketing is a game for explor- ers. You need to get somewhere no one has ever beenbefore. We know the way.
What you need is a guide who knows the territory.
The Amundsen Group brings a team of seasoned con- sultants and new approaches that are at the forefront

Source: http://www.amundsengroup.com/files/2011/07/nomarginforerror.pdf