Prescription for change

Information management is designed to cure an industry's chronic condition.

by Robert Ebisch

The pharmaceutical industry, intimately linked with healthcare, is feeling healthcare's pains—and some of its own as well.

"By 2007, $40 billion in U.S. sales will be lost at the top 10 pharma companies as a result of the slowdown in R&D innovation and the expiry of patents on major products," predict Ian Brodie, executive consultant, and Michelle Palmer, managing consultant, Capgemini. "Taking a broader look across the industry, no fewer than 19 blockbuster drugs are expected to hit patent crisis by 2008. Analysis suggests that 150 mid-sized new compounds will be needed by 2007-2008 in the U.S. alone to plug this gap."

To meet the challenges of decreasing revenue and increasing R&D costs, the global pharmaceutical industry spends more than $10 billion of its $250 billion in annual revenues on IT, according to Roddy Martin, a vice president with AMR Research. One of the top objectives for that IT spending is finding more effective ways to use pharmaceutical sales forces and manage supply chains.

More sales, more competition
Currently, there are approximately 100,000 pharmaceutical sales reps in the United States pursuing some 120,000 pharmaceutical prescribers. As a result, what used to be 15-20 minutes of face time with physicians has been reduced to competing with other reps for one or two minutes of time, according to Sheryl Kingstone, an analyst with The Yankee Group.

As physicians are pressured to maximize the number of patients they see, their ability to spend time with sales reps has diminished. Some 30% of physicians in the United Kingdom were no longer allowing visits by pharmaceutical sale reps, according to a study of the International Journal of Medical Marketing. Of the visits that did take place, more than 80% lasted less than three minutes.

"It's been somewhat of an arms race over the last 10 years," says Forrester Research senior analyst Liz Boehm. "Each company is looking for a share of message in the marketplace." Traditionally, Boehm says, pharmaceutical companies would match the sales force growth of their competitors for fear of losing share of voice and market share. Today, with pharmaceutical sales force growth reaching a saturation point, companies are forced to find ways to optimize the resources they have to increase sales.

More information, better service
Not surprisingly, the industry is turning to customer relationship management. AMR Research reports that 35% of the companies surveyed cited CRM investments as a top priority in 2005, up from 26% in 2004.

"There's a lot of prescription data and consumer and demographic data that allow more actionable insight into the prescribing behavior of doctors," Kingstone says. "That's where pharmaceutical companies are taking a look at how to leverage that meeting time better (by providing) more information that the doctor needs."

The international market for CRM tools in the pharmaceutical industry was estimated by Frontline at $455 million in 2003 and was projected to reach almost $625 million by 2008, with the United States dominating the market expansion. (Europe will account for 30% of sales and Japan 8% by 2008.)

This growth includes sales force automation (SFA), which depends upon tracking historical customer behavior to predict future behavior. However, SFA alone does not capture and integrate data to allow the use of predictive behavior to analyze a particular region or group of conditions. CRM takes into account not only general prescription behavior but also the characteristics of patient flow and patient needs, along with additional marketing and demographic information.

The biggest barrier to CRM strategy in the pharmaceutical industry, says Boehm, has been a disconnect between sales and marketing organizations, which have different budgets, staff and goals.

"It's been very difficult for a large pharmaceutical company to build an integrated system that manages both activities," Boehm says. "Today, most drug firms understand the organizational requirements to bridge sales and marketing, and most are well on their way to achieving that."

Clearly, pharmaceutical companies are "entering a new environment in which the traditional carpet-bomb approach to product marketing won't fly," notes Forrester in its report "Trends 2005: Pharmaceutical Marketing." The report goes on to say that "2005 will be a year of more one-to-one campaigns, supported by increased investments in the technology infrastructure that enables audience segmentation and marketing measurement."

A demand-driven supply chain
In addition to dealing with customer management challenges, the pharmaceutical industry is also poised for a radio frequency identification (RFID) revolution when it comes to supply chain management. META Group predicts that RFID use by pharmaceutical companies will exceed that of packaged goods by the beginning of 2006. In fact, the U.S. Department of Agriculture in February 2004 instructed the industry to start using RFID technology to detect and protect against counterfeit drugs.

Beyond that, RFID will increase the efficiency of drug supply chains, tracking shipments as they move through the chain and providing better information to enterprise resource planning, CRM and other business enterprise and analytical systems.

By connecting through the Internet to a data warehouse from the office, a pharmaceutical sales rep with a mobile device can sit in a physician's office and immediately answer questions about specific products. Pharmaceutical companies can also use supply chain management software to track and fix distribution bottlenecks.

"Companies have woken up and realized that though they've spent a lot of money on systems, they don't necessarily have good processes to ensure that they don't get into a stockout situation on the shelf," says Martin. "They don't have good process information to make tradeoff decisions down the supply chain, providing that aggregated downstream data that you see É in the consumer goods industry."

Martin estimates that the global pharmaceutical industry spends $100 million to $250 million of its IT budget on supply chain management. The big challenge, he says, is integrating the supply chain as a demand-driven process, what AMR Research calls the demand-driven supply network (DDSN). Based on greater detail of information about which products are on the shelves and how well each product is selling, DDSN helps manufacturers predict how much of each product to make and where that product will be needed.

In the past, companies worked on a push model, manufacturing as much as they could and incentivizing sales to sell it. DDSN replaces that with a "customer-centric pull model" that embeds product innovation and manages demand proactively. Now the sales and operations planning functions are sitting at the same table and given more IT to drive operations, to understand how individual sales and channels are doing in the supply chain and to use these processes to plan products and promotions.

Future trend
While pharmaceutical companies today focus on blockbusters, in seven years' time they will focus on thousands of drugs, Martin predicts. As global competition intensifies, manufacturers will have to become more than just-in-time suppliers. They'll need to have a better handle on the procurement process and more visibility in the supply chain.

"It's great to gather information," says Boehm. "The challenge is (knowing) what to do with that information and learning enough about process improvements to justify the investments you've made in this technology." T

Robert Ebisch has written for USA Today, The Washington Post and Science News.