There has been a great deal of recent debate around the Obama administration’s proposed healthcare plan. Regardless of the eventual outcome and the impact on the pharmaceutical industry, large branded pharmaceutical companies focused on R&D will face the following four key challenges:

• They must address competition from both their branded and generic counterparts
• Companies must be constantly legally protect against patent violations
• They must manage a global pricing strategy that significantly varies from geography to geography due to unique price controls
• They must manage their product pipelines so patent expirations do not leave them with significant revenue gaps and far lower profitability for long periods of time

We will address the first issue with the remaining three planned for subsequent blogs.

Due to the recent lack of new blockbuster drugs and the success generic firms have had challenging product patents, generic companies have become a significant industry power. According to data from Wolters-Kluwer over the last twelve months, Teva, primarily a generic company, is the largest pharmaceutical company with annual revenue of ~$47B. Pfizer, a leading branded manufacturer, is number two with annual revenue of ~$28B. However, in terms of growth year-over-year, Pfizer was flat while Teva grew ~16%. As opposed to branded research-oriented pharmaceutical companies, which invest significant resources to develop new medicines, generic drug manufacturers spend minimum resources on R&D, and start manufacturing developed drugs after their patents expire.

Because generic drug manufacturers do not have to recoup high R&D costs, prices of their products are usually much lower than those of branded pharmaceutical companies. Consequently, after patent expiration, generic drugs manufacturers capture significant market share, dramatically decreasing revenues of the branded company.

This may sound like a logical course of events. The branded manufacturer invests in the development of a drug and through the exclusive sales of this drug during the period its patent protected; the company earns a return on their investment.

Likewise, patients’ benefit from the development of these new therapies and the eventual reduced cost once generic forms of these drugs are introduced. However, as we will explore further during our next blog, if patents are successfully challenged and generic companies are able to introduce generic forms of these treatments several years prior to their planned expiration, this will disincent R&D focused firms on investing in the development of new breakthrough therapies if the risk of earning a return on their investment is far higher.

Pharmaceutical marketers spend considerable resources analyzing and researching the marketplaces in which they compete while developing, implementing and measuring strategic and tactical plans. This is all in an effort to appropriately position their products to drive optimum patient care and profitable revenue. However, after all of that effort and expense to educate their physician customers on the appropriate use of their products to drive prescription volume, on average approximately 7%-15% of those prescriptions go unfilled at the pharmacy due to “patient abandonment.” In these instances, patients actually bring their prescription to the pharmacy and decide not to have them filled. Typically patients decide to abandon their prescriptions when they learn of the out of pocket expense (co-pay, cash payment) for the product.

Marketers must work with their chosen data provider (i.e. IMS, Wolters-Kluwer) to thoroughly understand the magnitude of this dynamic for their products/markets and, specifically, which geographies are most vulnerable to it's effects. More importantly, where it makes sense financially they must attempt to improve the tier position on identified managed care plans or implement programs like coupons and rebate cards to defray the cash cost so patients fill their prescription vs. going untreated or pursuing alternative treatments. Again, when you consider the significant effort and expense that goes into generating a prescription, it’s financially counterproductive for the manufacturer, and for the patient’s care, if they are not being filled when a patient incentive can be implemented for the benefit of all parties.

The pharmaceutical sales model has historically delivered exceptional returns on investment. However, pharmaceutical sales forces need to become more efficient in their cost structure and ability to shift deployments according to changing portfolio needs. This requires fundamental changes to how field forces are assembled and managed.

In my view, successful future pharmaceutical sales organizations will include a flexible outsourced component to increase agility and cost effectiveness. This will more efficiently support all products according to the needs of the brands and targeted physicians. And, ultimately, this will deliver a better ROI and increase customer satisfaction.

More and more, biopharmaceutical companies are turning to outsourcing as a long-term strategy to increase efficiency and profitability. Why would a biopharmaceutical company choose to partner with a mature pharmaceutical company to assist with product commercialization rather than develop that capability internally or choosing CSO? What are the benefits and risks afforded by this route?

Until recently, when an emerging pharma company completed their pre-clinical research, they looked for partnering arrangements with big pharma or biotech companies to continue with Phase I, II, and III testing and commercialization. Generally, these agreements gave all the commercialization opportunity to the established partner.

Today, emerging biotech companies have more say due to the demand for the products they bring to the table. Some choose to partner, others find ways to go it alone. And the lesson is this: Licensing continues to be an attractive alternative for companies who want to profit from patented technology of smaller firms without investing in development and commercialization. The obvious major drawback is that they relinquish control of the final outcome. And although milestone payments and royalties are built into these agreements, the inventor needs to be prepared to let go psychologically.

Welcome to my new pharma blog! On a weekly basis I plan to discuss numerous relevant and timely topics and trends specific to the pharma/biotech industry while also exploring general topics related to leadership, management, strategic partnerships and others areas to be determined. The dialogue is intended to challenge generally accepted practices and points of view in an effort to force the reader to consider different perspectives from inside the healthcare industry.

This industry is rapidly changing. The business practices employed over the last several decades are becoming obsolete, and those individuals who do not adjust accordingly will also be obsolete (i.e.: unemployed). I encourage you to visit my blog often and share your points of view on the topics presented. I look forward to engaging in an exchange of ideas that will benefit all participants.