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When Will We Finally Change The Pharma Rep Model in Asia?

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One area I challenge my peers quite often with is why in this ‘age of information’, unprecedented levels of scientific understanding, increasing use of formularies, and the growing call for evidence-based medicine, we still see pharmaceutical sales driven primarily by representatives who appeal more on messaging and relationships than hard clinical evidence.

It is true that their role has been facing significant pressure from regulators, physicians and policy-makers (see the table below for some notable examples), but they are still ever-present.  According to a recent IMS Health report, there are an estimated 444,000 sales representatives still directly employed by the industry, and their related activities account for 62.5% of all sales and marketing expenses.

Country Year Example
USA 1998 The Everett Clinic group banning all representatives from visiting their physicians
Russia 2011 Proposal by PM Vladimir Putin to ban all pharma reps (did not pass)
USA 2014 The Sunshine Act, preventing any gift greater than $10 as well as requiring doctors to publicly declare the compensation they receive from pharmaceutical companies
Australia 2014 “No Advertising Please” campaign by Australian GPs, calling on physicians to make a pledge and display signs refusing rep visits
Turkey 2015 National registration and ID system to track sales rep visits and reduce illegal promotion activities
USA 2016 ZS Associates reports only 44% of physicians are readily accessible to reps, 18% of physicians severely limiting access
China 2017 State Council of China calling for the restriction of sales representative activities to only communicate academic information and to provide technical support, both not tied to sales (effectively acting as medical science liaisons)

So why am I writing about this now?  I mean, we wrote about the diminishing returns of reps ten years ago, so what has changed? Two catalysts – first, the looming pricing uncertainty; and second, the emergence of viable alternative models.

Pricing Uncertainty

President Trump has again very publicly called for an end to high pharmaceutical prices – on top of this there has also been talk of allowing the CMS, overseeing Medicare and Medicaid, to actually negotiate drug prices (albeit not without rumours of a flip-flop). Imagine that, to this day, the single largest payor in the world has been forced to procure at the ‘Best Price’ paid by private insurers, which is vulnerable to much obfuscation on what truly ‘Best’ is.

For Europe and most countries in Asia, this is old news – a combination of increasing health technology assessment use, reference pricing, and strong negotiating power have kept prices substantially lower than in the US. Even Japan, traditionally viewed as a pricing haven (sometimes even awarding companies with superior pricing to the US), has taken the unprecedented move of directly intervening in the price of several drugs, most notably demanding a 50% price cut in Opdivo, a leading immuno-oncology drug.

Today, with roughly 70% of pharmaceutical revenue coming from the US, EU and Japan, how would price cuts of even 5 or 10% impact the industry?  Can they hope to make those losses up elsewhere in the world, or will they have to look inward?  I am thinking it will be more of the latter, at least in the near term. With the Chinese government recently announcing price cuts to 36 branded drugs, averaging discounts of 44% vs. previous year with some reaching as high as 70%, I cannot imagine other governments not taking notice and scratching their chins with intrigue.

So then, looking inward, the pharmaceutical industry collectively spends roughly 26% of its revenue on sales and marketing, and only 17% on R&D – the former emphasizing returns today, while the latter ensuring the industry has a sustainable future.

There is broad awareness and expectation that widespread biosimilar and generic substitution will eventually cause the age of branded ‘me-toos’ to rapidly draw to a close, thus placing greater pressure on reducing sales and marketing spend, while improving R&D throughput. The key problem is that without superior alternatives to the current model, reducing said spend would directly impact the top-line before better R&D can fill the gaps.

The Emergence of Viable Alternatives

At the Galen Growth Asia CEO Summit last December, I was captivated by the keynote session delivered by Dr. Stanley Li of DXY (丁香园), a digital health company that has roughly 70% of all doctors in China registered on its platform.  It not only provided a forum for expert exchange and collaboration, but it also created a community where clinical practice guidelines could be developed (and informally applied), and a marketplace for services that physicians could provide, be it for research or teleconsultations.

Stanley described one small ‘experiment’ of only 27,000 doctors that sought to compare the effectiveness of message delivery between the DXY platform and traditional pharmaceutical sales reps.  The hypothesis was that by understanding what physicians read, and shared, and how they interacted with their patients and communities online, a virtual profile of the physician could be constructed in much greater detail than what a typical sales representative could do in their daily interactions.  Moreover, how the physician portrays themselves to the representative may differ from what the physician really is interested in, and how the physician actually practices medicine.   The experiment was a success with a 3.6X difference in message delivery effectiveness.

The part that really struck me in this pilot was not that it was more effective in message delivery, but rather, how well DXY knew their doctors. If you know your doctors better, it is pretty obvious that you will have better results. This also shattered the myth (at least to me) that you need the face to face relationship to be successful.

The good news is that DXY is not alone in this in Asia – some health insurers, third party administrators, and even startups live or die by better knowing their doctors, and I know that a good number of these are looking for ways to better collaborate with pharmaceutical companies.

But hold on, you might be asking, why do you need all this if sales reps already know their doctors very well with all these visits? Could they not do more?

Some surely do, but I would wager that in the increasingly short visits, most spend their scarce time on products rather than needs of their physicians (let alone patients and other stakeholders).  Even if they do know their doctors well, there is little incentive to share this knowledge with others, especially if it is used to bypass said rep. For example, what if a rep’s physician preferred to receive product information through fellow physicians in closed Facebook discussion groups [seriously, many do], and the pharma company acted on this, barring the rep from visiting? Would that rep be happy given their current incentive structure?

Some pharmaceutical companies, such as GSK, in wake of certain scandals, have very publicly changed their pharma rep compensation model as a first step to changing the way they behave and interact with physicians; yet fundamentally it is still focused on a face to face ‘push’ interaction. In the minds of most pharma companies, alternative channels meant giving the rep an iPad, or dropping some ‘fancier brochures’ rather than fully exploring the various channels in which the physicians wished to interact, and truly understanding what the physicians need from pharma to better practice medicine and save patient lives.

On top of the historical physician focus, pharma reps (and their commercial organisations) need to adapt to the increasing complexity of care, with physicians sharing decision making roles with payors, TPAs, hospital administrators, and even patients as they become more empowered. Focusing solely on the physician is not going to be enough in most Asian markets going forward.

So what then to do? You can’t eliminate thousands of reps overnight, but you can gradually transform them into a wider variety of roles through upskilling and a remodeling of incentives. I can imagine many reps may not like this new direction and will self-select themselves out, while the rest will have seen the writing on the wall and at least give it a shot.

I imagine this transformation will be accompanied side by side through partnerships with those who understand doctors in a more neutral and systematic way, as well as technology that can replace the traditional rep function at scale. Some companies such as NuRep, are trying to do just this, albeit in the medical device space, replacing the in-person support provided by traditional reps with virtual tech consults that are less intrusive and far more cost effective.

There is still a great advantage of having thousands of boots on the ground as they have direct visibility to what is happening in the real world, and it may be the first step of evolving their roles into one that is more customer / institutional support, community engagement or even involved in the collection of real-world evidence (to definitively prove all those messages) and competitive intelligence (potentially even threatening the IMS monopoly). As they do this, there will be numerous opportunities for digital health companies to support them in this journey.

I recognize this is just scratching the surface of a long and contentious topic, and I am curious what you as readers in the industry feel about this current dilemma, and whether you are seeing anything locally that supports or refutes the trend.

More importantly, I also challenge the entrepreneurs (and intrapreneurs) out there to accelerate this vision forward in our own backyards, as ultimately, it will be the patients that benefit.


About the author:


Joseph Mocanu is a Principal in Oliver Wyman’s Health and Life Sciences Practice

 

Copyright © 2017 Galen Growth Asia

 

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