Changes in the pharmaceutical sales model have forced leaders to invest in new selling strategies in recent years. However most of these New Commercial Models (NCMs) have not produced enough success. An area of uncertainty for pharma export sales strategies is the fall of the previously tactical, successful, sales rep to doctor model.
The industry has now realized that old sales strategies are not productive in a new changing marketplace. Many companies simply tweak their old models to adapt to the changing market instead of implementing new strategies.
Here are some strategies for success in a volatile and uncertain environment.
Build Customer Centricity
In order to succeed in a complex environment, pharmaceutical companies should adopt a customer-centric approach to examine the value proposition for each major customer segment. For every customer segment in the value chain, whether they are practicing physicians, direct patients or channel partners, companies have to put in efforts to build unique forms of customer connect through consolidation of field force, improved mechanisms of sales force engagements, adoption of digital marketing, strengthening market channels besides organizing patient education programs. Companies should not only promote their products but envisage themselves as a disease prevention and management firm.
Creating a Broader Portfolio and Building Market Portfolio
It’s a well-known fact that broad portfolios are the main pillars of success. These portfolios come either through significant manufacturing and R&D investments or through mergers. The product portfolios of many companies worldwide are insignificant in size when compared to their competitors. Innovative financing concepts that fund intangible assets do not usually exist.
Commercialization of intellectual property across different markets allows greater profitability in the existing competitive context. There are some companies that do not have the financial muscle required to file drug registration applications in target nations. The drug registration expenses in the US, Canada, Australia, Europe etc are very expensive (the registration costs are 50 -200 times more than in developing nations). Besides this, there are other associated costs like meeting their country requirements, such as bioequivalence with local reference product. Alliances do not exist between local players to enter other countries nor are venture capitalist ideas ubiquitous to drive innovation to several markets.
Reducing Cost Escalation in Human Resource
Strong skill set is limited in a number of organizations, which pushes up the expenses rendered in manufacturing and innovation. Some countries enjoy the benefits of committed skills and low costs. Costs are increasing rapidly in relevant manpower base like scientists, manufacturing personnel, regulatory affairs, international business development personnel and pharmaceutical lawyers.
The availability of the right talent at affordable costs will help achieve this only if strong initiatives are taken at the right time. There are no significant and formal efforts to dilute innovation capabilities because of a strong dearth of linkages between public institutions, academia and industry. The growth and continuity of the industry depends on the creation of a huge skilled population. Acute public initiatives need to be conceived and implemented in this particular area.
In major parts of the world, important innovations usually occurs at three major centers-industry, public institutions and universities. There is an urgent need for developing several hubs of excellence in leading technical and scientific institutions and universities committed to specialized sub sectors of the pharmaceutical world besides focusing on advanced research and dissemination. A powerful private-public initiative that involves institutions of all levels is of paramount importance today.
There are only a few players that enjoy the benefits of globalization capability and exports. Competency in formulations/APIs, facility design and maintenance, intellectual property creation, legal acumen, understanding of global markets, expertise in handling international executives and knowledge of global regulatory affairs is not available to some pharmaceutical companies.
Even though there are thousands of firms, there is a huge shortage of relevant skill set, which raises the costs. If it becomes mandatory for players to align with international norms, the industry will produce huge number of skilled people in R&D, regulatory affairs and manufacturing, overpowering the wage cost escalation.
Access to International Markets
Inter and intra competition is an important factor required to capture opportunities in pharmaceutical intermediates, formulations and APIs. The API, intermediates and generic formulators from countries like China and India along with established European formulator/API firms are facing three grave challenges:
- Consolidation of pharmacies
- Consolidation of huge generic marketing organizations
- High costs associated to the development of DMFs/ANDAs and subsequent registration at important markets
Consequently, the number of players sourcing formulations or APIs is coming down heavily, eventually giving way to huge bargaining power in the hands of major generic firms or pharmacy chains/distributors. This has resulted in pressures on profitability and price erosions.
Consolidation between native pharmaceutical companies will create huge corporations who can either withstand the aftereffects of consolidated buyers or gain access by acquiring relevant marketing/distribution organizations. The expenses saved on duplicated research work and the prevention of capital expenditures can greatly enhance the financial element while allowing them to compete with generic conglomerates spread across the globe. At present, however, fragmentation seems to be the order of the day in many developing nations. A consortium approach to building of a special purpose vehicle that is backed by venture funds and with access to developing markets should be a technique of breaking market monopolies in many countries. Players in developed countries are using such opportunities to integrate through major acquisitions and compete with emerging players.
Companies in the top league also find the going difficult due to complex and tough access regimes in developed countries like Europe and the US, with limited technical, human and financial resources at their command. Even if a country is able to garner a 10% chunk in the emerging market, it will open an opportunity of approximately $50 billion at current prices of branded and patented drugs. When it comes to generics, it will be lesser but huge in proportion to the present exposure. To take the sector into the next level of growth, proper investments in R&D, market penetration and technology are necessary.
Gaining access to developed markets can cost a fortune with respect to expenses related to product dossier development, potential litigation and regulatory filing. The preparation and registration of an ANDA can cost anywhere between $1 million to $5 million in developed markets including the US. Even major drug developers find it difficult to meet these expenses as they are associated with great risks.
Huge opportunities are awaiting drug manufacturers in the pharmaceutical industry with drugs going off patent. The only element required by this space to move to the next orbit includes implementation of proper strategies and policies both by the government and major drug manufacturers.
Bolster Operational Capability
Companies will have to revisit their operations so that no complacency creeps in. The legacy processes might be increasing the costs due to obsolete technologies or high environmental factor, which is the mass ratio of waste to per unit of product. Companies have to focus more on process innovations by incorporating latest technologies like micro reactors or assessing and reducing the number of process steps. In addition, optimizing the supply chain and benchmarking the manufacturing processes will assist in establishing the degree of improvement required that has to be achieved by the company.
Lack of Funds to Move to the Next Level
Developing countries like India and China have just started their journey. Setting up a regulatory compliant manufacturing infrastructure and building a quick product portfolio that run these manufacturing centers is pretty expensive and take up a major chunk of the borrowing power. The government in these nations need to make funds easily available for long gestation but improved return projects, entering into the latest technologies and building broad product and market portfolio to name a few.
Value Creation by M&A/JV
It’s time for companies to seek inorganic value creation and accelerate market opportunities. Robust alliances should help in deeper market and customer penetration with value creation occurring in numerous forms like co-production to trim compliance costs, co-promotion to narrow promotion and advertisement costs and co-marketing by using common marketing channels. This will also help players to leverage on licensing opportunities presented by major international pharmaceutical companies as they aggressively invest in emerging nations. Recent M&A and Joint Ventures exhibit the consolidation trend within the sector.
Finding Opportunities in Emerging Markets
To capture opportunities in emerging economies and respond successfully to uncertainties, players will have to create a culture of innovation and agility. They will have to look at their organizational structure with a fresh pair of eyes. This includes organizing developed and emerging markets separately and enabling strategies to be adapted to every type of market. This makes it super easy to rotate local talent, gives emerging markets a push in R&D, allows greater flexibility in rebalancing activities in case of volatility and share the best practices between markets. Some players create regional structures specific to a group of countries or emerging markets by archetype, based on their access environment while others seem to take a bolder approach and group emerging markets under a single wing, which is independent of geographic proximity.
Strengthening mission-critical capabilities creates a pool of expertise in different areas like pricing, digital and channel capabilities, distributor management and marketing support. In order to maintain a prolonged view of market prospects while adapting quickly to short-term volatility and shocks, companies require flexible organizational structure backed by the right governance. This allows them to redeploy resources rapidly to the most lucrative and attractive geographies.
Adapt the Business Model
Successful players don’t replicate the business model they use in developing nations but adapt it to the needs and challenges of emerging markets. For instance, products that have proved to be successful in developed markets won’t necessarily fare well in emerging economies because of local clinical pathways, price levels etc. This entails for a thorough and careful mapping of products for every country in emerging economies. The bottom line is to prioritize portfolio country by country.
Fostering partnerships across the value chain help players shape the market and address unfilled needs in emerging markets in different areas like diagnostics, screening and supply chain. Companies should learn to adapt their channel mix depending on the local requirements. For instance, they could develop home delivery channels such as in Latin America and Asia, launch digital platforms tailored to the requirements of patients like telemedicine for remote regions, or develop tendering capabilities.
The Way Forward
The regulatory environment in the pharmaceutical industry is more challenging now than ever before. To cater to the new normal and boost their exports, drug manufacturers will have to invest in re-establishing their competitive position. Building unique capabilities to remain ahead of the competition and optimizing their product portfolio would be the key to success. Both multinational and domestic players will have to consider inorganic growth opportunities which include value creation as it would play an important role in defining sustainability of companies on a global level. The winners will be the ones who examine their competitive position and attune themselves to the rapid changes occurring in the industry.
Also published on Medium.