The post-9/11 world was a difficult place for both political and business leaders to adjust to. As power structures in the world shifted, the developed world struggled to retain political and economic control in a scenario sometimes described as the ‘decline of the West’. Capital fled these risky markets in search of those that were relatively safe and presented opportunities to grow. The influx of capital from the West into markets around the world caused ‘the rise of the rest’. These markets in the developing world quickly adopted open-door policies and welcomed large western corporations to their humungous customer bases.
This context is important to understand how the pharmaceutical industry viewed the developing world and how they leveraged opportunities that it offered. It is also important to understand how governments and policy makers in the developing world responded to the influence that western businesses wielded in their jurisdiction.
While growth strategies in the pharmaceutical industry had become dependent on expansion into emerging markets, they did not seem to consider a growing middle class in these areas as an opportunity to improve the quality of life there. Instead companies treated these populations just like their customers in the western world. Almost identical business strategies were deployed in geographies that were – in reality – culturally, socially and economically very different.
What caused markets to ‘emerge’?
What the industry failed to acknowledge was the ‘DNA of the emerging markets': the failure of state-led economic development and the need for capital investment. First, state-led economic development failed to produce sustainable growth in the traditional developing countries. This failure and its tremendous negative impact pushed those countries to adopt open door policies, and to change from the state’s being in charge of the economy to facilitating economic growth along market-oriented lines. Second, developing counties desperately needed capital to finance their development, but traditional government borrowing failed to fuel the development process.
In light of the unsatisfactory results of government borrowing, developing countries began to rely on equity investment as a means of financing economic growth. They sought to attract equity investment from private investors who they hoped would become their partners in development. In the past, the pharmaceutical industry failed to grasp this.
As governments saw industry practices that seemed more exploitative than collaborative, the enthusiasm for foreign equity seemed to disappear. Emerging markets became keen to ensure that medicines were more accessible and affordable to their population, while also ensuring that healthcare bills remained within control. So, in parallel to rolling out health cover, China for example has also introduced several cost containment initiatives that are expected to keep costs under check.
Similarly, other markets increased their market access barriers. Turkey — which possesses a generous public health insurance system — recently increased its social security discount rates on reimbursed drugs. This, along with changes to the reference pricing system, saw the pharma industry lose billions of dollars in that country. Russia and India also took steps towards controlling prices of their respective essential drugs. Brazil has adopted several protectionist policies that seek to assist its domestic industry. The bad news is that matters like these that were of utmost importance to local governments; lay at loggerheads with business plans of the pharmaceutical industry.
What should pharma do in Emerging Markets?
The initial enthusiasm that erupted when emerging markets first demonstrated their potential has often given way to disappointment, as early—and possibly exaggerated—expectations remain largely unfulfilled. Since go-to-market models typical of mature economies have often failed to adequately tap the huge potential attributed to emerging markets, pharmaceutical industry leaders are rethinking and, in many cases, transforming their operating models to better address what they have learned about these markets. This is the good news.
Traditional operating models have for decades been largely defined by fully integrated operations, which included significant investments in R&D hubs and selected manufacturing sites. Emerging markets, on the other hand, have usually been regarded as places only for selling medicines, but very rarely as potential locations for developing or manufacturing them. This view is now being challenged.
The pharmaceutical industry is now trying to balance the drive to build a sustainable business through increased market share, volume, and profits with a global commitment to work with governments and other stakeholders to support efforts to deliver medicines to as many people as possible. Localization is important as Brazil and Turkey have shown. Investments in local research, development and manufacturing will be effective levers to succeed in this geography. The industry does not want to be seen as hesitant to commit itself to long-term investments in the region. To paraphrase a well-known cliché, the industry well realizes that winners will be those who understand how to balance their global competencies with tailored approaches for the local environment. And it is rapidly preparing itself to do so. The industry is actively seeking to avoid an influx of western business practices resulting in a mirror image of western markets, but with a lower price structure.
Are Emerging Markets still important?
By various estimates, the global pharmaceutical industry is expected to derive 30-40% of its total sales in emerging markets. Companies are now actively considering customer clusters, finding cross-border similarities, establishing global reach with local relevance, and creating effective and rapid execution capabilities to be better able to gain the foothold in emerging markets they’ve long been trying to achieve.
As the pharmaceutical industry readies itself for its next wave of growth, are the highly attractive emerging markets occupying an expanding share of its geographical portfolio? The question is more relevant now as US stocks have rallied impressively over the past several months while emerging markets stocks are essentially unchanged since the beginning of 2010 and currencies have been volatile. Even though these have been lagging for several years, investors should not be surprised if that trend reverses in 2014 as the Federal Reserve winds down quantitative easing and moves toward a more hawkish monetary policy. The impact has been visible now for a few weeks as bourses across emerging markets rallied.
The term “emerging” hints at a process that will in all likelihood unfold over a period of time. It is estimated that it will take a minimum of a decade to build the necessary delivery infrastructure and create the ability to pay for sophisticated pharmaceuticals in the emerging world before the pharmaceutical markets there begin to reach the value and volume of those that currently exist in the developed world. Therein lays the great opportunity.
As the pharma industry grabs the chance to channelize its global focus into the developed world for the good of the people there, its business practices will evolve to embrace and not forsake markets that emerge to support it.
Published earlier at www.pharmaphorum.com. Link here.
To say that the last twelve months were eventful for the Indian pharmaceutical sector would be an understatement; it was nothing short of a roller-coaster ride.
The government’s grandiose announcements on universal health care (UHC) and distribution of free generic drugs to people through the hugely inadequate public health system were initially welcomed. When it dilly-dallied, what could have become an election-winning plank, fizzled out and was seen internationally, in poor light. To make matters worse, the government strained diplomatic relations with the United States on its “weak” intellectual property regime (IPR) after compulsory licenses were issued and intermittent threats to cap patented drugs were issued probably as a direct result of heightened patient and NGO activism.
Apart from leaving public health in shambles, the lack of a strong governance structure directly affected the health industry. India’s indecision and weak diplomacy were visible in the lack of strong and pragmatic laws defining the conduct of clinical trials, capping the inflow of foreign direct investment (FDI).
Sadly, the government’s material efforts to balance through deft diplomacy seemingly received inadequate media coverage. Not much was written about or spoken when India held its own on the European Union Free trade agreement, on how it handled the FDA commissioner’s visit to India and the time when the FDA cleared Indian drug imports into the US. Issues that can have devastating impact on India such as the Trans-Pacific Partnership (TPP) agreements are hardly in the public imagination. Broader coverage of these events would have helped to drive up investment sentiment in the sector at a time when the winds of change blew over the Indian subcontinent.
In less than two months, we will see a new government take charge in New Delhi. Assuming that health is taken seriously by any party that comes to power – and keeping in mind that health is a state subject – the implications on the industry are tremendous.
If the government is serious about its role as health provider, it will – like in Rajasthan, Kerala and Tamil Nadu – emerge as the single-largest purchaser and distributor of pharmaceutical products. Doctors will be directed to prescribe generic and their power of influence will diminish greatly. As the focus on anti-corruption crusaders and the taxman moves to hospitals, doctors and the pharmaceutical sector, companies will adopt ‘ethical codes of conduct’ with more enthusiasm.
As this spills over into the private sector, the industry will be expected to adapt. Consolidation of supply channels and hospital groups may cause key account management (KAM) to replace physician calls to a large extent. Formation of physician groups (in hospital chains that discourage private practice) may mean shifting physician priorities and time. This may entail greater adoption and penetration of digital technology. Patients empowered through easier and cheaper access to information on the internet may force health care to become participative as they seek greater say in their treatment processes.
While all this will not happen by the end of 2014, it is likely that green-shoots of change will sprout as a government seeking greater integration for India into the globalized economy adopts open-door policies. To embrace and leverage these changes quickly, it is up to the pharmaceutical industry to ensure that it has trained and equipped talent readily available that can help businesses transition as seamlessly as possible to accommodate for new business models, partnerships, distribution channels and approach to media.
With health care in India on the threshold of such transformation, it is only pertinent that issues are raised, discussed, debated and the opinion of people is sought and heard. This has not been the case in the sector until now. We need stronger voices, opinions and leaders in the sector. Pharma journalists and communication specialists have great power. To borrow from Spiderman, with that comes great responsibility; the responsibility to serve as watch-dog to the health and well being of the largest democracy in the world. That is definitely something to be proud about and flaunted more than is currently done.
India’s economy is performing poorly, at least compared to its relative dynamism just a few years ago. With a general election to be concluded by the end of May 2014, many are looking to the country’s next government to break India out of its economic doldrums. Pre-poll surveys (whether you like them or not) have predicted a strong wave of support for the Bharatiya Janata Party (BJP), led by its prime ministerial candidate Narendra Modi. It is expected that a business friendly environment and policies that support the health care sector may well be on the cards if this was indeed to happen.
I am certainly hopeful that a BJP led govt comes to power at the Centre with a majority mandate. This will ensure that the government has a free hand to set the economic agenda of the country. This is, of course, assuming that the agenda will favor right leaning economic policies all the way which may not be likely.
Are changes to India’s health policy likely?
At the moment, it is speculative to say what the changes in policy are likely to be since the BJP has not spelt out its agenda or made its “Vision 2025″ document publicly available. That said, the only thing one can be fairly certain about is that market sentiment will be buoyed only if the political environment remains stable. It will be a shame if a fractured mandate forces any party to align with parties of opposed ideologies – or God forbid – an Alternate Front comes to power.
On the health policy, I can be fairly certain that a new govt will have two important things to address: 1) reduce the current account deficit (to control inflation and prices) and 2) bring in revenues to a depleted treasury. To work towards these two objectives, it can be fairly assumed that industry friendly policies will be adopted since welfare schemes are populist in nature and cannot be withdrawn in India.
While the FDI policy is clear (uncapped), the same is not true of areas such as clinical trials and IPR. The BJP manifesto promises to support industry that transfers technology into India. If this happens, we may see FDI flow into greenfield projects which has been quite slow so far. However, this will require complexities such as the Land Acquisition Bill, Labour laws etc. to be simplified. At the moment it is assumed that a Modi govt will be more inclined to push Economic Reforms 2.0 than the UPA was. This means that we may see a fillip to the industry overall.
If the govt pursues industry friendly policies we are unlikely to see capped pricing on patented drugs but a more nuanced approach to balance prices of medicines and access. There maybe an inclination to strengthen insurance coverage through RSBY and the private sector, state-purchase and distribution of medicines through the Jan Aushadi 2.0 scheme, more hospitals through PPPs etc.
What will be very interesting is to see how the IPR issue is tackled. I believe this is more a diplomatic failure and grandiose posturing rather than a real issue. There have been more cases of CLs being rejected than issued. Validity of patents have been upheld fairly, so I feel it is unfair to term India’s IPR regime as “fluid”. India has the responsibility of protecting the health interests of its citizens and it should continue to do so. The issue can easily be laid to rest through some deft diplomacy which a govt strengthened by stability can achieve.
Another development that hasn’t captured public imagination and debate in India is the US sponsored TPP agreement. Indian generic players can be strongly impacted if the TPP comes into effect and the US de-prioritizes India as a result of the agreement.
Will the new government pursue Universal Health Care?
UHC is something that has been on the cards of all political parties for a long time. However, there seems to be no clear direction on how to progress. With the BJP proposing to support federalism and strengthening the state govts, it remains to be seen if they will put their money where their collective mouths are and first, increase spending on healthcare as a % of GDP to at least 3% (the WHO mandates 6%) and second, transfer a bulk of that money to state govts.
This is the tricky part. Opinion polls have shown that the BJP will rule at best in 15 out of 29 states. Assuming 100% of BJP states comply with UHC, ~50% of India’s population would be deemed to be covered. This is in line with the UPA govts plan of increasing health coverage to about 52% of the population, up from the currently covered 35%.
This alone would be a significant step to achieve in 5 years since UHC would involve a paradigm shift in health policies and programs in favor of vulnerable population groups, restructuring of public health cadres, reorientation of undergraduate medical education, more emphasis on public health research, and extensive education campaigns
What should the new government’s focus be?
The one big issue would be to ensure quality and affordable health for all its citizens. It is criminal that after almost seven decades, Free India still cannot save mothers and babies from dying, ensuring that the sick get treated without either going bankrupt or being turned away from hospitals for not being able to pay and that productivity of its citizens is so sub-optimal. No Right to Education can make a malnourished child learn. No Right to Food can save lives of children who do not know it is important to wash their hands before eating. No Right to Information can empower the sick and the disabled. No aspiring superpower can afford to miss so badly on MDGs.
Only when its populace is healthy can India think of educating its young, employing its youth and caring for its elderly. Health can have a multiplier effect on the GDP of India. And it must be available freely and equitably to every citizen of this country.
Will the change be for the better?
Apart from progressing on UHC, the present government could have done a lot to ensure that the health care sector was seen as a attractive destination to investors. While there are statistics to show that the sector still is attractive, it has been badly dogged by several flip-flops from the government, be it on clinical trials, on FDI, on drug pricing, on IPR, or on frowning on acquisitions. With the global economic crisis and govts across the world cutting back on health care costs, India had a golden opportunity to position itself as a world class health provider. Formidable terms such as “largest number of FDA approved plants outside the US”, “pharmacy to the world”, “medical value travel destination of the world” were all lost to other nations who grabbed the opportunities with open hands.
Over the last decade, India was a tragic case of epithets becoming epitaphs. There are no silver bullets here. Tackling these issues is a very big project. But the present system needs to change. Many countries have successfully transformed similar systems after seeing them lead to a rise outlays but a drop in outcomes. The next government must do what it can to help push India toward similar progress.
Pharma Selling Model must Adapt (Listen to the audio file (5:03) by clicking on the link)
Worldwide, medical research and health care philosophy is undergoing fundamental shifts. The first is a fundamental and significant shift in healthcare philosophy and medical research – from a world in which we “react” to disease and illness after it has happened, to one in which we will be doing far more in advance to “prevent” specific health care problems. The driver for this massive change is the emergence of extremely specialized and highly personalized medical treatments based upon your own particular DNA.
The second shift (which is because of the first) is that healthcare is now becoming
- Predictive – forewarn people of susceptibility to diseases
- Preventative – empower them with information and resources to take preventive measures and to keep themselves healthy
- Personalized – provide information that is most relevant to them and what they want to know instead of generic and unimaginative information (n=1, R=G)
- Participative – make people a part of decisions made about their health. After all, its their lives. Enable them and trust them to hold themselves accountable
The common underlying cause for these two shifts is the advent of technology
These developments raise some interesting questions. Are these changes heralding in rapid change across the pharma industry and causing companies to re-evaluate their sales and marketing strategies? Are the pharma industry’s sales forces, with their current structure and training, capable of leveraging – to their advantage – the impact that the advent of technology has on the way patients seek treatment and on the way doctors treat them?
Last month, this picture put up by Anup Soans on his Facebook (FB) page elicited 215 ‘likes’, 361 ‘shares’ and 76 comments (as on Dec 2nd). The popularity of this post intrigued me not because it was something that had never happened earlier – Anup is quite popular on social media – but since it quickly assumed an accusatory tone and one of grievance.
Although I have no way to ascertain it, I am sure the cartoonist meant the picture to be something else before another creative person labeled the drummer as the ‘CEO’, the workers on the train cart as ‘head office managers’ and the lone person pulling the train cart with its heavy load of people as the ‘field managers’.
While the picture is a bit exaggerated, the way it was perceived on the FB post seemed to turn the entire concept of teamwork on its head. Despite a little prodding by the author, not one person looked at this as representing teamwork. It did not occur to anyone that the CEO seemed to be making an effort to keep the functions of the organization (if we assume the train cart to be one) in a smooth rhythm so that efficiency increases – a concept best demonstrated by the famous Kerala boat races. No one thought it was fantastic that all ‘head office managers’ worked as one team towards furthering the objectives of the organization without pushing individual agenda. The red-faced lone ‘field manager’ who pulled the cart didn’t seem to convey to anyone that while it was his job to further the organization towards its planned goal, it could well be a rotating assignment and when he pulled the cart up to a certain point – or goal – he could then hop on board the cart and begin to assist the other ‘head office managers’ with their work while someone on board took up the task of pulling the cart.
I found it very interesting that most people who commented seemed to do so in a pattern. The pattern was that sales and marketing are not two arms of the organization but are different silos. Marketing personnel know little about what sales personnel do and more often than not ‘force’ their ideas on them. A few other gentlemen, who tried to support the marketing function, did so either feebly or their arguments were quickly drowned out. I was reminded of the ongoing social media battle between supporters of two major political parties, which could be understood as that of opposing ideologies and goals. In this case however, sales and marketing people seemed to worry more about which function was better, more important or needed more effort and not on how the picture was a symbol of different functions within the organization working in tandem to help it attain its goal.
The ‘war’ between sales and marketing goes back a long time and spans across industries. However, it is also well documented that this lack of alignment ends up hurting organizational performance. Time and again, both groups stumble (and the organization suffers) because they don’t work together. There is no doubt that, when Sales and Marketing work well together, companies see substantial improvement on important performance metrics: Sales cycles are shorter, market-entry costs go down, and the cost of sales is lower.
As the Harvard Business Review says, the conflict between Sales and Marketing apart from being economic, is cultural in nature. This is true in part because the two functions attract different types of people. Marketers are deemed to have more formal education than salespeople. They are expected to be highly analytical, data oriented, and project focused, always thinking about building competitive advantage for the future. Sales teams do not appreciate it as much as they should because they perceive it to happen behind a desk in air-conditioned offices rather than out in the field. Salespeople, in contrast, spend their time talking to existing and potential customers. They’re skilled relationship builders; they’re expected to not only be savvy about customers’ willingness to buy but also intuitively know which products will fly and which will die. They want to keep moving. They’re used to rejection, and it doesn’t depress them. They live for closing a sale. It’s hardly surprising that these two groups of people find it difficult to work well together. Yet there is not a more opportune moment to harness the skills of both teams than the current one.
The pharmaceutical industry in India just hiccupped. From the customer facing side, new regulations such as the new pricing policy has just made medicines more affordable. However, a clamp-down on clinical trials has put the launch of new, innovative medicines on the back-burner for the moment. Also, there is no inflow of foreign capital into the sector putting capital expansion plans of companies on hold. Additionally, more and more Indian companies derive their real growth in earnings from serving overseas markets.
In such a scenario, the last thing a customer would appreciate is a chasm between internal departments in an organization that hamper his ability to provide services to his patients. Corporate equity is at potential risk if information flow on products is delayed because the marketing team does not respond to requests from the sales team or if crucial travel information of a KOL traveling to an international conference is withheld.
While I will not attempt to offer solutions or debate them here, I want to leave you with some thoughts. Why is it so difficult for colleagues within the same organization to work together? Isn’t everyone trying to do the same thing i.e. attain market leadership? How does it matter where you work or what you do? Aren’t you proud of what you are doing? Are we getting into the quicksand of wanting to do someone else’s role? At the risk of sounding preachy, I’d like to invoke the Bhagvad Gita here which extols us to merely do our duty and not worry about someone else. Just excelling at what we do helps us to create great value – tangible and otherwise. Cumulatively, this ever expanding pool of excellence is the fuel that propels organizations from being good to becoming great. So instead of worrying about why others fail, let us continue to focus on our own success.
If the red-faced man in the picture didn’t pull the train cart, how would it move forward? If the men on board didn’t tighten the bolts on the track and pat down the stones of the ballast, how would that section of the track become secure? If the CEO didn’t beat the drum to a rhythm, how would the overall efficiency of the team increase and progress be achieved?
Now if the red-faced man was constantly badgered by the ones on board, would he pull the cart? If he stopped pulling the cart, would the whole team (organization) move? Would the CEO then really matter?
As economic growth continues at its anemic pace, we’re all looking for ways to make our operations more productive. Bridging the sales-vs.-marketing divide is a way of achieving this. Let us change our perspective. It will make a positive impact on customers. We know well that customers these days are too mobile, too connected, and too informed to tolerate any gap between what one department says and another does. So, if we allow sales and marketing to operate in silos, at the end of the day, do you really think the customer cares? He would just move on to the next company.
Published in the December 2013 issue of MedicinMan
 ‘Ending the War between Sales and Marketing’: Philip Kotler, Neil Rackham, Suj Krishnaswamy; Harvard Business Review July-August 2006.