Chapter 21 The role of pharmaceutical marketing

Introduction

This chapter puts pharmaceutical marketing into the context of the complete life-cycle of a medicine. It describes the old role of marketing and contrasts that with its continually evolving function in a rapidly changing environment and its involvement in the drug development process. It examines the move from the product-centric focus of the 20th century to the customer-centric focus of the 21st century.

Pharmaceutical marketing increased strongly in the 10–15 years following the Second World War, during which time thousands of new molecules entered the market ‘overwhelming’ physicians with new scientific facts to learn in order to safely and appropriately prescribe these breakthroughs to their patients. There was a great dependence on the pharmaceutical companies’ marketing departments and their professional sales representatives to give the full information necessary to support the prescribing decision.

Evidence-based marketing is based on data and research, with rigorous examination of all plans and follow-up to verify the success of programmes. Marketing is a general term used to describe all the various activities involved in transferring goods and services from producers to consumers. In addition to the functions commonly associated with it, such as advertising and sales promotion, marketing also encompasses product development, packaging, distribution channels, pricing and many other functions. It is intended to focus all of a company’s activities upon discovering and satisfying customer needs.

Management guru Peter F. Drucker claimed that marketing ‘is so basic it cannot be considered a separate function. … It is the whole business seen from the point of view of its final result, that is, from the customer’s point of view.’ Marketing is the source of many important new ideas in management thought and practice – such as flexible manufacturing systems, flat organizational structures and an increased emphasis on service – all of which are designed to make businesses more responsive to customer needs and preferences.

A modern definition of marketing could be:

‘A flexible customer focused business planning function, including a wide variety of activities, aimed at achieving profitable sales’.

History of pharmaceutical marketing

There are not many accessible records of the types of marketing practised in the first known drugstore, which was opened by Arab pharmacists in Baghdad in 754, (http://en.wikipedia.org/wiki/Pharmaceutical_industry-cite_note-1) and the many more that were operating throughout the medieval Islamic world and eventually in medieval Europe. By the 19th century, many of the drug stores in Europe and North America had developed into larger pharmaceutical companies with large commercial functions. These companies produced a wide range of medicines and marketed them to doctors and pharmacists for use with their patients.

In the background, during the 19th century in the USA, there were the purveyors of tonics, salves and cure-alls, the travelling medicine shows. These salesmen specialized in selling sugared water or potions such as Hostetter’s Celebrated Stomach Bitters (with an alcoholic content of 44%, which undoubtedly contributed to its popularity). In the late 1800s, Joseph Myers, the first ‘snake oil’ marketer, from Pugnacity, Nebraska, visited some Indians harvesting their ‘medicine plant’, used as a tonic against venomous stings and bites. He took the plant, Echinacea purpurea, around the country and it turned out to be a powerful antidote to rattlesnake bites. However, most of this unregulated marketing was for ineffective and often dangerous ‘medicines’ (Figure 21.1).

Fig. 21.1 Picture of old style advertising.

Reproduced with kind permission of the Wellcome Trust.

Medical innovation accelerated in the 1950s and early 1960s with more than 4500 new medicines arriving on the market during the decade beginning in 1951. By 1961 around 70% of expenditure on drugs in the USA was on these newly arrived compounds. Pharmaceutical companies marketed the products vigorously and competitively. The tools of marketing used included advertising, mailings and visits to physicians by increasing numbers of professional sales representatives.

Back in 1954, Bill Frohlich, an advertising executive, and David Dubow, a visionary, set out to create a new kind of information company that could enable organizations to make informed, strategic decisions about the marketplace. They called their venture Intercontinental Marketing Services (IMS), and they introduced it at an opportune time, when pharmaceutical executives had few data to consult when in the throes of strategic or tactical planning. By 1957, IMS had published its first European syndicated research study, an audit of pharmaceutical sales within the West German market. Its utility and popularity prompted IMS to expand into new geographies – Great Britain, France, Italy, Spain and Japan among them. Subsequent acquisitions in South Africa, Australia and New Zealand strengthened the IMS position, and by 1969 IMS, with an annual revenue of $5 million, had established the gold standard in pharmaceutical market research in Europe and Asia. IMS remains the largest supplier of data on drug use to the pharmaceutical industry, providers, such as HMOs and health authorities, and payers, such as governments.

The medical associations were unable to keep the doctors adequately informed about the vast array of new drugs. It fell, by default, upon the pharmaceutical industry to fill the knowledge gap. This rush of innovative medicines and promotion activity was named the ‘therapeutic jungle’ by Goodman and Gilman in their famous textbook (Goodman and Gilman, 1960). Studies in the 1950s revealed that physicians consistently rated pharmaceutical sales representatives as the most important source in learning about new drugs. The much valued ‘detail men’ enjoyed lengthy, in-depth discussions with physicians. They were seen as a valuable resource to the prescriber. This continued throughout the following decades.

A large increase in the number of drugs available necessitated appropriate education of physicians. Again, the industry gladly assumed this responsibility. In the USA, objections about the nature and quality of medical information that was being communicated using marketing tools (Podolsky and Greene, 2008) caused controversy in medical journals and Congress. The Kefauver–Harris Drug Control Act of 1962 imposed controls on the pharmaceutical industry that required that drug companies disclose to doctors the side effects of their products, allowed their products to be sold as generic drugs after having held the patent on them for a certain period of time, and obliged them to prove on demand that their products were, in fact, effective and safe. Senator Kefauver also focused attention on the form and content of general pharmaceutical marketing and the postgraduate pharmaceutical education of the nation’s physicians. A call from the American Medical Association (AMA) and the likes of Kefauver led to the establishment of formal Continued Medical Education (CME) programmes, to ensure physicians were kept objectively apprised of new development in medicines. Although the thrust of the change was to provide medical education to physicians from the medical community, the newly respectable CME process also attracted the interest and funding of the pharmaceutical industry. Over time the majority of CME around the world has been provided by the industry (Ferrer, 1975).

The marketing of medicines continued to grow strongly throughout the 1970s and 1980s. Marketing techniques, perceived as ‘excessive’ and ‘extravagant’, came to the attention of the committee chaired by Senator Edward Kennedy in the early 1990s. This resulted in increased regulation of industry’s marketing practices, much of it self-regulation (see Todd and Johnson, 1992); http://www.efpia.org/Content/Default.asp?PageID=296flags).

The size of pharmaceutical sales forces increased dramatically during the 1990s, as major pharmaceutical companies, following the dictum that ‘more is better’, bombarded doctors’ surgeries with its representatives. Seen as a competitive necessity, sales forces were increased to match or top the therapeutic competitor, increasing frequency of visits to physicians and widening coverage to all potential customers. This was also a period of great success in the discovery of many new ‘blockbuster’ products that addressed many unmet clinical needs. In many countries representatives were given targets to call on eight to 10 doctors per day, detailing three to four products in the same visit. In an average call on the doctor of less than 10 minutes, much of the information was delivered by rote with little time for interaction and assessment of the point of view of the customer. By the 2000s there was one representative for every six doctors. The time available for representatives to see an individual doctor plummeted and many practices refused to see representatives at all. With shorter time to spend with doctors, the calls were seen as less valuable to the physician. Information gathered in a 2004 survey by Harris Interactive and IMS Health (Nickum and Kelly, 2005) indicated that fewer than 40% of responding physicians felt the pharmaceutical industry was trustworthy. Often, they were inclined to mistrust promotion in general. They granted reps less time and many closed their doors completely, turning to alternative forms of promotion, such as e-detailing, peer-to-peer interaction, and the Internet.

Something had to give. Fewer ‘blockbusters’ were hitting the market, regulation was tightening its grip and the downturn in the global economy was putting pressure on public expenditure to cut costs. The size of the drug industry’s US sales force had declined by 10% to about 92 000 in 2009, from a peak of 102 000 in 2005 (Fierce Pharma, 2009). This picture was mirrored around the world’s pharmaceutical markets. ZS Associates, a sales strategy consulting firm, predicted another drop in the USA – this time of 20% – to as low as 70 000 by 2015. It is of interest, therefore, that the USA pharmaceutical giant Merck ran a pilot programme in 2008 under which regions cut sales staff by up to one-quarter and continued to deliver results similar to those in other, uncut regions. A critical cornerstone of the marketing of pharmaceuticals, the professional representative, is now under threat, at least in its former guise.

Product life cycle

It is important to see the marketing process in the context of the complete product life cycle, from basic research to genericization at the end of the product patent. A typical product life cycle can be illustrated from discovery to decline as follows (William and McCarthy, 1997) (Figure 21.2).

Fig. 21.2 General product life cycle graph.

The product’s life cycle period usually consists of five major steps or phases:

• Product development

Product development phase

The product development phase begins when a company finds and develops a new product idea. This involves translating various pieces of information and incorporating them into a new product. A product undergoes several changes and developments during this stage. With pharmaceutical products, this depends on efficacy and safety. Pricing strategy must be developed at this stage in time for launch. In a number of markets for pharmaceuticals, price approval must be achieved from payers (usually government agencies). Marketing plans, based on market research and product strengths, for the launch and development of the product, are established and approved within the organization. Research on expectations of customers from new products should form a significant part of the marketing strategy. Knowledge, gained through market research, will also help to segment customers according to their potential for early adoption of a product. Production capacity is geared up to meet anticipated market demands.

Introduction phase

The introduction phase of a product includes the product launch phase, where the goal is to achieve maximum impact in the shortest possible time, to establish the product in the market. Marketing promotional spend is highest at this phase of the life cycle. Manufacturing and supply chains (distribution) must be firmly established during this phase. It is vital that the new product is available in all outlets (e.g. pharmacies) to meet the early demand.

Growth phase

The growth phase is the time the when the market accepts the new entry and when its market share grows. The maturity of the market determines the speed and potential for a new entry. A well-established market hosts competitors who will seek to undermine the new product and protect its own market share. If the new product is highly innovative relative to the market, or the market itself is relatively new, its growth will be more rapid.

Marketing becomes more targeted and reduces in volume when the product is well into its growth. Other aspects of the promotion and product offering will be released in stages during this period. A focus on the efficiency and profitability of the product comes in the latter stage of the growth period.

Maturity phase

The maturity phase comes when the market no longer grows, as the customers are satisfied with the choices available to them. At this point the market will stabilize, with little or no expansion. New product entries or product developments can result in displacement of market share towards the newcomer, at the expense of an incumbent product. This corresponds to the most profitable stage for a product if, with little more than maintenance marketing, it can achieve a profitable return. A product’s branding and positioning synonymous with the quality and reliability demanded by the customer will enable it to enjoy a longer maturity phase. The achievement of the image of ‘gold standard’ for a product is the goal. In pharmaceutical markets around the world, the length of the maturity phase is longer in some than in others, depending on the propensity of physicians to switch to new medicines. For example, French doctors are generally early adopters of new medicines, where British doctors are slow.

Decline phase

The decline phase usually comes with increased competition, reduced market share and loss of sales and profitability. Companies, realizing the cost involved in defending against a new product entry, will tend to reduce marketing to occasional reminders, rather than the full-out promotion required to match the challenge. With pharmaceutical products, this stage is generally realized at the end of the patent life of a medicine. Those companies with a strong R&D function will focus resources on the discovery and development of new products.

Pharmaceutical product life cycle (Figure 21.3)

As soon as a promising molecule is found, the company applies for patents (see Chapter 19). A patent gives the company intellectual property rights over the invention for around 20 years. This means that the company owns the idea and can legally stop other companies from profiting by copying it. Sales and profits will enable the manufacturer to reinvest in R&D:

• For a pharmaceutical product the majority of patent time could be over before the medicine even hits the market

• Once it is produced it takes some time for the medicine to build up sales and so achieve market share; in its early years the company needs to persuade doctors to prescribe and use the medicine

• Once the medicine has become established then it enters a period of maturity; this is the period when most profits are made

• Finally as the medicine loses patent protection, copies (generic products) enter the market at a lower cost; therefore, sales of the original medicine decline rapidly.