IMS

Special
Report

Understanding New Commercial Models

in the Pharmaceutical Industry
CHANGE IS A REQUIREMENT, NOT AN OPTION

For the pharmaceutical industry, push has come

to shove.
Over the past few years, performance has been
slipping precariously as volatile demand and fewer,
more powerful stakeholders have driven the worlds
mature markets into unfamiliar territory.
Its time to reconsider, to revise and to re-emerge
with commercial models that are customized to
the portfolio and the environment. With the right
strategic framework, companies can restore their
equilibrium, regain their commercial footing, and
position themselves for future success.

APPENDIX: STUDY METHODOLOGY

IMS performed an extensive analysis of the current
commercial conditions knowing that this background would
be essential to every company working on a new commercial
model. Our study progressed through five steps:
As a foundation for
our study, we first reviewed each of the eight major
markets to understand the local issues and identify the
environmental factors that are driving performance
within each class and country. We collected input from
industry experts and leaders on how influence is shifting
among stakeholders and what these stakeholders were
expressing as needs.

1) ENVIRONMENTAL DRIVERS ANALYSIS:

We then used the same approach to understand and

document the commercial changes taking place within
the industry itself. By interviewing IMS executives and
industry leaders, we assessed current trends in the value
proposition; marketing channels; and the structure and
skills of sales, marketing and support functions.
Next, we
segmented each therapy area within each country in
order to determine where an overhaul of the commercial
model is most needed. To do this, we created a matrix
with the value proposition of the therapeutic classes on
the X axis and with their cost burden on the Y axis.

2) SEGMENTATION AND PROMOTIONAL ANALYSIS:

A classs value proposition became a function of the

extent of patent protection in place, coupled with an
objective measure of product innovation. We turned to
the French governments Amelioration du Service
Medical Rendu (ASMR) rating, which expresses the
agencys appreciation for the clinical value brought by
new products as an objective measure of innovation.
To arrive at the cost burden of a class, we calculated the
impact of the class on the nations healthcare budget
taking into account the degree of payer influence in
the class.
Using these variables, we segmented each country market
into three types of therapeutic classes: Differentiated,
Commodity and Transitional.

We then plotted all 84 therapeutic classes under study

on separate matrices for each country in order to see
how they were distributed across the segments.
Building on those findings, we analyzed how the different
segments react to promotion, as well as calculated a return
on investment for each. Tapping into insights from IMS
promotional audits and our Launch Excellence Study,
we created country-specific promotional indices that
rated the promotional return delivered by each
therapeutic class.
Having thus assessed the
state of each therapeutic area, we turned our attention
to researching what pharmaceutical companies have been
doing to achieve efficiency and effectiveness in promotion, manage stakeholders and reconsider the value
proposition of their offerings the three pillars of a new
commercial model. We first collected and categorized all
public information on business, commercial and sales
model changes. We then asked our local country
managers to provide specific examples of the types
of changes they were observing.

3) KEY COMMERCIAL TREND ANALYSIS:

Next, we
surveyed several large and mid-sized companies in the
industry to assess how they handle change, what barriers
prevent them from initiating change and where they
stand with implementing new commercial models. The
result was a robust approach to transforming organizations.

4) STUDY OF INDUSTRY TRANSFORMATION REQUIREMENTS:

Finally, we interviewed
key stakeholders and technology partners to better
understand the capabilities required to support a new
commercial model, as well as the current state of
companies investments in them.

5) RECOMMENDATION DEVELOPMENT:

At this point, we developed our New Commercial

Model Strategy Framework for conceiving and addressing
the major aspects of a commercial strategy aspects that
can be tuned to suit different geographies, therapy areas
and company capabilities. To confirm our approach, we
tested the usefulness of the framework with a broad
range of clients.

IMS
Special
Report
TABLE OF CONTENTS
INTRODUCTION:

The Impetus to Change .................................................2

THE SITUATION:

No More Easy Answers...................................................4

Understanding the Problem

The Industrys Response to Date
What the Future Holds
MARKET INSIGHTS:

At Last, A New Perspective.........................................8

Market Segmentation
Return on Investment Analysis and Insights
Industry Progress
The Strategic Options
Barriers to Success
THE WAY FORWARD:

A Five-Step Program...............................................22

Diagnostic Assessment
Strategic Planning
Organizational Excellence
Enabling Capabilities
Commercial Transformation
IN CLOSING:

A Vision of the Future.....................................................28

APPENDIX .........................................................................................I

Study Methodology

Introduction: The Impetus to Change

If there is any one pronouncement that ought to send shudders
through the C-suite of every pharmaceutical company, it is this
simple, declarative statement:
Since the year 2000, no net added value has been created in the
pharmaceutical sector for shareholders.
As Figure 1 illustrates, the homogenous business model that
produced the enormously successful run from the mid1980s to 2000 (when pharmaceutical company valuations
increased 95-fold against a seven-fold increase in the S&P
500) would seem to have run out of steam. At any rate, it
can no longer make sufficient headway in todays market.
Manufacturers are facing increased risk in mature markets
from more volatile demand and from the influence of
different and more powerful customers.

Their commercial cost basis, stemming from a sales model

that is overly focused on the primary care physician, is
draining profitability. The short-term solution cutting
back on field sales forces has taken companies about as
far as it can. Companies are left to consider the very nature
of their commercial model within the broader context
of their business strategy. What they must seek is a New
Commercial Model (NCM) that is adapted to the latest
market realities and thus capable of reaching the industrys
many stakeholders efficiently and effectively.

FIG 1: TOP 50 PHARMACEUTICAL COMPANY GROWTH VS. S&P 500

10,000
9,000

S&P 500
Top 50 Pharma

Index (Jan 1986=100)

8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

Since 2000, no net value has been created in the pharmaceutical sector for shareholders.

2 Understanding New Commercial Models - Issued June 2009

02

03

04

05

06

07

08
Years

COMMERCIAL MODEL, DEFINED

Anticipating this need, IMS has laid the groundwork for

the type of business-altering decisions companies face as
they choose a way forward. Over the course of several
months, we gathered insights on the commercial context
for products across more than 80 therapeutic categories in
each of the worlds leading mature markets1. We surveyed
the environment, analyzed current sales and marketing
practices and measured return on investment. From this
vantage point, we could see how the need for change varies
by class and country, and where investing will make a real
difference in each market. We also gained clarity around the
types of competencies and structures that pharmaceutical
companies will need for those investments to succeed.
Knowing that the options for a new commercial model are
numerous, the considerations complex and the stakes high,
we designed a strategic framework to help companies
organize their thinking and evaluate each direction
systematically.
In the pages that follow, we offer our insights as a foundation
for companies as they seek the new commercial model(s)
that will best accommodate their portfolios, the competitive
landscape and their own threshold for change.
For many companies, the type of transformation required
will dwarf all past change efforts and challenge all notions
of what the organization is capable of achieving. From our
experience, we can say that the change process may occur
over years, not months, and that it will have implications
for far-reaching business systems and functions.
Still, we believe that it will be worth it. We estimate that
the industry can optimize spends totaling $15 billion
through improved promotional productivity. Companies
that begin now to understand the mature markets from
a new perspective and revise their commercial strategies
accordingly will be able to meet the market on their own
terms and reverse the current downward growth trend.
The alternative to maintain the status quo is, in
most cases, no longer a viable option.
1

The U.S., Japan, France, Germany, U.K., Italy, Spain and Canada

The term New Commercial Model is being bandied

about the pharmaceutical industry at every turn, but
common usage does not necessarily guarantee a shared
understanding. For clarity, we define a business model
as the overall footprint of a company its basic
method of doing business which is shaped by its
purpose, offerings, strategy and structure. A commercial
model is part of the business model and encompasses
the companys approach to sales, marketing and
distribution. Of the three, we will focus on sales and
marketing as distribution in the traditional sense of
the word remains a less powerful marketing lever in
the ethical pharmaceutical market. A sales model is a
component of the commercial model. (See Fig. below)
As such, changes in the commercial model have
upstream implications for the business model and
downstream implications for the sales model.

Business Model
Finance

R&D

Marketing

Sales

Production

Distribution

Commercial Model

A New Commercial Model reflects a revised go-tomarket strategy, including the organization and
capabilities required to succeed. Revising the
commercial model involves taking into account the:
Evolving stakeholders and their unique needs
Value proposition of current and future portfolios
Channels to be maximized when addressing the
marketplace
Multiple roles such as those of the sales, marketing,
market access and medical affairs functions
Ultimately, this change necessitates developing new
skill sets and processes.
Understanding New Commercial Models - Issued June 2009 3

The Situation: No More Easy Answers

Over the past seven years, the worlds eight leading pharmaceutical
markets have been undergoing a transformation, the pace of which
accelerated dramatically in the past three years.
Of late, the change has been so rapid, so fundamental and
so pervasive that it has outstripped the ability of pharmaceutical manufacturers to respond appropriately. Those
tried-and-true approaches to sales and marketing are still
being tried, but are no longer true, and profitability has
suffered. The parallel drawn from the biological world is
not encouraging: Species that do not adapt quickly enough
to changes in their environment become extinct.
The forces that have been reshaping the very fabric of
pharmaceutical commerce have been well documented,
widely acknowledged and loudly lamented. It is not the
purpose of this paper to delve deeply into them, but rather
to paint them as a backdrop. Our goal is to sound the
alarm and point the way forward.
UNDERSTANDING THE PROBLEM
So, what is the root of the problem? Naturally, there is no
simple answer since the market and the forces acting upon
it are so complex. However, we can distill the environmental
factors that are impeding growth across the worlds mature
markets into five powerful drivers:
TIGHTENING REGULATION AND GROWING SAFETY CHALLENGES.

In Europe, health technology assessors are increasingly

We can distill the environmental factors

that are impeding growth across the
worlds mature markets into five
powerful drivers.

4 Understanding New Commercial Models - Issued June 2009

affecting access to medications, and in the U.S., commercial

payers are beginning to weigh the cost-effectiveness of
products in their reimbursement decisions. Regulatory
approval no longer implies stakeholder acceptance. In
addition, regulators changing notions of what is considered
acceptable risk have impacted many manufacturers
severely over the past five years.
The market is experiencing
a bubble of patent expirations. In the top eight markets,
$129 billion in branded sales will be at risk to generics
through 2012.
GROWING GENERIC COMPETITION.

From the Primary Care Trusts

in the U.K., to regionalization in Spain, to managed care
organizations in the U.S., shifts in payer models are now
consistently designed to control costs.
DOWNWARD PRICING PRESSURE.

CHANGING DECISION MAKERS. The emphasis on cost control

has brought to the fore a variety of stakeholders, adding to
the complexity of gaining market access and wide
acceptance (See Fig. 2).
SLOWING INNOVATION. This slowdown has changed
contribution patterns, as portfolios are shifting from
primary-care to specialist-driven therapies.

The degree to which each of these factors impacts the

market differs from country to country. However, in each
of the mature markets we studied, the result is the same:
The stakeholder landscape is increasingly complex and the
market is becoming less responsive to traditional promotion.
The combination of conditions makes a compelling case
for approaching the market in a new way.

FIG 2: CHANGING STAKEHOLDER INFLUENCE

1

Influence and power of stakeholder from 2008-2013

National
Payers

Local Payers

Physician

Pharmacist

Patient
Groups

Key Opinion
Leaders

Primary

U.S.
Canada
U.K.

France

Germany
Spain
Italy
Japan

Specialty
Primary
Specialty
Primary
Specialty
Primary
Specialty
Primary
Specialty
Primary
Specialty
Primary
Specialty
Primary
Specialty

IMS Research
Note: An increase or decrease in power is specific only to the country and is not in comparison to other countries

Physician influence is declining while that of payers is increasing.

We know from our 2008 IMS Launch Excellence Study

that in five of the eight study countries including for the
first time, the U.S. detailing to individual prescribers
accounts for less than 50 percent of what explains launch
behavior. Since detail calls can only have impact when
prescribers are free to act, this suggests that prescribers in
these countries are losing the majority of their decisionmaking power and are no longer the dominant decision

INCREASE

DECREASE

STAY THE SAME

makers. The non-prescribing customer types that are

impacting pharmaceutical performance include:
PAYERS. Payers can be at the national, regional or local level,
but increasingly in the study countries, payer decisions
affecting the uptake of new products are made at the local
level. Indeed, in several markets, payers have begun to eclipse
the prescriber in their influence over the treatment decision.

Understanding New Commercial Models - Issued June 2009 5

Although not payers

themselves, these bodies are highly influential on payer
decision making, and not simply within the country for
which they have their official mandate.
HEALTH TECHNOLOGY ASSESSOR AGENCIES.

PATIENTS. The

degree and nature of patient engagement is

still quite disease-focused due to the individual issues that
may trigger a greater level of engagement.
PATIENT ASSOCIATIONS AND ADVOCACY GROUPS. As

patients have
become engaged, they have also mobilized, with lobbying
and advocacy groups raising awareness and serving as
mouthpieces for many disease sufferers.
group is often overlooked but, in some
countries and therapy areas, can play an important role in
promoting a product.

FIG 3: SALES AND MARKETING EXPENSE AS A

PERCENTAGE OF SALES
29.0%
28.0%
27.0%
26.0%

Period of steep decline

Continued downward trend

25.0%
24.0%

PHARMACISTS. This

23.0%
22.0%
2005

THE INDUSTRYS RESPONSE TO DATE

Given the very visible pressure on bottom-line financial
performance, companies have reacted in a number of ways,
often re-trying what they have done before with some
new elements:
Acquisitions will get me out of this hole. Five to seven
years ago, manufacturers attempted to bolster revenues by
merging with or acquiring companies with rich pipelines
or fast-growing inline products, a strategy that met with
inconsistent results. There is no evidence that mergers
add value in the long term. Although in the short term,
companies benefit from removing overlap, fundamental
issues remain post merger.

Generally, the industry remains fiscally

strong with the global market expected
to surpass $935 billion in sales in 2012.

6 Understanding New Commercial Models - Issued June 2009

2006

2007

2008

Sales and marketing expenses are trending downward.

Based on SEC Filings for Top 30 companies, Sales & Marketing Expense as % of sales
(minus administration expense)

I can stem the tide by cutting the sales force. Beginning in

2006, companies began constricting their sales and marketing
expenditures a trend that is continuing, albeit at a less
precipitous decline (See Fig. 3). Although this was a
reasonable method for improving investment returns in the
short term, its been insufficient to change the unhappy
course of P&L trends. It is, at this point, a simplistic
reaction that misses the fundamental issue.
Pharmerging markets will make up the difference. The
worlds pharmerging markets have decidedly strong
growth prospects (collectively, they will grow at the rate
of 13 to 16 percent through 2012) and will be an important
component of the successful business strategy. Yet the
numbers will not be large enough in the next five years
to fill the gap. Even these high-growth geographies will
experience some volatility due to the economy, and the
local response will vary.

Restructuring the organization will put us on the right track.

This could be a good first move if the goal is to operate
against fundamentally different metrics. In most instances,
though, this is as futile as rearranging the deck chairs on
the Titanic.
What we need is a new management team. In actuality, what
is needed is new thinking, not necessarily new leadership.
As the situation has worsened and as the easiest answers
have been exhausted, companies have begun to explore a
variety of approaches. Unfortunately, most companies,
eager to experiment but reluctant to become locked in,
have tackled the problem piecemeal. Theyve looked at
their commercial model in isolation or have launched
pilots in a disjointed fashion.
We urge companies, instead, to make simultaneous
decisions related to their R&D portfolio, pharmerging
market presence and overeaching business models.
Developing a new commercial model is one component
of what should be a very broad and coordinated response
to finding a new pathway of increased shareholder value.
WHAT THE FUTURE HOLDS
From an environmental standpoint, we believe that the
future unfortunately holds more of the same. Consider that:
The long-term growth forecasts for the world's eight
major markets suggest unremitting slow growth in the
low single digits. In particular, the slowing growth in
the behemoth U.S. market will continue to be a drag
on the global market.

The generic risk profile through 2012 will impact

most companies.
The environmental factors at work today will continue
to affect markets over the next 10+ years and, in many
cases, will only worsen.
There are mitigating factors that, in and of themselves,
bode well for the industry. Generally, the industry remains
fiscally strong with the global market expected to surpass
$935 billion in sales in 2012. A large global population
of untreated or undertreated patients awaits the industry.
Indeed, current therapies reach only about 12 percent
of the world population. Lastly, the late-phase pipeline is
strengthening with the 2008 Phase III showing 5.7 percent
growth over 2007.
Unfortunately, negative external factors will continue to
outweigh the positive, and the overall impact will extinguish
the already weak growth of the industry unless manufacturers
take action within the next two to three years.

KEY LEARNING
The need for change is only going to intensify. Companies must
move beyond conducting disjointed pilots to adopting a
coordinated response that involves decisions around their R&D
portfolio, pharmerging market presence and overarching business
models. Within that broader context, they can design and
implement a winning commercial strategy.

Understanding New Commercial Models - Issued June 2009 7

Market Insights: At Last, A New Perspective

In recognition of the pressures bearing down on manufacturers
and impeding their profitability, we undertook a large-scale analysis
of the current state across the worlds eight leading markets:
U.S., Japan, France, Germany, U.K., Italy, Spain and Canada.

At the outset, we had four hypotheses:

Promotional spending is being allocated similarly across
therapeutic categories, without regard to the fact that
the nature of those categories has changed in a way
that affects promotional returns.
There has been a fundamental change in decision-makers,
with the payer eclipsing the physician in many markets.
Companies need to be open to more radical change in
their commercial models to take this into account.
Different markets are in different stages, suggesting that
there is no one-size-fits-all solution and that tailoring to
the local environment is essential to success.
Through our in-depth studies, we found examples
demonstrating that there are successful alternatives to the
current model.
MARKET SEGMENTATION
For each of the eight countries studied, we segmented
over 80 therapeutic areas in order to determine where an
overhaul of the commercial model is most needed. To do
this, we created a matrix with the value proposition of the
therapeutic classes on the X axis and their cost burden
on the Y axis (See Fig. 4).
8 Understanding New Commercial Models - Issued June 2009

A classs value proposition became a function of the extent

of patent protection in place, coupled with an objective
measure of product innovation. We turned to the French
governments Amelioration du Service Medical Rendu
(ASMR) rating, which expresses the agencys appreciation
for the clinical value brought by new products, as an
objective measure of innovation. To arrive at the cost
burden of a class, we calculated the impact of the class
on the nations healthcare budget, taking into account the
degree of payer influence in the class. (The higher the cost
burden of a class, the more payers focus on it.)

FIG 4: A NEW APPROACH TO MARKET SEGMENTATION

High

Commodity

Transitional

Cost Burden

The intent was to give companies a head start in the type

of market understanding and strategic orientation that
is necessary to make viable choices around commercial
strategies. We relied on our local footprint in each of the
eight leading markets to evaluate what has really been driving
change and to understand the current commercial context
for products across more than 80 therapeutic areas. (For more
information on our research approach, see the Appendix.)

Differentiated

Low
Low

Value Proposition

High

We segmented each therapy area within each country in

order to determine where an overhaul of the commercial
model is most needed.

FIG 5: SEGMENTATION OF THE U.S. MARKET

37% of U.S.
market falls in
the commodity
segment.

High
Anti-ulcerants

Transitional
$70.9B
28%

Commodity
$93.3B
37%

Cholestrol regulators

Cost Burden

Anti-depressants

Ca Antagonist
Anti-histamines
NS anti-rheumatics
B2-stimulants - inhaled short acting

Low

Differentiated
$87.3B
35%

Anti-psychotics

Low

Anti-athmatics
Anti-epileptics

Narcotics

Contraceptives
Beta Blockers
Non-babiturates
Oral fluroquinolones
Pain & Fever
Macrolides
Muscle relaxants - central
Penicillans
Plain anti-hypertensives

Anti-diabetes

Psychostim
Onologicscytotoxics

Bisphosp+SERMs
Anti-diabetes
Sex hormones

Oncologics-targeted therapies
Specific antirheumatics

Oncologicshormonals
BPH products

Anti-virals, excl anti-HIV

HIV antivirals

Anti-alzheimers

UI

ED

Anti-migraine

Interferons

Anti-smoking

Anti-parkinsons

Low

Angionten II antag &

renin antag

Anti-obesity

Value Proposition

High

Note: This analysis covers over 80 therapeutic areas. Graphically, the majority of high-grossing
therapeutic segments are represented here, along with key consumer driven segments, such as ED,
anti-smoking, etc.
Source: MIDAS MAT Dec 2007; hospital and retail panel, US$

Against these variables, we were able to assign therapeutic

classes to one of three segments: Differentiated, Commodity
or Transitional as defined below.
DIFFERENTIATED. These

classes are characterized by significant

product innovation. There are often no generics available, and
payers exert little influence on treatment decisions.

COMMODITY. These

classes consist of products that are

minimally differentiated, other than by price. Payers
potentially have a great stake in the prescribing decisions
within these classes.

TRANSITIONAL. These classes fall between the above two

extremes and are likely to undergo significant change.

As therapeutic classes mature and competition increases,

they naturally progress from the differentiated segment
to the transitional and finally to the commodity segment,
moving to the left on the matrix. The introduction of a
significant innovation offsets this tendency. The distance
of a given class from the lower, right-hand corner is an
indication of the urgency associated with the need for a
new commercial model.

Understanding New Commercial Models - Issued June 2009 9

In the United States, for instance, 37 percent of the market

falls into the commodity segment, 28 percent in the transitional and the remaining 35 percent in the differentiated
(See Fig. 5). A shift will soon occur for many classes in the
transitional segment as the portion of the U.S. market subject
to generic competition grows rapidly; in 2007, 56 percent
of the market no longer enjoyed patent protection, but that
is expected to climb to 73 percent in 2012.
To understand the positioning of classes specifically along
the value proposition continuum, consider the situation of
HIV anti-virals, located in the lower, right-hand corner of
Figure 5. There currently is no cure for HIV infection, and
the disease inflicts a terrible, highly visible burden on society.
Thus, innovations are eagerly sought and offer a high value
proposition to payers. Payers are therefore willing to pay for
any advancement that addresses an unmet need in HIV
treatment. Contrast that with plain anti-hypertensives,

which are in the extreme lower, left-hand corner. This is the

case because: 1) these products have largely been displaced by
newer therapies; 2) treatment innovations take place outside
of the class rather than within it; and 3) the class contains a
high percentage of unprotected sales.
Segment Mix by Country
The eight countries show distinct differences in how the
segments are apportioned (See Fig. 6). The commoditized
segment ranges from a high of 53 percent of the market in
Germany to a current low of 37 percent in the U.S.
We also looked at how the portfolios of each of the top 30
global companies were distributed across the segments. The
level of commoditization spans a wide range: from a high
of 74 percent to a low of 0 percent in the eight countries.
Segment Mix by Therapeutic Class Within Country
Across the studied geographies, we see heavy commodi-

FIG 6: SALES SEGMENT DISTRIBUTION BY COUNTRY - ALL COMPANIES

$Billions

The 8 countries show

distinct differences in
how the segments are
apportioned.

$32

$16

$20

$19

$18

$49

$33

$252

17%

21%

25%

22%

35%

21%

26%

35%

30%

29%

26%

30%

18%

34%

32%

28%

53%

50%

49%

48%

47%

45%

42%

37%

Germany

Canada

U.K.

Italy

Spain

Japan

France

U.S.

100%

75%

Commodity
Transitional
Differentiated

50%

25%
This analysis covers over 80 therapeutic areas; sales represent
combined revenues of all companies in the selected
therapeutic areas only.
Source: MIDAS MAT Dec 2007; hospital and retail panel, US$

10 Understanding New Commercial Models - Issued June 2009

0%

FIG 7: SALES SEGMENT BREAKOUT BY KEY THERAPEUTIC CLASS, COUNTRY

THERAPEUTIC AREA

CANADA

FRANCE

GERMANY

ITALY

JAPAN

SPAIN

UK

US

Total Top
8 Sales
($Billion)

Cholesterol Regulators

$28

Anti-Ulcerants

$24

Anti-Psychotics

$19

Anti-Asthmatics

$18

Anti-Depressants

$16

Anti-Epileptics

$14

Anti-Rheumatics

$13

Anti-Diabetes

$11

HIV Anti-Virals

$11
COMMODITY TRANSITIONAL DIFFERENTIATED

The differences in the segmentation of specific classes arise from differences in local environments.

tization in the top therapeutic areas: cholesterol regulators,

anti-ulcerants, anti-psychotics, anti-asthmatics and antidepressants (See Fig. 7).
The differences in the segmentation of specific classes arise
from differences in the local environments. For instance,
since the Japanese government generally does not apply
class-specific measures, even those classes that are in the
commodity segment still react much like transitional
segments found in other countries. This dynamic is
expected to change in the coming years, however.
RETURN ON INVESTMENT ANALYSIS AND INSIGHTS
To evaluate the performance of the industrys current
promotional practices within each of the three identified
market segments (differentiated, commodity and transitional),
we reviewed promotional productivity using IMS promotional data and sales audits combined with external market
research. For each segment in each study country, we:

Assessed total sales

Determined the promotional monies spent and the share
of voice achieved
Calculated the return on investment for the portion of
sales that could be impacted by promotion, expressed as
a productivity ratio

KEY LEARNING
As patent protection expires for many major brands, more classes
will shift away from the differentiated segment into the transitional segment and from the transitional into the commodity
segment. Each company must determine its exposure to
commercial obsolescence by studying its portfolio in light of the
segmentation. The pillars of new commercial models must then
be put into place where appropriate.

Understanding New Commercial Models - Issued June 2009 11

 Modeled productivity gains for each segment as

compared to the local country market and to all eight
country benchmarks
Based the analysis on first-year returns
The results clarified where manufacturers as a group are
overspending their promotional resources and where they
might instead redirect funds for greater impact. The study
also revealed where the greatest challenges will be faced
when introducing new products.
Resource Optimization is Poor
Across all eight countries, there are clear differences in
the way the three segments respond to promotion. In all
cases, the differentiated segment is the most responsive to
promotion, followed by the transitional segment, and lastly,
the commodity segment (See Fig. 8).

FIG 8: PROMOTIONAL RESPONSE CURVES BY SEGMENT

ACROSS STUDY COUNTRIES
Inline Brand Incremental Market Share vs Share of Voice
4th Quarter 2007

Incremental Market Share

80

Yet, when we compare promotional spending to sales, we

see that the industry spends proportionately more on the
commodity segment! (See Fig. 9) This is largely due to the
strong presence in the commodity segments of traditional
blockbuster products oriented toward primary care
physicians. Thus, while each country and class is different,
there is a general tendency for companies to overinvest in
products that fall into the commodity segment. The shareof-voice paradigm is already largely obsolete in many parts
of this segment, and a new commercial approach requiring
less direct investment is urgently needed. The recovered
promotional resources would be better employed in the
differentiated and transitional market segments.
In exploring the country-specific differences, we compared
spending in the U.S. to that in the U.K. (See Fig. 10).
We found that in the U.S., the commodity segment

FIG 9: SALES AND SPENDING COMPARISON ACROSS

SEGMENTS FOR THE EIGHT MARKETS COMBINED
60%
% Sales
% Promo

40%

Commodity
Transitional
Differentiated

60
40

20%

20
0%

0
0

20

40

60

80

100

SOV
The segments respond differently to promotion, with the
commodity segment being least responsive.

12 Understanding New Commercial Models - Issued June 2009

Commodity Differentiated Transitional

Despite the fact that the commodity segment shows far less
reactivity than the differentiated segment, the industry spends
more to promote products in the commodity segment.

FIG 10: COMPARISON OF SPENDING TO SALES, U.S. vs. U.K.

UK

60%

US

60%
40%
40%

20%

20%

0%

0%
Commodity

Differentiated

Transitional

% Sales
% Promo

Commodity

Differentiated

Transitional

Pharmaceutical companies appear to have divergent promotional spend strategies in the U.K. and the U.S.

THE INDUSTRY CAN REALLOCATE $15 BILLION IN PROMOTIONAL SPENDING

In order to bring promotional productivity up to the
average found in the transitional and differentiated classes,
the industry would have to reallocate its promotional
spending by $15 billion. That money could be spent to:
Augment operating income. Even accounting for taxes,
this could deliver $130 billion in shareholder value!
Fill innovation gaps in the pipeline. The $15 billion
applied to R&D would represent a 16.6 percent
increase over the industrys current $90 billion
R&D investment.

Of course, what is most meaningful to companies as they

begin to explore their options is to understand their own
promotional productivity. Quantifying how much of a
companys current promotional spending can and should
be reallocated is the first step in considering a new
commercial strategy. Without this, it is impossible to
prepare the business case and feasibility study to know if a
given strategy will have the desired impact on profitability.

Enhance commercial effectiveness with a new

commercial model. The promotional savings could be
used to fund commercial programs targeting efficiency
and effectiveness programs, stakeholder engagements
and extended offerings.

Understanding New Commercial Models - Issued June 2009 13

FIG 11: CHANGE IN PROMOTIONAL SPENDING BY COUNTRY, 2007 vs. 2008

Percent change from 2007 to 2008

US

CA

UK

FR

DE

IT

ES

JP

-1%

-15%

-17%

-14%

-12%

-8%

-5%

-15%

Companies have been trimming their promotional budgets, albeit conservatively in the U.S.

still commands a disproportionate share of promotional

attention, while the differentiated segment does not receive
the attention it deserves. In the U.K, where legislative
changes and a strong, central-payer influence have prompted
local companies to adjust their spending levels, the alignment
is better. However, there is still room for improvement.
Promotional Spending is Declining
When comparing total promotional spending by country
for 2007 and 2008, we see that spending has, in fact,
decreased across the board, although the reductions have
been relatively minor (See Fig. 11).

Promotional Productivity is Sub-Par

in the Commodity Segment
When we calculate promotional productivity for each
segment and express it as a ratio of impactable sales to
promotional spending, we find that, for every dollar spent
on promotion in the commodity segment, companies are
receiving less than a dollar return in sales. The table in
Figure 12 displays the relative productivity for each of the
three segments, across countries:
To optimize promotion, spending in this segment in the
U.S. should be reduced by a total of $6.2 billion.

FIG 12: ROI ON PROMOTIONAL SPENDING BY SEGMENT AND COUNTRY

Total 2007 Promotional Spend Return
US

CA

UK

FR

DE

IT

ES

JP

Commodity
Transitional
Differentiated
For every $1 spent on promotion, companies are often receiving <$1
return in sales in the commodity segments.

14 Understanding New Commercial Models - Issued June 2009

= Poor promotional productivity

= Average promotional productivity
= Good promotional productivity

 The reactivity of the segments is evolving. In most markets,

promotional sensitivity decreased between 2004 and 2007,
particularly in the commodity segment a trend we
expect to continue.
Launch and Inline Brands in the Same Segment
React Differently to Promotion
Within each segment, launch and inline brands also react
differently. Product launches into the commodity segment
are strikingly unresponsive to promotion, and in many
countries, launching into this segment is particularly difficult
using existing commercial models (See Fig. 13).
Priorities Differ by Client and Geography
Because the applicability of the existing model is a function
of the geography and therapeutic area in question, there is
no one-size-fits-all solution. Every company must determine
its exposure to commercial obsolescence by studying how
much of its current business comes from the commodity
segment. It will then need to put in place elements of a
new commercial model where appropriate.
INDUSTRY PROGRESS
Few Companies Have Completed
Their Transformation
From the headlines in the press, one might conclude that
more progress has been made than is actually the case.
According to our survey of 175 participants in a recent
webinar on New Commercial Models, only a small
percentage (7 percent) of participants companies have
completed the transformation to a new commercial model.
A quarter of respondents indicated that their companies are
not even contemplating a new model.

Inline Brand Incremental Market Share vs

Share of Voice, 4th Quarter 2007
Incremental Mkt Share

Conversely, Japans low productivity figures stem from

considerably higher spending as a percentage of sales.

FIG 13: MARKET SHARE vs. SHARE OF VOICE FOR

INLINE AND LAUNCH BRANDS

60
40
20
0

Commodity
Transitional
Differentiated
0

20

40

60

80

100

SOV

Launch Brand Incremental Market Share vs

Share of Voice, 6th Quarter After Launch
Incremental Mkt Share

In two countries, Italy and the U.K., promotional

productivity is positive in the commodity segment. This
is the result of already low spending in the segment as a
percentage of sales.

60
40
20

Commodity
Transitional
Differentiated

0
0

20

40

60

80

100

SOV

The lack of responsiveness for product launches in the

commodity segment is striking.

KEY LEARNING
In general, the industry is over investing in promotions for
products that fall into the commodity segment. Because the
share of voice paradigm is already obsolete in many portions
of the commodity segment, companies urgently need a new
commercial approach that will reduce or shift these investments
while still garnering the same or better returns.

Understanding New Commercial Models - Issued June 2009 15

COUNTRY COMPARISON: U.S. AND JAPAN

Both the U.S. and Japan showed relatively high
levels of return on incremental spending, as shown in
Figure 14. This is the case because the Japanese government has been slow in exercising direct influence on
the pharmaceutical market. Such sensitivity to incremental
promotional spending helps to explain the high levels
of expenditure, and therefore the lower levels of overall
productivity in Japan. In the U.S., the power of payers is
less centralized than it is in Europe, likewise leading to
higher promotional sensitivity. The higher price levels in
the U.S. also add to the potential ROI.
Despite these similarities, note that while Japan sees
relatively minor differences in promotional response
across the segments, the greater payer influence and
rapidly evolving commercial environment in the U.S.
has led to significant differences in the way the three
segments react. Pharmaceutical companies must take
these differences into account in order to optimize their
investments.

FIG 14: ROI IN U.S. AND JAPAN

Inline Brand Incremental Market Share vs
Share of Voice, 4th Quarter 2007

US

Incremental Mkt Share

80
60
40
20

Commodity
Transitional
Differentiated

0
0

20

40

60

80

100

SOV

Inline Brand Incremental Market Share vs

Share of Voice, 4th Quarter 2007

Japan

Incremental Mkt Share

80

This finding is consistent with an in-depth survey that we

conducted with the top 30 companies. Many companies
are, for now, simply doing less of the same. Some are
experimenting with genuine change, and an elite group is
actually redefining their value proposition. Among the top
30 companies and across the eight country markets, there
are still over 200 organizations that must address the
obsolescence of their current commercial strategy.
THE STRATEGIC OPTIONS
Decisions Center on Three Broad Strategic Areas
The fundamental decisions that must be made in order to
optimize performance within each of the three market
segments country-by-country can easily become overwhelming without a framework to bring focus and structure
to the considerations. Through our observations and research,
we felt it was necessary to create a framework designed to
bring both discipline and flexibility to the decision-making
process. The various activities companies are taking as
well as the plethora of options available can be mapped
against our New Commercial Model Strategy Framework
illustrated in Figure 15. The framework groups tactics into
three categories: those that address the how of sales and
marketing through efficiency and effectiveness improvements,
those that address the who within the market with tactics
for improving relationships with stakeholders and those
that address the what is taken to market with tactics that
expand the value proposition.

60
40

KEY LEARNING

20

Commodity
Transitional
Differentiated

0
0

20

40

60

80

100

SOV

Both countries lack strong, centralized payer

influence and so produce a relatively high ROI.

16 Understanding New Commercial Models - Issued June 2009

The industry as a whole should reallocate $15 billion in

promotional expenses just to arrive at an average level of
promotional productivity. Every company should understand its
own level of expenditure and assess its strategic options
before undertaking the development of a new commercial model.

FIG 15: IMS NEW COMMERCIAL MODEL STRATEGY FRAMEWORK

How (Organizational Efficiency & Effectiveness)

Advanced stakeholder segmentation

Optimal resource size and structure
High-quality and impactful stakeholder interactions
Streamlined organizational processes
Effective enabling technologies, tools and systems
Meaningful performance metrics

Efficiency and
Effectiveness

Who (Engagement Capabilities)

Approval,
Acceptance and
Adoption

What (Value Proposition)

Differentiated products/portfolios
Optimal co-positioning
Value-add services
Win/win solutions

Extended Offering
and Value Creation

Stakeholder
Engagement

Stakeholder coverage capabilities e.g. payers, providers,

HCPs, political stakeholders and patients
- Skills and competencies e.g. Key Account Management
- Role requirements e.g. KOL management
Stakeholder coverage models

This strategic framework brings focus and structure to the New Commercial Model decision-making process.

Each of the three points of the triangle represent a strategic

avenue that can be employed to varying degrees to suit the
circumstances within a geography, therapeutic area and
company. One might, for instance, rely heavily on a strategy
of improving efficiency and effectiveness in a commoditized
market but turn up the dial on engaging stakeholders for
products in the differentiated segment.
Below is a list of some of the initiatives we've seen
companies considering or adopting:
Efficiency/Effectiveness Tactics
While companies have indeed been focused on improving
the efficiency and effectiveness of their commercial
operations in recent years, there is still an opportunity to
realize significant savings. Techniques that companies
should consider include:

Promotion Optimization that can pinpoint the precise level

of promotional investment in each channel and for each
audience segment that will optimize profitability or
return on investment. Promotion to prescribers is usually
optimized at the brand level, but the key to deriving a
higher promotional return on investment is in shifting
from undifferentiated brand messaging to that which is
customized for each prescriber. Because each customer
segment responds differently to promotion, the inclusion
of patient-level and managed care insights has been
shown to have a dramatic impact on promotional
investment returns.
New Marketing Execution Technologies, such as closed-loop
marketing, enterprise-wide relationship management and
customer relationship management

Understanding New Commercial Models - Issued June 2009 17

 Enhanced Stakeholder Segmentation and Promotional Techniques,

including holistic segmentation, advanced promotional
allocation and fit-for-purpose field forces and teams
Launch Excellence, characterized by a laser-sharp, companywide focus on launching products and leveraging
historical best practices in the new environment
High-Quality, Impactful Stakeholder Interactions that require
establishing new key performance indicators, developing
cross- or multi-channel measures or offering advanced
training for field forces
Stakeholder Engagement Tactics
In an environment where other stakeholders are becoming
as important as physicians if not more so in product
selection, the customer-facing side of pharmaceutical companies should be facing new customers. In order to engage
payers and other stakeholders to gain market access, companies
need to devote more resources to developing evidence; to
pre-launch preparation; and to understanding, marketing to
and negotiating with payers at all geographic levels.
Approaches that can support companies efforts to win over
new customers include:
Integrated Stakeholder Teams/Stakeholder-Centric Teams
that give companies the ability to address specialized
stakeholder needs. For instance, a company may organize
its sales team around key accounts.
Integrated Geographic Teams that enable companies to apply
their strategy at the geographic level and are vertically
integrated across sales, marketing, market access and
clinical functions
Situational or Opportunistic Teams, such as for restrictive
markets or stakeholders
Specialized Teams with roles that include delivering
samples only; managing key opinion leaders; managing
payer contracts; and serving as a liaison with patient
advocacy groups

18 Understanding New Commercial Models - Issued June 2009

In an environment where other

stakeholders are becoming as important
as physicians if not more so in
product selection, the customer-facing
side of pharmaceutical companies
should be facing new customers.

Extended Offerings/Value-Creation Tactics

Particularly in the primary care market, pharmaceutical
companies must transition from selling chemicals packaged
into tablets to selling integrated health concepts that add
value by improving diagnosis, presentation, adherence and
persistence. An example of this whole product approach
would be offering a comprehensive patient-centered program
that includes the drug, diagnosis, patient counseling, family
support, diet and exercise, mood monitoring and Internet
support. This is not the disease management approach in
the U.S. of the 1990s, but one that achieves value pricing
through a wholehearted commitment and matching
investment. Fortunately, manufacturers already have much of
the needed elements, including an understanding of disease
treatment, existing relationships with providers and insights
into patient usage through anonymized, patient-level data.
The basic categories of value-creation tactics include:
Stakeholder Solutions that range from customized patient
education, e-tools and social networking materials to
dashboarding and value-based focus groups
Stakeholder Resources as varied as trial offers and coupons
to healthy outcomes programs and health calculators
Offering Extensions made possible through value-chain
aggregation and a movement toward services or nonprescription offerings

 Industry Partnerships with governments, healthcare

organizations, disease awareness groups, payers and
employers that focus on healthy outcomes
Encouragingly, we are seeing a movement toward serviceoriented approaches that involve re-assessing the value
proposition.
In summary, although most of the focus to date has been
on efficiency and effectiveness tactics, we are seeing
increased experimentation with new initiatives at all three
points of the triangle.
BARRIERS TO SUCCESS
Clearly, the industry as a whole is about to embark on a
transformation that stands to be one of the most sweeping
and significant in its history. Not only must companies
quickly get their strategies right, but they must also
negotiate a minefield during the implementation phase.
Some common pitfalls occur when companies:
How
much of your portfolio is commoditized? With which
stakeholders should your sales force be aligned?
FAIL TO COMPLETELY UNDERSTAND THE CURRENT ENVIRONMENT.

KEY LEARNING
Thus far, the industry has made the greatest strides in applying
efficiency and effectiveness tactics to their go-to-market strategy.
However, companies must also consider other strategies that
engage new stakeholders and extend the value proposition. Part
of the latter is developing a whole product approach that goes
beyond offering a medication to offering a healthy outcome.
Companies will need to apply tactics from around the framework
to varying degrees depending upon the market segment and
country of operation. The IMS New Commercial Model Strategy
Framework can bring discipline and order to the process of
choosing the best direction.

APPLY A ONE-SIZE-FITS-ALL APPROACH: Markets are different.

Geographies are different. Organizations differ in their
willingness to take on risk. One way to work through
this variability is pilot a new approach in a single
geography to both accumulate some experience and
achieve a quick success.

THE NEW SALES REP

In most of the new commercial models that will be
implemented, the role of the sales representative must be
modified. While some sales representatives will continue
to function in the traditional way, the monolithic sales
force in which every sales rep is charged with the same
tasks will become a thing of the past. Sales forces will be
called upon not just to build adoption at the individual
physician level, but also to build acceptance and approval
with payers. Reps that fill these new roles will need a
new set of skills:
Account management the ability to manage
strategic relationships with various levels in an

organization; such business-to-business selling skills

are currently concentrated within national account
management
The ability to deal with a broad range of stakeholders,
such as doctors, payers, nurses, key opinion leaders
and patients
Coordination with a team of client-facing individuals
in overlapping roles, such as marketing, market access
and health economics; all will be required to work
together in developing payer insights, creating payer
value and driving demand

Understanding New Commercial Models - Issued June 2009 19

Implementation
can be costly, particularly with respect to all of the business
systems and technologies that support a commercial teams
daily operation.
UNDERESTIMATE ALL OF THE ASSOCIATED COSTS.

CUT CORNERS IN THE CHANGE MANAGEMENT PROCESS. This

is a major change that involves everyone in the commercial

organization. By applying proven change management
principles to the process, companies can minimize the
length and depth of performance disruptions while
increasing the overall performance that they realize.
To determine how well pharmaceutical companies have
dealt with lesser change efforts and to gauge their readiness
for the challenges ahead, we reviewed over 100 of our recent
management consulting engagements. In prior change
initiatives, companies faced a litany of barriers to success that

Level of
Performance

FIG 16: THE BENEFITS OF A CHANGE

MANAGEMENT PROCESS

Productivity Loss

Without
Change
Management

Speed of
Change

Adoption Issues
Resistance by field managers
Sales rep opposition
Stakeholder misalignment
Poor communications
Unclear benefits
Behavior Issues
Lack of or inefficient training
Sales organization fatigue
HR-related challenges
Execution Issues
Unrealistic plans and timetables
Strong functional boundaries
Competition for limited resources
Limited change skills
These same pitfalls will most certainly await companies as
they tackle their new commercial models and, since the
industry has never dealt with such a large change, it is
likely that many leaders will underestimate the resulting
strain on their organizations (See Fig. 16). Companies that
fail to implement their new model with appropriate
attention to the change management process will take
longer to realize the benefits and, ultimately, will not
optimize their performance.

Normal Productivity Level

Severity of
Impact

Performance

Change
Initiated

Change
Management
Applied

can be categorized into adoption issues, behavior issues and

execution issues. Interestingly, ninety percent of the most
prevalent roadblocks have been people-related:

KEY LEARNING
Productivity
drop

Back to
normal

Benefits
Realization

Time

It is critical to minimize the length and depth of

performance disruption brought about by change.

20 Understanding New Commercial Models - Issued June 2009

To be successful in implementing a new commercial model,

companies must approach the change process with focused effort;
it would be hard to overestimate the amount of planning, communication and coordination required to adopt a new model and
increase motivation in external-facing roles.

SNAGS, PITFALLS AND MISSTEPS

As helpful as knowing how to proceed is knowing how
not to proceed in an undertaking as far-reaching as a new
commercial model. In addition to the aforementioned
barriers to success, our experience suggests that companies
that are unable to graduate from testing pilots to implementing a multi-country initiative get stuck. In these
situations, they need to:
Take time to make the transformation. It is far better to
work through the variability from market to market by
first piloting a new approach to accumulate some
experience and achieve a quick success.
Focus not only on strategy, but apply proper attention to
organizational design, change management principles and
success monitoring (It is one thing to have a strategy, but
quite another to drive adoption of it.)
Determine key performance indicators as upfront success
criteria
Develop an end-to-end process that encompasses strategy,
implementation and measurement rather than pursue
only one aspect of change

Understanding New Commercial Models - Issued June 2009 21

The Way Forward: A Five-Step Process

The good news is that avenues for improving the effectiveness
of the commercial model are numerous. And whats more,
companies can choose their options based on the results of
a sound business case.
We believe pharmaceutical companies need to approach the
challenge through five distinct areas of work: Diagnostic
Assessment, Strategic Planning, Organizational Excellence,
Enabling Capabilities and Commercial Transformation
(See Fig. 17).
1) DIAGNOSTIC ASSESSMENT
1)

Companies that have not yet defined a strategic direction

2
for
their commercial model are in the perfect position to
begin properly, i.e., with a diagnostic assessment of their
existing model against the market landscape. Even companies
that already have agreed upon a new commercial strategy
can often benefit from stepping back long enough to
explore the gaps between their current and ideal states.
Frequently, companies remain stuck, unable to move

forward because they dont know how to convert the highlevel strategy they have in hand into concrete, prioritized
actions that are adaptable country by country.
A diagnostic assessment creates the proper baseline for
planning. The goals at this stage should be to:
Understand the current landscape and validate healthcare
trends for each country of operation
Gain insight into each stakeholders agenda, identifying
current and emerging needs
Model the maturity of the portfolio, by therapeutic area
and country. This entails segmenting the portfolio into
the commodity, transitional and differentiated segments
and measuring ROI for each. This is essentially the

FIG 17: THE IMS NEW COMMERCIAL MODEL PROGRAM

Diagnostic
Assessment

Strategic
Planning

Organizational
Excellence

Enabling
Capabilities

Commercial
Transformation

Assessment

Organization Strategy

Capability Assessment

Promotional Analysis

Promotion Strategy

Customer-Centric
Organization

Implementation
Management

Stakeholder Analysis

Managed Market
Strategy

Segmentation

Systems
Implementation

NCM Maturity Model

Portfolio Strategy

Resource
Optimization
Market Spend
Allocation

22 Understanding New Commercial Models - Issued June 2009

Process Management

Outsourcing

Change Management
Behavior Change
Training
Evaluation &
Performance

methodology we used on the industry-wide segmentation

and ROI analysis discussed above, applied to a companyspecific situation.

ADDRESSING PAYERS
The following steps to addressing payers successfully
require a level of effort that transcends what most
companies have thus far attempted:

How to Get Started

In working with clients over multiple years, we have
found that assessments involve the following steps in a
logical progression:

1) Identify and understand how funding flows into

the disease area, including funding for prevention
and non-pharmacotherapy

1. Evaluate the effectiveness of the current

commercial model

2) Recognize the decision makers controlling these

funds especially those at the local level

2. Analyze the market landscape and competitive dynamics

so as to describe the direction and pace of change in
each operating environment

3) Understand the motivation and decision criteria

of decision makers. Some payers may focus on nearterm budgetary impact and cost containment.
Others value holistic improvements in patient
outcomes and care.

3. Segment the current and future portfolio by measuring

promotional productivity and sensitivities within each
country and therapeutic area
4. Map key stakeholders based on their needs and agendas
and the changes that are foreseen in their power and
influence. In part, this involves understanding the patient
perspective via anonymized, patient-level data.

4) Adapt product development using insights into

decision-making criteria
5) Develop evolved, value-added dossiers. These
require repositories of strategy, clinical and
economic benefit and negotiation approaches that
are tailored to each type of payer.

5. Assess capabilities and determine priorities for

moving forward

6) Target segmented payers with appropriate messages

6. Define key success factors for transformation to a new

commercial model

7) Monitor the impact of this activity and adjust

accordingly

2) STRATEGIC PLANNING
2)

The goals of the strategic plan should be to lay out the

strategic options and then blueprint the selected model.
While it is easier said than done, our observance of the
industry's best and not-so-best practices has led to
sound advice for developing a new commercial model:
Consider how
regulations, prescribing patterns, regionalization and
stakeholders will likely change over the next three to
five years in each market.

BUILD FOR THE LANDSCAPE OF THE FUTURE.

Modify the model to

the brands maturity, the local environment, the brands
market segment and the most probable future landscape in
order to generate positive ROI.

DEPLOY A COUNTRY-SPECIFIC APPROACH.

UNDERSTAND HOW DECISION MAKERS ARE CHANGING. Companies

need to attune their promotional investments to the right
set of decision-makers with an understanding of how to
optimize those investments against the web of stakeholders
that drive product acceptance and adoption.
STRUCTURE YOUR THINKING AROUND OUR STRATEGIC FRAMEWORK.

Adjust the levers of each area of the triangle (See Fig. 15)
as you consider different strategies for each segment.
PLAN TO REDUCE/REALLOCATE PROMOTIONAL SPENDING. We
have yet to find a company that has revised its promotional
spending comprehensively with an eye to the optimization
of commercial models.
Understanding New Commercial Models - Issued June 2009 23

Companies that have not yet defined a

strategic direction for their commercial
model are in the perfect position to
begin properly.

BE INCLUSIVE. Integrate all external-facing functions (e.g.,

sales, marketing, market access, medical affairs) in the
process so that you create a single view of each stakeholder group in your approach.

How to Select a Commercial Model

Ultimately, you must determine the most suitable go-tomarket approach (e.g., centered around key accounts,
tendering or physicians) that supports your strategy.
To do this, you must take into account your current and
future portfolios, the pricing and market access conditions,
your health economics and outcomes research documentation and the results of thorough cost/benefit analyses.

A CASE IN POINT:
PRIORITIZING THE RISKS AND OPPORTUNITIES
A leading pharmaceutical company recognized that its sales
model was threatened by evolving markets. How could it come to
a consensus on what action was required across 26 countries?
IMS performed a full diagnostic review, beginning with a landscape
analysis in each country. We then mapped and clustered countries
by the commonalities in their future scenarios. We provided a
commercial model roadmap, complete with impact analyses and
what if scenarios.
As a result, the corporation determined its priorities and the
management team has agreed upon an action plan. The corporate
headquarters and local affiliates are now working collaboratively
on execution.

A CASE IN POINT:
OPTIMIZING PULL-THROUGH OPPORTUNITY
A large pharmaceutical company whose portfolio was increasingly
being influenced by payer dynamics needed to develop a sustainable way to optimize its sales teams pull-through efforts. The
company estimated that more than $100 million in pull-through
opportunities were going unrealized.
IMS created an opportunity index that better identified the
potential for each prescriber based on benefit designs covering
that prescribers patients. We then developed an operating plan
that detailed what the company required in terms of people
skills, tools, roles and responsibilities.
The new prioritization technique impacted 80 percent of the
companys call plans. Sales reps were given the tools they needed
and within 10 days, had delivered new messaging to a vast
majority of the companys prescriber universe.

3) ORGANIZATIONAL EXCELLENCE
3)

To design the commercial organization that is aligned with

the purpose and sized to the current and future
environment, companies will need to answer a series of
complex questions:
What is the optimal size for the commercial organization,
including sales, marketing and new functions to support
market access?
Which functions need to be put in place to cover
emerging stakeholders; for example, in-field roles for
market access or key account managers for payers?
What is the optimal marketing expenditure, and how
should it be allocated across the channels and stakeholders?
The goals of this phase of the project are to:
Align the marketing and sales organizations
Align the organization to the stakeholders in the market
Develop a customer-centric organization
At this stage, all of the preliminary planning begins to come
together to shape the organization that will be needed.

24 Understanding New Commercial Models - Issued June 2009

4) ENABLING CAPABILITIES
4)

The changes proposed, and ultimately made, to the

commercial model have the potential to touch upon a
wide range of business processes and IT systems within the
organization many of which may need to be altered to
support the new approach. Companies may also see this as
an ideal time to upgrade related processes and systems that
have been underperforming. Depending upon the types of
commercial changes they implement, companies may need
to address some of the following:
Closed-Loop Marketing
Customer Relationship Management and
Enterprise-wide Relationship Management
Account-Based Selling Applications
Key Account Management and Key Opinion
Leader Solutions
Incentive Compensation Plans
Contract Management
Business Processes and Standard Operating Procedures
Data Integration, Warehousing and Reporting
Master Data Management
Customer Masters
The goals of this phase of the project are to implement,
update or outsource the capabilities needed to support
the new commercial model. Typically, needed changes to
these supporting systems and processes are identified in the

THE IMPORTANCE OF PATIENT-LEVEL DATA

Patient-centric insights gained from anonymized patientlevel data (APLD) set the stage for a more effective
commercial strategy as well as for its implementation.
APLD gives you a multi-dimensional view of factors
influencing success with your new model. Specifically,
it can help you:
Assess the size and potential of a new molecule and
acurately gauge future performance
Focus on the right market access decisions early in the
brand lifecycle by offering proof of health outcomes
Understand the pathways of therapy and the
differences in patient utilization, characteristcs and
adherence patterns
Better segment physicians by truly understanding
their treatment patterns and gaining visibility into
their patient populations
Track the effectiveness of your consumer marketing
programs
Anonymized Patient-Level Data also enables you to
achieve greater alignment between your sales, marketing
and managed care organizationsa prerequisite for
success with your new commercial model.

The changes proposed to the

commercial model have the potential
to touch upon a wide range of business
processes and IT systems within the
organization.

Understanding New Commercial Models - Issued June 2009 25

Ensuring that the necessary systems

and processes are in place to support
the day-to-day operation of your new
commercial organization requires
close consultation and collaboration
with your IT leaders.

Addressing all stakeholders concerns to mobilize affiliates

and manage expectations accordingly
Conducting a thorough impact assessment
Communicating the vision and strategy so as to both
create understanding and foster buy-in
Developing training programs to impart the right
knowledge and model the right behavior
Evaluating progress based on facts and against key performance indicators in order to demonstrate quick wins

Strategic Planning stage and work proceeds in parallel with

the other planning and implementation phases of adopting
a new model.
How to Support the New Commercial Model
Ensuring that the necessary systems and processes are in
place to support the day-to-day operation of your new
commercial organization requires close consultation and
collaboration with your IT leaders. You must anticipate
how the architecture for everyday transactions such as
call planning, incentive compensation management,
training, sample documentation and expense reporting
should be redesigned.
5) COMMERCIAL TRANSFORMATION
5)

The transformation process truly begins the day that a new

strategy is first discussed. It underlies all of the other phases
of work and should be happening simultaneously with the
planning phases. However, it quickly becomes the dominant
activity when execution actually begins.
The goals of this phase are to deploy the new organization
and capabilities by country and to drive adoption while
managing risk. Successfully introducing a new commercial
model into an organization requires the skillful use of each
of the levers within a change management framework by:
Defining a comprehensive vision that aligns stakeholders
and makes the business case for change, generating a
sense of urgency

26 Understanding New Commercial Models - Issued June 2009

Fortunately, with the right approach, employees can be

guided along a path from awareness to acceptance.
How to Manage the Change
Successful transformations rely on best practices in change
management to:
Create a program office to manage concurrent projects
using a phased migration plan
Implement the new strategies such that all stakeholders
are aligned and risk is minimized
Develop milestones for each implementation area and
track progress
Maintain business as usual while undergoing the
transformation
Coach change agents within each division to ensure buy-in
Orchestrate training and simulation exercises, war games
and virtual worlds
A key to success in managing such a complex set of tasks is
continuously monitoring progress and making adjustments
as needed.

The transformation process truly

begins the day that a new strategy is
first discussed.

A CASE IN POINT:
ENSURING TRANSFORMATION SUCCESS
Having already received IMSs recommendations on a new sales
and marketing organizational structure, a multi-national company
operating in Taiwan was ready to implement the plan. The company
also wanted to define long-term goals and provide a clear
context for organizational change.
IMS clarified the companys long-term strategy and facilitated the
development of business unit strategies in support of the vision.
We then assessed stakeholder expectations, gauged individual
impacts, developed a comprehensive communications plan,
identified training needs and helped develop key performance
indicators at the department level.
Within 90 days, the new organization was put in place with only
minimal disruptions. Sixty days later the key performance
indicators were above expectations. Clearly, the organization
embraced the changes.

A CASE IN POINT:
ADAPTING TO A KEY ACCOUNT MANAGEMENT MODEL
A market-leading specialty care/diagnostics company was facing
new, aggressive competition and the expiration of a major
products patent. The client needed to apply the very best in
account-based selling techniques.
In four pilot countries in the EU, IMS performed a gap analysis
of key account management capabilities, developed local plans to
enhance skills, conducted simulation-based training, helped align
incentives and monitored progress.
The company transitioned to a key account model in just four
months and now operates with a best-in-class capability.

THE TECHNOLOGY IMPLICATIONS

Any new commercial model will most certainly
change or broaden your view of the customer. New
data assets will be required to monitor the impact
and refine the promotion to these new stakeholders.
These more-important-than-ever data assets could
include anonymized patient-level data, insights on
healthcare organization hierarchies and prescriber
affiliations and more detailed payer information.
Changes to your information requirements will
naturally lead to the need to edit, if not overhaul, the
information technologies that maintain your data
and commercial applications.
Any change to your view of the customer has
significant implications for how you manage your
customer master files. How should the data be
organized and integrated? What are your procedures
for governing the integrity of the information?
In turn, changes to your master file will affect your
data warehouse since your analytical needs will
change dramatically. For instance, for companies that
have moved to a localized commercial model, the
warehouse must support a 360 view of all customers
within each region.
Making these types of changes could trigger
technology upgrades as well as the decision to
outsource all or part of the operational support.

Understanding New Commercial Models - Issued June 2009 27

In Closing: A Vision of the Future

IMSs hope for the industry is that in two years time, most
companies will have faced the challenge and be emerging
with commercial models that are suited to the environment
and the times.
Our four original hypotheses were, indeed, borne out by
our research:
Promotional spending is being allocated similarly across
therapeutic categories, without regard to the fact that the
nature of those categories has changed in a way that
affects promotional returns
There has been a fundamental change in decision-makers,
with the payer eclipsing the physician in many markets.
Companies must change their commercial models in
more radical ways to take this into account.
Different markets are in different states, such that tailoring
a solution to the local environment is essential to success
There are successful alternatives to the current model
Thus, pharmaceutical companies urgently need a new
commercial model that will either 1) reduce their
investment in the commodity segment and shift it to other
segments that will deliver better returns or 2) apply new
strategies that leverage other aspects of their go-to-market
approaches. At the same time, they must consider other
strategies that engage new stakeholders and extend the value
proposition. Part of the latter is developing a holistic product
approach that goes beyond just offering a medication to
providing a health outcome.

28 Understanding New Commercial Models - Issued June 2009

Since the options for a new commercial model are numerous,

the considerations complex and the stakes high, we recommend that companies organize their thinking around
the IMS New Commercial Model Strategy Framework
(Fig. 15). Using this framework, they can evaluate each
direction systematically and employ strategies to varying
degrees that suit the circumstances with a geography,
therapeutic area or organization.
For many companies, the type of transformation required
to implement a new model will dwarf all past change efforts
and challenge all notions of what the organization is capable
of achieving. Yet, the process will be worth it. And those
companies that face the challenge now will emerge with
models that are suited to the environment and the times.
We believe that with the right base of information, a
strategic focus and a comprehensive planning framework,
companies can undergo such a transformation without
skipping a beat. IMSs end-to-end engagement approach
(which includes diagnostic assessment, strategy development,
organizational planning, related capabilities development
and transformation support) is designed to make the
journey a painless and successful one.

ABOUT IMS

IMS HEALTH

Operating in more than 100 countries, IMS Health is

the worlds leading provider of market intelligence to
the pharmaceutical and healthcare industries. With $2.3
billion in 2008 revenue and more than 50 years of industry
experience, IMS offers leading-edge market intelligence
products and services that are integral to clients day-to-day
operations, including product and portfolio management
capabilities; commercial effectiveness innovations; managed
care and consumer health offerings; and consulting and
services solutions that improve productivity and the
delivery of quality healthcare worldwide.

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