DIGITAL STRATEGIES IN THE PHARMACEUTICAL INDUSTRY

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1 DIGITAL STRATEGIES IN THE PHARMACEUTICAL INDUSTRY

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3 Digital Strategies IN THE PHARMACEUTICAL INDUSTRY Leonard Lerer and Mike Piper

4 Leonard Lerer and Mike Piper 2003 Softcover reprint of the hardcover 1st edition All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their right to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act First published 2003 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin s Press, LLC and of Palgrave Macmillan Ltd. Macmillan is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN ISBN (ebook) DOI / This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. Editing and origination by Aardvark Editorial, Mendham, Suffolk

5 Contents List of figures List of tables Acknowledgements List of abbreviations x xii xiii xv Part I An Introduction to Pharmaceutical Digital Strategies 1 Introduction 3 2 Principles of pharmaceutical digital strategy 9 Information technology in pharmaceutical companies 9 Introduction 3 Leading the IT transformation 13 Promoting digital innovation in the pharmaceutical industry 14 Conclusions the take home messages 15 The dynamics of the health sector implications for digital strategy 16 Introduction 16 Standards and the Health Insurance Portability and Accountability Act (HIPAA) 18 European perspectives 19 Global health systems implications for IT 19 Privacy 22 Conclusions the take home messages 22 v

6 vi CONTENTS 3 A decade of digital strategy in the pharmaceutical industry 25 Introduction 25 The dotcom bubble bursts 26 E-health in Europe 28 Conclusions the take home messages 29 4 Digital strategy is critical across the pharmaceutical value chain 31 Part II Digital Strategies: Research and Development 5 Digital strategies in research and development (R&D) 35 Introduction: changing paradigms in R&D 35 The human genome biology as an information science 37 Digital technology the future R&D market 39 The industrialization of R&D the role of digital technology 42 The transformation of drug discovery the role of digital technology 43 Digital strategy in drug discovery 45 Conclusions the take home messages 47 Personalized medicine 48 Introduction 48 Segmented medicine just around the corner 49 Implications for digital strategy 51 Conclusions the take home messages 52 E-clinical trials 53 Introduction 53 The clinical trials time-line and process 54 The application of e-clinical trials 55 Digital strategy in clinical trials 58 Conclusions the take home messages 61 Managing knowledge and collaboration 63 Introduction 63 Knowledge and collaboration tools 64 Digital strategy in knowledge and collaboration management 68 Conclusions the take home messages 69 Managing alliances and partnerships 70 Introduction 70 Types of alliance 71 Structuring alliances 73 Digital strategy in alliance management 74 Conclusions the take home messages 74

7 CONTENTS vii Part III Digital Strategies: Manufacturing, Supply Chain and Distribution 6 Digital strategies in manufacturing and supply chain 79 Introduction 79 The transforming supply chain 80 Traceability in the value chain 82 Supply chain networks and control 82 Digital supply chain strategies 84 Conclusions the take home messages 86 7 Digital strategies in pharmaceutical distribution 88 Introduction 88 A changing pharmaceutical procurement environment 89 Conclusions take home messages 92 Part IV Digital Strategies: Marketing and Sales 8 Digital strategies in marketing and sales 97 The potential for digital technologies in pharmaceutical marketing and sales Digital strategies in marketing to the physician 101 Introduction 101 Physicians and digital technology 103 Physician portals 105 Introduction 105 Best practice in physician portals 106 Conclusions the take home messages 108 Customer service centres (CSCs) 109 Introduction 109 Integrating CSCs into digital strategies 109 Conclusions the take home messages 111 E-detailing 111 Introduction 111 E-detailing strategies 113 Conclusions the take home messages 115 Customer relationship management (CRM) 117 Introduction 117 Implementing CRM 119 Sales force automation (SFA) and electronic territory management systems (ETMS) 121

8 viii CONTENTS Wireless and other functionalities 122 Managing CRM data 123 CRM strategy 126 Conclusions the take home messages Digital strategies in marketing to the consumer 131 Consumer activism 133 Direct-to-consumer (DTC) advertising 135 Introduction 135 DTC advertising a double-edged sword 137 E-DTC strategy 137 Conclusions the take home messages 141 Consumer portals 143 Introduction 143 Portals in the consumer marketing mix 143 Consumer protection 145 Consumer portal strategy 146 Conclusions the take home messages 149 Patient relationship management (PRM) 150 Introduction 150 PRM strategy 152 Conclusions the take home messages 155 Part V Digital Strategies: Health Service Delivery 11 Digital strategies in health service delivery 159 E-prescribing and e-pharmacies 162 Introduction 162 Regulatory constraints 163 Conclusions the take home messages 164 Managed care and health insurance 166 Introduction 166 E-managed care 167 Health insurance 168 Conclusions the take home messages 170 Disease management 170 Introduction 170 E-disease management strategy 173 Conclusions the take home messages 174 The electronic medical record (EMR) 176 Introduction 176 Acceptance of the EMR 176 Conclusions the take home messages 178

9 CONTENTS ix Evidence-based medicine (EBM) 180 Introduction 180 The impact of EBM 180 Conclusions the take home messages 183 Telemedicine 184 Introduction 184 Telemedicine applications 185 Conclusions the take home messages 188 Part VI Managing Digital Strategies 12 Digital technology management in the pharmaceutical industry 191 Managing digital organizations 192 Introduction 192 Leadership in digital strategy 194 Roles in pharmaceutical digital strategy 194 Conclusions the take home messages 196 Managing digital processes 197 Introduction 197 Segmentation 197 Alliance management 202 Return on investment 204 Conclusions the take home messages 206 Managing digital technologies 208 Introduction 208 Core technologies 209 Digital R&D technologies 213 Supply chain and marketing technologies 215 Conclusions the take home messages 219 Part VII The Future 13 The future of pharmaceutical digital strategy 223 The health information chain 225 Closing comment the challenge of digital organizations 225 References 226 Index 235

10 List of figures 1.1 Expenditure on health as a percentage of GDP Management of US health claims (millions) E-initiatives across the pharmaceutical value chain (2001) R&D expenses as a percentage of sales US-based pharmaceutical firms Biosciences market IT revenue is expected to grow with a CAGR of 52 per cent Biosciences IT revenue split (2000 and 2004) The economics of personalized medicine require careful consideration The clinical trials process Significant advantages of web-enabled or patient diary data capture systems (base: 400 trial professionals in 2001) Proportion of trials using the web for data collection in 2001 and 2003 (base: 400 trial professionals) Licensing as a percentage of R&D spending (survey of large pharmaceutical companies) Percentage of healthcare companies with an IT strategy in place to support collaboration with partners (base: 60 healthcare professionals, 2000) Percentage of products with universal product codes (2001) Pharmaceutical distribution a simplified schematic 89 x

11 LIST OF FIGURES xi 7.2 Percentage of European hospitals procuring on the Internet (2001 and 2003) Traditional push promotional channels Relative importance of channels in 2002 and 2007 (survey of 60 senior pharmaceutical industry executives) Sales and marketing expenses have increased while the revenue generated by that spending has decreased US physician Internet use (2001 survey of 201 physicians) What are your top complaints about sales representative detailing? (2001 online poll of 201 US physicians) Customer touch points An idealized CRM schematic Analytics turning passive customer data into targeted action Pharmaceutical sales and marketing spend as a percentage of sales in the US The DTC cycle Reasons why consumers visit pharmaceutical websites (2000) Methods used by pharmaceutical companies to measure ROI of online advertising (2001) Trusted providers of healthcare information for German and Swedish consumers (2001) Consumer touch points An idealized PRM schematic Barriers to expanding Internet use in 25 European hospitals (2001) The four stages of disease management Top barriers to effective e-implementation (2001 survey of 101 pharma execs) Some common pitfalls in digital strategy implementation Model of the interaction between different patient and carer segments with proposals for support materials and interactive tools When is partnering with a best-of-breed provider a sensible approach to growth opportunities? Modelling ROI for digital technology based on reduced cost of sales and increased sales Incremental improvements in digital technology strategy 207

12 List of tables 2.1 IT employees by pharmaceutical company (2001) Utility of the Internet as perceived by US physicians and practice administrators (2000) Summary of the healthcare systems in six European countries (2002) Hurdles to e-health, pan-european expansion Number of contract manufacturers in North America and Europe ( ) Gross margins and inventory turnover of indicative companies (2000) Changing manufacturing environment a blue-skies prediction Contrasting ERP and CRM Key pharmaceutical CRM findings and implications The ten most promoted DTC drugs in the US (2000) Ratio of US DTC and DTP spending for five drug classes Consumer PRM solutions What patients with Internet access would like to do online (2002) Comparison of segmentation approaches Micro-segmentation of opinion-leaders into four groups ROI model for a disease website Working definitions of online marketing actions 218 xii

13 Acknowledgements The success of this endeavour is directly attributable to the pharmaceutical, medical device and biotechnology senior managers who have freely shared their experiences with us. Similarly, we thank all the vendors and consultants in the burgeoning field of e-pharma for allowing us access to a wide range of materials. Leonard Lerer wishes to recognize INSEAD, where he worked as a researcher and teacher. INSEAD elab is thanked for providing a grant for research travel. Cap Gemini Ernst & Young supported research projects into life sciences e-business and customer relationship management and is thanked for an excellent collaboration. We would like to thank Stephen Rutt of Palgrave Macmillan for his immediate enthusiasm and support for this project. LEONARD LERER leonard.lerer@lbsegment.com MIKE PIPER mike.piper@lbsegment.com The authors and publishers wish to thank the following for their permission to use figures and tables: Advanstar Communications for Table 6.1; Boston Consulting Group for Figures 5.4 and 10.5; Cap Gemini Ernst & Young for Table 9.2 and Figures 4.1, 9.1, 9.7 and 12.1; Forrester Research for Table 6.2 and Figures 5.6, 5.7, 7.2, 9.3, 9.4, 10.2, 10.4 and 11.1; Harris Interactive for Table 11.1; IDC for Figure 5.2; Jupiter Media Metrix for Figure 10.3; the Medical Broadcasting Company for Table 10.3; PricewaterhouseCoopers for Figure 5.9; S. Rangan and R. Adner (INSEAD Working Papers) for Figure 12.4; Red Herring for Table 3.1; Rosetta Marketing Strategies for Figure 9.2; Brian Smith, Managing Editor and the International Journal of Medical xiii

14 ACKNOWLEDGEMENTS xiv Marketing for sections of an article published by Leonard Lerer; and ZS Associates for Figures 9.5 and We have attempted to acknowledge all sources and trace the copyright holders when required, but in the rapidly evolving world of life sciences digital strategy we may have inadvertently overlooked some sources. Please inform us and we will attempt to make the required arrangements as soon as possible.

15 List of abbreviations AMA API B2B B2C CAD/CAM CAGR CME CRM CRO CSC CTM DTC DTP EBM EC EDC EDI EMR EPA ERP ETMS FDA GDP GMP GPO IP American Medical Association application programming interface business-to-business business-to-consumer computer-aided design/computer-aided manufacture compound annual growth rate continuing medical education customer relationship management contract research organization customer service centre clinical trial management direct-to-consumer direct-to-physician evidence-based medicine European Commission electronic data capture electronic data interchange electronic medical record Environmental Protection Agency (US) enterprise resource planning electronic territory management systems Food and Drug Administration (US) gross domestic product good manufacturing practice group purchasing organization intellectual property xv

16 LIST OF ABBREVIATIONS xvi MCO NIH OTC PRM P2P PDA R&D ROI SFA XML managed care organization National Institutes of Health (US) over-the-counter patient relationship management peer-to-peer personal digital assistant research & development return on investment sales force automation extensible Markup Language