Business model innovation in pharma and medtech: Watching the birth of a new salesman

Amazingly, it was an army of sales reps, commission-paid road warriors equipped with samples and cheap pens, that delivered decades of economic success in the pharmaceutical industry. But this is changing in a big way. Increasingly, companies are turning to digital tools as a way of extracting maximum value from sales and marketing expenditures. This is taking place in a climate of growing price-control pressures and physicians who often refuse to see representatives carrying only promotional messages.

Historically, physicians have played a foundational role in the medical industry’s innovation and commercial models. Physicians are central in development and clinical evaluation processes of new technologies. They have been key decision-makers and users, thereby driving technology adoption. Despite large unmet medical needs globally future new technology adoption is likely to be more constrained as payers and health care providers assume increasingly important roles in the product utilization decision-making process.

The global financial crisis and health care reforms have accelerated the long-term trend of payers and providers requiring transparency in pricing, on-label indications for reimbursement and, increasingly, comparative effectiveness data. Quoting Jim Gilbert, who recently joined Welsh, Carson, Anderson & Stowe, one of the largest private equity firms investing exclusively in information services and health care industries, “To support changing decision-maker roles and criteria, globalization and margin pressures, alternative channels versus direct sales representative contact will become increasingly important, including e-channels, along with vendor-neutral comparative effectiveness and physician education organizations.”

Large industry players have already recognized that commercial resource investment has to be optimized globally with the model and investment level tailored to each market’s decision-making model, profitability and product life cycle. As more health care providers move into large health systems or integrated delivery networks where decisions on purchasing and utilization are made from a central office, sales professionals can offer more value to health care providers by working in a different way. For example, AZ eliminated most detailing of Nexium, a mature brand in its portfolio, and established a 300-person call centre that provides for most doctors’ basic needs for samples, reimbursement information and patient materials. By having a call centre and an internet site where doctors can order materials and samples, AZN says it can adequately meet the needs of many prescribers at a lower cost.

So, what is going on? Seems to me that there are perfect opportunities for all industry players to approach business model innovation systematically. Personally, I am a fan of Keeley’s methodology and it is now evident that many companies are experimenting and piloting a number of these new business models.

For example, GlaxoSmithKline implemented a new system for evaluating and compensating its sales professionals beginning in 2011. Under the new system, bonuses will no longer be based on individual achievement of sales targets, but will be based primarily on the service they deliver to customers. This is a major experiment for a company with a large sales force.

Will these experiments ultimately lead to a displacement of the current commercial infrastructure? I believe new business tools, especially in health IT, will provide the means for all participants in the health care ecosystem to create fundamentally new business models and corresponding organizational structures.

MaRS works with many new players in the health IT sector and the new report Consumer Digital Health offers insights into how new entrants are re-defining the health care experience in Canada and around the world.