How big pharma might use manufacturing as a strategic marketing tool

In the good old days big pharma earned attractive returns by bringing differentiated, patent protected products to market, supporting them with robust sales and marketing programs, and making intelligent use of a variety of communications channels to physicians, and –for the last decade– consumers.As pipelines dried up and the generic industry became more sophisticated and aggressive, big pharma adjusted its tactics. In product development it’s turned to in-licensing, creating new formulations (especially extended release products), and combination products. Big pharma has combated generics in the courtroom, introduced “authorized generics” that cut into the profits of the initial generic supplier, and attempted to bundle multiple products into its contracts with payers.

It’s been a losing battle, though and new tools are needed. The current wave of cost cuts and acquisitions of smaller firms won’t be decisive.

It’s unlikely that big pharma will succeed in reviving its pipelines anytime soon, but there are things the industry could try.  For example, if branded pharmaceutical companies can demonstrate better clinical results through medication adherence programs, they may be able to make the argument that they are selling a “solution” rather than a product. Instead of losing roughly 90 percent of their sales when generic competition begins, maybe they can cut it to 50 or 60 percent. That will make a huge difference –if pharma can pull it off. I haven’t seen much indication yet that this strategy will be pursued in a serious way or that big pharma can execute.

The recent Heparin scandal makes me think that there is another opportunity. That is, rather than shifting production to low-cost locations such as China, as big pharma seems to be doing, why not deploy a manufacturing network strategy that is deliberately more expensive but more assured? Only make products in Europe, North America, Japan, Singapore and their ilk, and don’t accept any inputs from questionable sources.

Then make the pedigree of the finished products and their components a significant part of the marketing/educational campaign to payers, pharmacists, and patients. Since the cost of goods sold for branded products is so low (typically 5-15 %), it won’t matter so much if those costs rise. On the other hand, generic companies are really pressed to offer the lowest possible price and they need to shave costs wherever they can.

Of course it would be unseemly to cast aspersions on competing products based on their manufacturing quality, but because of the publicity surrounding the Heparin recall and problems with Chinese products in general awareness is already high and the customer will make the connection.

A Pharmaceutical Executive article about the Heparin recall sums up the current view on China:

“Greed is universal. But in China, it is especially dangerous because of the lack of regulations and enforcement,” says Wang Fei-ling, an expert in Chinese policy at Georgia Institute of Technology. “That combination creates rampant corruption, which is the most serious problem China faces.”

Pharma companies that can afford not to manufacture in China might be wise to keep that observation in mind. I believe there is a profitable niche available for products going off patent that want to compete on manufacturing quality and pedigree.

April 23, 2008

3 thoughts on “How big pharma might use manufacturing as a strategic marketing tool”

  1. If you look around, there so many online pharmacies that are out there on the Internet.

    I doubt their quality of their drugs sometimes and I guess most of them are out to make a quick profit only without thinking about the patients who are consuming them.

  2. David:

    You make some very good points. On a personal note, one of the meds I take was dropped from my insurers formulary, and the cost jumped up to $75 from a $20 co-pay. I asked my pharmacist if there was a generic, they said yes, at a $15 co-pay. I asked my MD and he said it was basically the same. I do not know what the generic is, and I still refer to it as the branded product, but the pharmaco is not getting my business.

    If there was a reason for me to spend and extra $60 a month, would I?

    As far as medication adherence solutions, they are needed. 1 in 2 patients are non-adherent to their medications with 84% citing simple forgetfulness as the reason.

    My company, Intelecare has developed a proprietary notification platform that allows patients and caregivers to create and manage medical reminders delivered via email, text and voice messaging. We license our technology to industry as a hosted or enterprise adherence solution. Not only are daily medication reminders available, but also prescription refills, doctors’ appointments, vitals monitoring, as well as space to create a personal message.

    Our platform is a lifestyle based adherence program, that works in concert with patients and caregivers lives. More pharma brands are adding reminders into their CRM programs to ensure their patients stay on their drugs, instead of switching. Not only does it ensure brand retention, it also provides for healthier outcomes, allowing better results for doctors to report, and further recommend the brand as opposed to the generic – which has no CRM program, no reminders, no retention – just a lower price.

    Do I want to buy my pre-owned car from BMW who has a customer relationship program or from the used car dealership that will make me a deal and say goodbye after they cash my check?

    As transportation costs escalate, does it make sense for pharma to bring drug production closer to their markets? South America /Canada for North America and continent based manufacturing & distribution for the rest of the world?

    I take three meds and I do not know where they are manufactured. Ia have never really thought about it. All I want to know is that they are safe. To add another jab at China, I was looking to buy some toys for my son, and every time one was manufactured in China, I passed.

    So I will pay more for a product for my son NOT made in China, so if I knew where my meds were coming from, would I then pay more for that safety guarantee? I do pay more for Organic Certified beef, produce, milk, etc….

    Should pharma marketing involve manufacturing locations, and a freshness stamp like Budwiser? Will the consumer pay for those guarantees? When their safety and the safety of their family comes into play, I would say yes, if they can afford it. I am interested to see if this type of marketing will become a trend.

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