Merck n phizer lsn 2 Flashcards
what are the structural characteristics of the industry
-High R&D investments, up to 14% of the sales. compared to 4% of other industries.
-Long and costly drug development which can take 800 million in the 21st industy compared to the 139 m of the 19th
-regulatory hurdles by the FDA, this can affect the label of the drug which co-relates with the potential market and relevant patient in its popularity
- Consolidation through mergers and acquisitions, the value of mergers exceeded 1 trillion btnn 1985 - 2005
- Presence of both large pharmeceutical companies and smaller biotech firms
- Theuraputic category focus. where programs focus on specific diseases in their expertise
- importance of maketing and sales, this is a way to promote drugs through doctors to patients
- generic drug competition - once patents expire the industry faces competition fro generic drugs
- global market
- differential pricing strategies where depending on the country due to the goverment intervention and income disparities between countries it leads to gray markets where drugs are bought inexpensively in one country and resold in another
- influence of technology such as genomics where personalized drugs are being made and outsourcing to cheaper areas is done
-
what is the drug pipeline
discovery
preclinical biological test
clinical trials 3 phases
approval 4th pase
What is “rational drug design,” and how has it changed drug development?
this the modern approach to drug developmnet where scientists design compounds to target specific disease causing mechanisms or pathways at a molecular level, This is in contrast to traditional methods where drug compounds were identified by screening libraries of compounds
Methodology: This approach is heavily reliant on advances in molecular biology, combinatorial chemistry, high-throughput screening, and computer modeling.
■
Combinatorial Chemistry and high-throughput screening allow companies to screen up to 100,000 new compounds each year. * Computer modeling enables scientists to simulate the effects of compounds at the molecular level before even synthesizing the actual drug.
○
Impact:
■
Acceleration of Drug Discovery: Rational drug design has significantly accelerated the drug discovery process by allowing scientists to focus their research on targeted pathways.
■
More Precise Drugs: It has enabled the development of more precise and effective drugs, reducing the reliance on random screening methods.
■
Personalized Medicine: It is also the foundation for the development of personalized medicine, where drugs are tailored to an individual’s genetic makeup or specific disease characteristics
How do genomics, proteomics, and pharmacogenomics impact the pharmaceutical industry?
These fields are revolutionizing the pharmaceutical industry by enabling the development of personalized medicine:
○
Genomics: The study of the entire genome which allows scientists to understand the genetic basis of diseases.
○
Proteomics: The study of proteins, it focuses on identifying the proteins involved in disease processes and creating drugs that target those proteins.
○
Pharmacogenomics: It focuses on how an individual’s genetic makeup influences their response to drugs. This allows for the development of drugs that are specifically tailored to an individual’s genetic profile, increasing efficacy and reducing side effects.
○
Personalized Medicine: This involves designing drugs based on an individual’s genetic profile which will pinpoint the underlying cause of the disease and allow for more effective treatment. This approach has the potential to make drug development more efficient, by allowing companies to focus on drugs that are more likely to be effective for a specific population
What are the roles of Managed Care Organizations (MCOs) and Pharmacy Benefit Managers (PBMs)?
Managed Care Organizations (MCOs):
■
Cost Management: MCOs, such as HMOs (Health Maintenance Organizations), aim to manage healthcare costs by controlling access to care, negotiating prices with providers, and focusing on preventative care.
■
Patient Volume: MCOs work to have doctors see more patients per day, reducing the time sales reps have with physicians.
○
Pharmacy Benefit Managers (PBMs):
■
Aggregated Purchasing: PBMs aggregate purchases across MCOs to negotiate discounts with pharmaceutical companies. For instance, Caremark, the largest PBM, dispenses about 530 million patient prescriptions per year. PBMs can receive discounts of up to 40% from pharmaceutical companies.
■
Formularies: PBMs use formularies, which are lists of preferred drugs, to guide doctors to prescribe less expensive drugs. These formularies are often closed, meaning that they reimburse different amounts depending on which tier a drug falls into.
■
Generic Substitution: PBMs also encourage pharmacists to substitute generic drugs for brand-name drugs whenever possible, to lower costs.
■
Negotiation Power: PBMs negotiate volume discounts on individual drugs and overriding discounts that encourage a formulary to substitute all of a firm’s drugs for their therapeutic equivalents. Such deals can move market share
How do pharmaceutical companies typically market their drugs?
○
Sales Force Detailing: Traditionally, pharmaceutical companies employ a large sales force, often called “reps,” to call on doctors and other healthcare workers. This process, known as “detailing,” involves promoting the company’s drugs to physicians in an attempt to influence their prescribing behavior.
■
“Dine and dash” events where doctors were invited to dinners in return for little more than receiving literature on a new drug were prevalent but have become less common due to regulations.
○
Free Samples: Providing free samples of drugs to doctors is a common marketing tactic and is still considered effective. It has been estimated that 50% of doctors require samples before prescribing a drug. The retail value of free samples often exceeds total promotional spending.
○
Direct-to-Consumer Advertising (DTCA): In some countries, like the United States, pharmaceutical companies use direct-to-consumer advertising to promote drugs, often targeting specific patient populations.
○
Online Rep Visits: To confront obstacles such as limited face time with physicians, sales reps have begun using the internet to virtually visit doctors. This is a cost-effective strategy that has reduced costs from $200 for an in person visit to $110 for an online session.
○
Marketing to Payors and PBMs: Pharmaceutical companies also market directly to MCOs, large payers, and PBMs.
○
Product Labels: The FDA imposes severe restrictions on what can be claimed as a drug’s benefits, and the “label” which describes the chemical composition, dosage, side effects and safety issues, defines a drug’s potential market.
●
Use of Opinion Leaders: Pharmaceutical companies work with opinion leaders to build brands and influence prescribing standards
What are the core strategic differences between Merck and Pfizer?
Merck:
■
Focus on R&D: Merck traditionally focused on in-house research and development (R&D), striving to develop new drugs by attracting top scientific talent.
■
“Good Science”: They aimed to develop unique drugs with “effective science” and to create new markets by doing “good science”.
■
Internal Capabilities: Merck believed in having internal scientific capabilities that would complement their external partnerships. They wanted to evaluate and build on their partner’s expertise.
■
Less Emphasis on Marketing: Initially, Merck undervalued marketing, and only later recognized the importance of external partnerships.
○
Pfizer:
■
Marketing Powerhouse: Pfizer is known as a marketing powerhouse, leveraging a large and well-trained sales force.
■
Acquisitions: Pfizer grew primarily through acquisitions of other firms and drugs rather than through in-house development.
■
Less Emphasis on R&D: They focused less on basic science and more on leveraging their marketing and sales capabilities to sell a broad line of drugs. Pfizer was also known for bundling drugs in negotiations with PBMs.
■
“No Unique Drug”: According to the slides, Pfizer bought firms to acquire drugs and did not have unique drugs in each therapeutic category
What was Merck’s approach to R&D, and how did it evolve?
○
Initial Approach: Historically, Merck’s R&D strategy was characterized by:
■
In-House Discovery: A strong focus on internal research and discovery processes, with the goal of identifying and developing novel, “blockbuster” drugs, often regardless of specific therapeutic area.
■
Attracting Top Talent: A focus on hiring top scientists, offering them competitive compensation and a favorable research environment. Many scientists moved between industry and academia and some were reluctant to move to new labs because of disruptions to their research.
■
Centralized Research: Research was often conducted in large, centralized labs .
○
Evolution: Merck’s R&D approach evolved due to several factors:
■
Increased Costs and Risks: Rising R&D costs and the increasing complexity of drug discovery led Merck to realize that internal R&D was not sufficient.
■
Shift to Open Innovation: Merck began to recognize the need for external collaborations and partnerships to remain competitive. They moved to partnerships in collaborative basic research, not just purchasing the marketing rights to fully developed drugs.
■
Decentralization: R&D was decentralized into smaller labs, and Merck began to seek outside alliances to keep up with cutting-edge science .
■
External Alliances: Merck dramatically increased its alliance activity, signing an average of 47 deals per year after an initial shift in strategy.
■
Priority Disease Areas: In 2006, Merck narrowed its research focus to nine priority disease areas including Alzheimer’s disease, cardiovascular disease, diabetes, and cancer
How did Merck’s marketing strategy evolve?
○
Initial Underestimation of Marketing: Merck initially placed less value on marketing, and focused primarily on the science behind its drugs .
○
Shift to Key Franchise Management: Merck later shifted to a “key franchise” management approach, focusing on the life-cycle management of therapeutic categories.
○
Data-Driven Approaches: They adopted data-driven approaches in marketing, including segmentation, targeting and positioning.
○
Restructuring and Sales: They reduced the number of reps visiting doctors about the same drug, and organized their sales forces around top-selling drugs in specific categories.
○
Emphasis on Value-Added Information: Meetings with physicians were designed to add value through information, demonstrating the efficacy and cost-effectiveness of the drugs being discussed.
○
Cross-Functional Coordination: Emphasis was placed on cross-functional coordination, such as worldwide business strategy teams for each therapeutic category and an increased role for marketing in the design of clinical trials.
○
Operational Excellence: Operational excellence in all functions was stressed as a way to reduce costs and cut time to market
What was Pfizer’s approach to sales and marketing?
○
Large Sales Force: Pfizer had the largest sales force in the industry, with nearly 9,000 reps. The company invested heavily in training its reps, with training including 40 simulated sales calls.
○
Aggressive Sales Tactics: The company’s sales force was known for being “enormous, well-trained and aggressive,” and was consistently ranked highly by physicians. Reps were trained to rehearse 30-second briefs, and to reach physicians multiple times.
○
Evaluation Metrics: Pfizer evaluated its reps on “reach and frequency,” tracking the number of doctors and number of visits per doctor that each rep tallied.
○
High Advertising Budget: Pfizer had a large worldwide advertising budget, which reached $3.5 billion in 2005, lagging behind only GM, Procter & Gamble, and Time Warner in advertising expenditure.
○
“Partner of Choice”: Pfizer positioned itself as the “partner of choice” for biotech firms, offering its marketing muscle to promote their new drugs.
○
Drug Bundling: Pfizer used its scale and market position to bundle drugs in negotiations with PBMs
What challenges did Merck face in the early 2000s?
○
Vioxx Litigation: Merck faced major litigation due to the drug Vioxx, which was voluntarily withdrawn from the market in 2004 after it was found to increase the risk of cardiovascular incidents. By 2006, Merck faced 14,200 lawsuits covering almost 30,000 patients. The estimated liability ranged from $4 billion to $25 billion.
○
Patent Expirations: Merck faced the expiration of patents on several key drugs, including Zocor, Fosamax, and two others by 2012. The expiration of Zocor, one of its blockbuster drugs, resulted in the entry of generic competitors and a decline in sales.
○
Need to Cut Costs: In 2005, Merck announced a restructuring program to cut costs and speed up production times by closing manufacturing plants and research labs. The company laid off 7,000 employees and aimed to save $3.5 to $4 billion from 2006 to 2010.
○
Flat R&D Spending: Despite the need for innovation, spending on R&D was held flat, which worried investors who were skeptical of the company’s ability to replace its blockbusters.
○
Research Focus: Merck needed to narrow their research focus to be more strategic
What was the “even-year curse” for Merck?
he “even-year curse” referred to the pattern of significant patent expirations for Merck’s blockbuster drugs in even-numbered years:
○
Zocor (2006): The patent for Zocor, a cardiovascular drug, expired in 2006, resulting in competition from generics.
○
Fosamax (2008): The patent for Fosamax, a bone metabolism drug, expired in 2008, again leading to generic competition.
○
Other Major Drugs (2010 and 2012): Merck also faced the expiration of patents on two additional major drugs in 2010 and 2012 . This pattern put significant pressure on Merck’s revenue and underscored the importance of continuously developing new products to replace those losing patent protection .
What are some of the trends that are impacting the pharmaceutical industry?
○
Personalized Medicine: The shift towards personalized medicine, driven by advances in genomics, proteomics, and pharmacogenomics, is fundamentally changing how drugs are developed and prescribed.
○
R&D/MKTG Integration: There is a growing recognition of the importance of integrating R&D and marketing efforts. Companies are increasingly involving marketing teams in the design of clinical trials to ensure drugs meet market needs and are effectively positioned.
○
Open Innovation: The move towards open innovation is a trend where pharmaceutical companies are collaborating with external partners, such as biotech firms, academic institutions, and other companies, to leverage external expertise and resources.
○
Emerging Countries (Demand and Supply): There is a shift of R&D to Asia and a rise in demand for pharmaceuticals in emerging countries. Developing countries are also producing generic drugs at a lower cost than in developed countries, and there are increased efforts to make drugs more accessible in these countries.
○
Niche Drugs and Incremental Innovation: There is an increasing focus on niche drugs and incremental innovations, including reformulations of existing drugs.
○
Orphan Drugs: There is an emphasis on developing drugs for rare diseases with limited cures, often with fast-track approval processes in the FDA.
○
Prevention and Diagnostics: There is a growing recognition of the importance of prevention and diagnostics, driven by the availability of big data and new technologies.
○
Increased Scrutiny of Drug Pricing: There is increased public and governmental scrutiny of drug pricing, and a demand for more cost-effective treatments
hat is the significance of “me-too” drugs in the pharmaceutical industry?
○
Definition: “Me-too” drugs are follow-on drugs that are similar to existing medications, often developed to compete with blockbuster drugs. These drugs may differ slightly in their chemical composition, or method of delivery.
○
Competitive Strategy: Companies develop “me-too” drugs to capture a portion of the market from existing blockbusters, especially when patents are expiring or when there is a significant therapeutic need. These drugs can still be useful by offering therapeutic choices to patients.
○
Impact on Exclusivity: The development of “me-too” drugs has reduced the time that a breakthrough drug benefits from market exclusivity, decreasing from a median of 10.2 years in the 1970s to 1.2 years in the late 1990s. This results in companies facing competition from other firms much more quickly.
○
Focus on Market Share: The prevalence of “me-too” drugs demonstrates the pharmaceutical industry’s focus on market share, often at the expense of innovation, with about 14% of drugs approved by the FDA between 1998 and 2002 considered by the agency to be “a significant improvement” over existing products
What is the impact of generic drugs on the pharmaceutical industry?
○
Competition: Generic drugs are a significant source of competition for brand-name pharmaceutical companies. They enter the market after a brand-name drug’s patent has expired and offer a lower-cost alternative.
○
Erosion of Market Share: When a generic version of a drug is introduced, it often captures a significant portion of the market share, leading to a rapid decline in sales for the brand-name product. For example, Merck lost the protection for its patent on Zocor in 2006, leading to the loss of sales to generic competitors.
○
Pricing Pressure: Generics significantly reduce the price of drugs.
○
Impact on Revenue: Generic competition forces pharmaceutical companies to continually innovate and develop new drugs to maintain revenue and growth. The growth of the generic market has led some pharmaceutical companies to obtain patents on component chemicals and manufacturing methods and to attempt product reformulations.
○
Growth of Generics: The generics market grew significantly, from accounting for less than 20% of the volume of prescription drugs sold in the U.S. in 1984, to 56% in 2005.
