The Growing Need for Channel-level Strategies and Tactics – Part 2

Posted on August 15, 2011 by Daniel Kinney

The pharmaceutical industry faces a challenging and changing business environment centered on significant changes occurring in the U.S. marketplace. The slowdown in R&D productivity, the increasing influence of managed care, loss of patent exclusivity and the growing predominance of generic alternatives, and a host of additional challenges are leading pharmaceutical companies to reconsider corporate strategies and redouble their drive for marketing and sales excellence. Many of these forces are ultimately reflected at the customer level, increasing the importance to manufacturers of channel- and customer-specific marketing strategies and tactics.

The development of these approaches, of course, begins with a solid understanding of channel- and customer-level dynamics and trends.

Pharmaceutical Sales by Channel

Despite the pace and intensity of changes in the broad business environment, the structure and composition of the channels through which prescription pharmaceuticals reach patients have remained relatively stable on a dollar basis over the last two years. Retail pharmacies continue to represent just over half of the dollar volume of products distributed to patients, as seen in the accompanying table, followed by mail order pharmacies at roughly 22% of sales. Driven by the attractive economics of mail order pharmacy generally and the growth of specialty pharmacy in particular, this channel has been the only channel to meaningfully expand its share of total pharmaceutical sales.

Pharmaceutical Sales by Channel

Within retail pharmacy, the relative shares of sales have been very stable across chain drug stores, independent pharmacies, and food store and mass merchant pharmacies. As shown in the table below, chain drug stores represent 51% of pharmaceutical dollar sales within retail, as they have for the last 2 years. Shares of independents (23%), food stores (13%), and mass merchants (13%) have also been highly stable.

Pharmaceutical Sales by Type of Store

When the relative share of sales are compared to the counts of stores across types of stores, general themes emerge as to the relative size of different types of pharmacies. Chain drug stores, which account for 51.2% of industry sales, represent only 38% of the 56,185 pharmacies in the U.S.. Although independents account for 30% of pharmacies in the U.S., they account for only 23% of sales. On average, chain drug stores are 1.8 times larger than independent pharmacies, and roughly the same multiple of food store pharmacies. Although mass merchants represent the smallest segment of retail pharmacies in the U.S., and less than 13% of stores, they tend to be slightly larger (1.2x) than either independents or food stores.

Conclusion

The pharmaceutical industry faces a challenging and changing business environment that is increasing the importance of channel- and customer-specific marketing strategies and tactics. The development of these approaches begins with a solid understanding of channel and customer-level dynamics and trends.

For this reason, IntegriChain has recently created its Channel Research Center, an initiative to leverage its intimate familiarity with store- and outlet-level transactional data to develop and deploy insights into important channel dynamics and issues on behalf of its broad and growing customer base. The information in this article is part of a series on retail pharmacy channel dynamics that will be regularly updated based on IntegriChain’s Enriched Channel Sales (ECS) Pharmacy information service.

If you would like to learn more about the Channel Research Center, IntegriChain, or ECS Pharmacy, or if you have questions about the contents of this article, please contact us.

Posted in Distribution Channel Management, Uncategorized | Leave a comment

The Growing Need for Channel-level Strategies and Tactics

Posted on August 9, 2011 by Daniel Kinney

Retail pharmacies have never been more important to pharmaceutical brand success.  The growing number of brand and generic alternatives across drug classes has increased the opportunities and incentives for therapeutic substitution, both to managed care payers and the pharmacies themselves.  With more alternatives, retail pharmacies have reduced appetite to stock new brand therapies, making launch stocking and inventory management a renewed challenge for pharmaceutical brands.  At the same time, the retail pharmacist has become an increasingly important source of patient information and influence – helping to navigate the range of available therapies, the complexities of managed care and pharmacy plans, and the growing number of patient discount card, coupon, and rebate programs.

Given this, it’s no surprise that a growing number of brand teams have tasked their field sales forces to re-prioritize the pharmacist in daily call plans.  Some commercial organizations have even created salesforces dedicated to the pharmacy and the retail pharmacist.Given the large number of U.S. retail pharmacies and the significant variation in size across pharmacies, it is important that any pharmacy effort take a targeted approach.

Makeup of U.S. Pharmacies

There are currently over 56,000 retail pharmacies in the U.S., including chain drug stores like CVS and Walgreens, independently owned pharmacies, and pharmacies located within food stores and mass merchants. Although chain drug stores represent the largest class of retail pharmacy, they account for less than 40% of all pharmacies. Independents (30%), Food Stores (17%), and Mass Merchants (14%) each represent important subsets.

Relative Size: The Importance of Targeting

More importantly, pharmacies differ meaningfully in size and composition, both across and within these broad classes of retail pharmacies. Prescription volume is concentrated in large pharmacies. The largest 9,000 pharmacies (roughly 17% of the total number of pharmacies) account for 50% of prescription volume in the U.S..The difference between large and small pharmacies can be considerable. The largest pharmacies – decile 10 pharmacies – are on average 35 times larger than the nearly 24,000 decile 1 pharmacies. Having a clear understanding of that targeted group of pharmacies that will drive the majority of a brand’s prescription volume is clearly critical to getting the most out of promotional resources.

As might be expected, chain drug stores tend to be larger than independent, food stores, or mass merchant pharmacies, comprising over 60% of pharmacies in the top 3 deciles. As can be seen in the accompanying charts, however, independent pharmacies represent nearly a quarter of the largest pharmacies, and can be critical sources of prescription influence in the markets they serve. Although food stores and mass merchant pharmacies are also represented among the largest pharmacies, they tend to be smaller and are over-represented among the bottom 3 deciles. All types of pharmacies, however, are represented across the spectrum of size, underscoring the importance of pharmacy-level insight and prioritization.

Conclusion

Retail pharmacies are playing an increasingly important role in patient engagement, influence, and pharmaceutical brand selection. Leading pharmaceutical companies are re-prioritizing the pharmacy in their promotional efforts and call plans. The composition and concentration of this important channel, however, call for a targeted approach driven by granular, store-level understanding.

If you have questions about this article, or would like to discuss IntegriChain’s ECS Pharmacy information service, please contact us.

Posted in Channel Data Warehousing, Distribution Channel Management, Uncategorized | Leave a comment

Déjà vu and Leveraging Channel Data

Posted on June 21, 2011 by Daniel Kinney

Déjà vu

As someone previously responsible for the quality of prescription data in a major pharmaceutical company, I experienced an acute bout of déjà vu when I saw the recent news that CVS Caremark has been awarded the contract to provide mail order and specialty pharmacy services for the Blue Cross and Blue Shield Government-wide Service Benefit Plan, also known as the Federal Employee Program (FEP).  CVS Caremark is in effect winning the business back form Medco, who won it from Caremark in 2008.  When the business moved from Caremark to Medco in 2008, it resulted in a major disruption in projected prescription data for the pharmaceutical industry and highlighted some of the challenges data providers face in producing projected prescription data.

Prescription Data Quality Issues

Not that data quality issues with prescription data are anything new.  They’ve become all too routine, as pharma professionals involved in brand management, forecasting, and sales operations can readily attest.  That’s not to knock the major data providers– they have their work cut out for them and face several key challenges in accurately projecting prescription volumes, including: incomplete samples; samples that are not representative for certain products; limited visibility in mail order; and, managed care providers blocking data.  Pharmaceutical company customers frequently receive updates regarding these types of data issues – and the significant impact they have on their projected prescription data.

Covering more than 5 million lives, the FEP is a large blocked book of prescription business for which the data providers must ultimately project brand-by-brand prescriptions (and shares).  When the FEP moves from Medco to CVS Caremark at year-end, the data providers’ projection methodologieswill result in shifts in the national projected totals for virtually all prescription-bound brands in the U.S. — as they did in January 2008 when the FEP moved from Caremark to Medco.  This shift will not reflect a change in actual dispensed prescriptions within the FEP, but rather result purely from the projection methodologies.

These data quality issues matter, of course, because pharma companies depend on these data week-in and week-out for brand management, forecasting, and sales force operations up to and including incentive compensation.  When prescription data are discovered to be inaccurate, the discovery leads to a wrenching – and expensive – process of quantifying brand-by-brand misstatement, reprojecting historical data, and then revising core forecasts, brand analytics and scorecards, and even incentive compensation payouts.  Beyond the one-time re-setting of forecasts or payouts, the regularity of these problems undercuts confidence in the accuracy of the data themselves, and leads to extensive nonproductive exercises debating whether observed performance issues are in fact real…or simply issues with the underlying data.

Leveraging Channel Data

Although there is little that can be done to address the underlying challenges to prescription data samples or projection methodologies, leading pharmaceutical companies are taking steps to proactively monitor the quality of their core prescription data, isolate quality concerns by brand and channel, and ultimately enhance the quality and utility of their prescription data.

The answer lies in the application of channel, or wholesaler sell-in data (EDI 867), the scope and availability of which have been growing in step with fee-for-service wholesale agreements.  In a typical fee-for-service arrangement, pharmaceutical wholesalers and distributors will report transaction-by-transaction data on product shipments back to pharmaceutical companies in exchange for a fee measured most often as basis points on the underlying product sales.  These data originated for their utility to pharma companies’ trade operations in managing their customer activities, but are being used increasingly across a range of pharma company commercial applications, including as a high-fidelity gauge on the accuracy of projected pharmaceutical data.

By managing a brand’s customer-level 867 data, and understanding the channel and class of trade for each customer, pharma companies in effect can develop a robust understanding of how ex-factory sales for a given pharmaceutical brand flow through the wholesaler to more granular segments of the market – for instance, mail order.  Because this data asset represents a summary of the company’s own product sales data, it is fully transparent to the company, and ties directly back to factory sales.  When this channel-specific sell-in for a given brand is evaluated side-by-side with projected prescription volumes, it provides a foundational view of data quality for projected prescription data.  Large differences, whether in aggregate or within individual channels, are a clear sign of data quality problems with the projected prescription data that need to be more thoroughly understood and remedied.  When monitored over time, divergences that appear pinpoint the timing of issues with projected prescription data, whether related to some change in the underlying sample, the projection methodology, or some other factor.

Enriched Channel Sales and IntegriChain

IntegriChain currently works with a number of leading pharmaceutical companies to leverage their own channel data and deliver solutions targeting a range of commercial business questions…including the ongoing quality of projected prescription data, through Enriched Channel Sales (ECS) National.  If you would like more information regarding IntegriChain, enriching channel sales, or leveraging channel data more broadly, contact us at 609.806.5005

Posted in Uncategorized | Leave a comment

Welcome to the IntegriChain Blog

Posted on May 22, 2011 by Josh Halpern

Welcome to IntegriChain’s new website and company blog.

You may have seen our recent press release announcing the launch of the Channel Research Center. The Channel Research Center is an IntegriChain team of researchers and analysts dedicated to monitoring data and business trends in life science pharmacy and distribution channels. From time to time, our team members will post their insights on this blog, together with links to new case studies and white papers.

For now, let me give you a brief overview of what our team is working on.

Today, through our DNA platform, IntegriChain processes nearly 50% of the U.S. industry’s channel data (measured by the WAC dollar sales of our customers). Most of this data is processed in real time, meaning that our Channel Research Center team gets to see many trends develop long before they become visible to the broader market. Much of this information is, of course, confidential to our customers and their partners. However, our team does collect meta data that is not specific to any one customer or their business and which we can share publicly.

For example, IntegriChain’s database includes the industry’s most up to date master file of retail pharmacies, hospitals, and other points of care. When a wholesaler ships prescription pharmaceuticals to a location for the first time, this is automatically detected by IntegriChain’s DNA platform and the Channel Research Center is notified. One of our analysts then researches the point of care, making sure we have a clean version of its address, its parent business, and class of trade. Often times, our researchers call a new pharmacy before it even opens, much to the pharmacist’s surprise!

The Channel Research Center is currently examining a number of trends about U.S. pharmacies and other points of care that should interest our customers and partners, including:

  • The distribution/concentration of prescription demand among retail pharmacies; how many high decile pharmacies are there for a blockbuster therapy? What about smaller, niche brands?
  • The growth of specialty pharmacy in historically buy and bill markets; are established brands seeing shifts away from specialty distribution and into specialty pharmacy? What about new infused therapies?
  • Trends in product returns; how efficient is the channel, and how are recent manufacturer policy changes impacting returns rates?
  • 340b and PHS; is demand increasing in these heavily discounted channels?

IntegriChain is committed to helping Pharma, BioPharma, and Generics manufacturers find innovative and valuable ways to leverage their channel data assets. We hope this blog will become a trusted resource for our customers. Please feel free to share your comments with us, publicly or privately. If you would like additional information on any of the topics in our posts, please use the website contact form, or contact us directly at 609.806.5005.

Check back every other week or so for updates, and thank you for reading!

Josh Halpern
VP of Marketing & Business Development
IntegriChain

Posted in Channel Data Warehousing, Chargeback Validation, Distribution Channel Management, Pharmacy Promotion Optimization, Product Launch Stocking, Returns Forecasting & Mitigation, Sales Forecasting & Reserves, Sales Reporting & Compensation, Specialty Channel Management, Uncategorized | Leave a comment