Seeing the industry through the eyes of Eli Lilly’s Past President and George W. Bush’s Deputy Secretary of Health and Human Services
This article is compiled from our discussion with Mr. Azar at a recent Veeva Summit and an interview conducted by Matt Wallach, president and cofounder of Veeva. As of the date of publication, the new healthcare proposals were still being debated in Congress. We’ll see how his prognostications for the industry have played out.
Alex Azar is an impressive expert, knowledgeable and articulate but understated and careful in his remarks. He has significant experience in government and pharma, and provides a picture of both that is free of polarization and controversy. Listening to him talk about his experience with other influencers gives you confidence that there are steady hands on the tiller, and that we are headed in the right direction, even if the headlines suggest otherwise.
SALES, MARKETING AND BRAND STRATEGY
Matt Wallach began his interview by asking about the changing landscape of the sales rep. Mr. Azar was not alarmed by the current situation. “I think that stories of the death of the sales rep are greatly exaggerated,” he said. “The sales rep remains the highest ROI tactic in many instances with many brands. For those doctors and offices that will see a sales rep, that relationship still is the linchpin around which you can build other capabilities.”
He values the rep largely because HCPs value them. “There is nothing like when a sales rep goes on vacation, and as the president of a multi-billion dollar pharma company, you get a call from a doctor’s office saying ‘What happened to our rep?’ That tells you that our people are eminently involved in assisting physicians in caring for their patients.”
Still, he acknowledged that access is an ongoing problem, even if not as bad as some of the statistics suggest. He indicated that leaders of sales forces have to be extremely disciplined about assessing the access levels and making tough decisions. “Our team [at Lilly] actually did an experiment where we were able to build for a brand a suite of interactions; sort of a 360° package of interactions that we wanted to test to see how influential they could be. And we took doctors who were ‘white-spaced,’ we’d call it, who had never been called on by one of our sales reps.”
There is nothing like when a sales rep goes on vacation, and as the president of a multibillion dollar pharma company, you get a call from a doctor’s office saying “What happened to our rep?” That tells you that our people are eminently involved in assisting physicians in caring for their patients.
These were the toughest targets, according to their writing behaviors. Lilly engaged with them over six months through peer-to-peer videos on Medscape, WebMD, direct mail, e-mail, and actual post office mail, “Which, believe it or not does get opened,” he said. “We were actually able to convert 18% of those physicians, who never saw one of our reps, from the bottom tier of belief and writing up to our top tier of advocacy. So that tells me that it can work. But I don’t think it replaces the rep,” he added.
On the subject of Key Account Management (KAM), he said that he sees it as a behavioral and organizational challenge. “Behaviorally I have always believed that the best sales professionals actually act as major account managers. They don’t do the short sell, just the pushy old style, but actually do long-term relationship building and value adding over time. Behaviorally everybody ought to be moving into that kind of a space.
“Organizationally we tried something modeled after the U.S. military in how one approaches a theater. When you think about the Iraqi theater, we have an army, a navy, air force and Marines responsible for training up, equipping, getting everybody ready. But when you go out into the field there’s actually a theater commander in charge of the ground. And they pull all those different strands together. They know the game plan. Well, we did the same thing and tried that with major systems in big areas trying out different styles of integrated systems. As you know, if you’ve seen one integrated system, you’ve seen one integrated system.
“So we tried different approaches. But the key was having a major account leader there with the sales reps under them, with dedicated medical staffing to be on call and available for appropriate medical interactions, with the payer major account people also a part of that team. And I’ll tell you, it worked. It really worked. You brought all the brands together. The engagement went through the roof. People said, this was the job that I wanted 30 years ago when I joined the company. It’s that teamwork.”
[When doctors] saw that the company was organized around their concerns…you could see a visible, physical relaxation from them.
He noted that customers said the same thing. They saw that the company was organized around their concerns: What do you need from us? “You could see a visible, physical relaxation from them. It would just depressurize everything. And then we saw that through actual sales results.”
But he also noted that this is most effective with a mature portfolio, and that launching a new brand would require a different, brand-specific focus. Whether you want your regional managers coaching to the brand or to the customer relationship depends on the individual situation. And there are times when coaching to the brand makes sense.
PRICING AND PATIENT BENEFITS
Today much of what influences the public’s image of our industry is that it’s greedy, and that the few stories of extraordinary price increases have come to stand for every life sciences company—which is of course far from the truth. But how do we deal with that?
“Well, it’s a fascinating story that frankly just doesn’t get told accurately,” he said. “Let’s start by saying we have a problem. This is not something to put our head in the sand about. Patients are having to pay too much for drugs. Whether they are physician-administered like an oncolytic product in the highest price, or if it’s a retail-based product, patients are paying out of pocket too much money. Okay? What happened? Was there, in the last three years, a radical change in the pricing of drugs or how high the launch price is?
“In the last five to seven years the pricing model really has not changed one bit. So, why did things erupt? They erupted because we have seen a complete and fundamental restructuring of health insurance in the United States over the last three to five years. More of us now have high deductible plans. More of us now have high cost sharing. Basically, the burden of the cost of insurance, especially out of pocket, has been pushed onto us as employees where we as individuals in the individual market have gone for low premium plans and have put off paying the higher cost sharing at the pharmacy, pretending that’s not going to happen.
“And as a result, when the patient goes into the pharmacy they’re getting the sticker price. What used to be a tool that was part of the price negotiation, basically, price and rebate negotiation between the pharma company and the insurance company, now the patient’s sitting in the middle at the pharmacy and having to pay the bill there. So that’s a challenge and we’ve got to solve it. This is not sustainable for the patient to walk in and be paying list price for their drugs thinking that hey, I bought insurance. I paid for this already. Why are you charging me again? I bet you’ve had your own experience where you’ve had that, kind of shock. I have.”
There is no easy solution, of course. He said even if you cut the price of drugs by 50%, that’s still going to be expensive from the patient’s point of view if they have a high deductible plan without a funded HSA (Healthcare Savings Account). As a result, this affects the immense fall-off rates on adherence, which in turn affects profitability. “So, we’ve got to work with the insurance industry. My preference would be that this be something the insurance industry and pharma work together to solve. And employers work together to solve as opposed to the government.
My preference would be that [pricing] is something the insurance industry and pharma work together to solve.
“How can you pull forward some of the rebates into those high deductible periods? You may be paying a 50-60% rebate to pharma company. You do that, premiums go up. Okay? So at least some of that rebate money is going to pulling down the premium, or going in the employer’s pocket or going in the insurance company’s pocket. But somehow, we’ve got to try to adjust that to solve the issue of high out-of-pocket.
“I think we ought to be encouraging more funded HSAs. Often we think of high deductible plans as being the conservative solution. High deductible is not. High deductible with a funded HSA is. I was there when we created it in the Medicare Modernization Act. The idea was not to shove the burden onto the patient or the employee. The idea was to create the right incentives for consumption so that I have skin in the game.”
THE POLITICAL REALM
Alex Azar has consulted with the people most involved in healthcare policy: Paul Ryan, Chuck Schumer, Mitch McConnell, and now Tom Price. What does he think the current direction is? How should the industry respond?
“I think anyone who gives real predictions on repeal and replace, where it’s going, take it with a grain of salt. I think almost every prediction I made has turned out wrong at every turn of the way. Because, honestly, people often in charge don’t know where things will end up. Even now that we’re in the Senate, I’ve said in many interviews that we’re just 10% of the way.
“You’ve got to get a package that right now has reform, the two largest reforms of entitlement programs in the history of the republic. Okay? Only in Washington does slowing the rate of growth of a program amount to a cut. But that’s basically what it does. It’s sort of freezing in place at about 75, 77 million beneficiaries and actually still growing by about 100 billion dollars for 2020. But then slowing it, instead of it growing, almost by 450 billion dollars over that period. And so you’re slowing that, which is radical. It’s a big change.”
He indicated that a large part is getting rid of the individual market subsidies that were very generous. “Up to 400% of the federal poverty level for people going into that individual insurance market and converting that into a tax credit of $2,000 to $4,000 tax credit for people to go into the individual market. Just think about those changes right there alone. And then think about trying to get Rand Paul, Ted Cruz, and Mike Lee to agree to it on this side, and Sue Collins to get to agree to it on this side. I don’t know where it will come out. My prediction is it will be more liberal, more money, more subsidies to individuals than where it started from the House.”
[In Washington] the industry is highly valued… It’s an economic engine of international trade…[and] an intellectual property repository. It’s the crown jewel.
As to the impact on life sciences companies, he doesn’t think it will make as much of a difference as many people fear. “Mainly we haven’t seen a huge impact. I haven’t at Lilly. I don’t think other pharma companies really saw a major impact out of the Obamacare implementation. Because really, what was Obamacare? It was a Medicaid expansion. Pharma companies, simply, because of the statutory rebates and Medicaid, simply don’t make a large amount of money in Medicaid. I think we saw more utilization but higher rebate rates. And so it was sort of a wash. I could never put my finger on it and say, this is how we benefited from it.
“Now, there’s a benefit that would come from the repeal as currently structured, which is the Medical Device Tax and the Pharma Excise Tax go away. So that’s a quite significant benefit. But, otherwise I don’t think it’s really something that the industry should be losing sleep about or thinking about redesigning business models as well.
It was most interesting to hear him talk about the behind-closed-doors conversations among politicians and pharma execs, which he says are not nearly as contentious as we might imagine. “It’s not productive for anyone to look at the other and say that what you’re doing is evil here or you’re a bad actor. We’re operating with economic incentives that have been created either by regulation or just by how the marketplace works. And we need to work together to solve that. Pointing fingers, calling each other names, and trying to vilify based on intent does not help one bit. All that does is invite the government to get in the middle of things. And, trust me, that should be the last resort for how you solve any issues like this.
You are going to see, over the next decade, a change in the expectation of what it means to live with some of the world’s most debilitating diseases. And that is what we all got into this business for.
“I’ll separate what is said on TV from what’s really the image and reputation of the life sciences industry. The industry is actually incredibly respected in Washington on both sides of the aisle. Now, sure, are there people who are just detractors who you sort of hate at any cost? Yes. But that’s not the majority sentiment either among Democrats or Republicans on the Hill. The pharma industry is highly valued. These are some of the best jobs in the United States. It is an economic engine of international trade for the United States. It is an intellectual property repository for the United States. It’s the crown jewel. Any country on earth would like to have the biopharmaceutical industry that we have here in the US. Okay? And policymakers, at least behind closed doors, understand and respect that.”
See portions of Alex Azar’s commentary here:
He was most enthusiastic about the fact that we are at the beginning of a golden age in pharmaceuticals. This is largely due to the success of the Human Genome Project, which greatly increased our understanding of the molecular nature of disease, and enhanced our ability to custom-design molecules for targeted conditions.
“This is revolutionary. We’re seeing this come out of the pipeline right now. We are changing the nature of disease in the world today. And policymakers get that. It is an unbelievably exciting time to be in this industry. It’s an even more exciting time to be a patient suffering from one of these debilitating diseases because you are going to see, over the next decade, a change in the expectation of what it means to live with some of the world’s most debilitating diseases. And that is what we all got into this business for.
“I really do believe this is the fruits of that work. And it’s just the beginning.”
Alex Azar served President George W. Bush as Deputy Secretary of Health and Human Services, and went on to hold several positions at Eli Lilly & Co., including president of Lilly USA, LLC from 2007 to 2017. He is currently chairman and founder of Seraphim Strategies, LLC, which provides strategic consulting on the biopharmaceutical and health insurance industries. He consults with the Trump administration on healthcare matters.