Case: Strategy realignmet pays off

Below case study is based on a business performance project run by two Black Swan Consulting partners. The case has been modified to disguise the company in question however it illustrates how BSC work.

Background

CA (name disguised), based in a European country, is focused on diagnosis and monitoring of a prevalent chronic disease. The company CA was established in the late 90´ties by a leading clinical researcher and expert in the technology that remains the foundation for the company.

The conventional diagnostic process used by doctors offers a relatively crude diagnosis of the disease in question, which covers three different underlying clinical manifestations. In order both to reduce costs related to treatment and to improve the quality of life of the patient the three manifestations should ideally be treated differently however with the current diagnostic tools and treatment protocols such differentiation rarely takes place.

In 2001, CA developed and launched the first diagnostic device that allows for performing a differential diagnosis of the patient suffering from said respiratory disease. The diagnostic test requires a device and a test kit.

The new technology offers two distinct advantages:

  1. The diagnosis allows for an identification of the large sub-population unresponsive to the medication prescribed as standard reducing treatment cost to society
  2. The methodology of the device proved also to be ideal for monitoring and optimising the treatment of the patient category responsive to the expensive treatment both reducing treatment costs and optimising the patients´ quality of life.

Though the underlying technology may be complicated the unique CA offering was simple, i.e. through optimised diagnosis patients would be offered a better treatment of their disease and the cost burden to the payers would be reduced.

The early years were focused on research and development and the links to the founder´s academic institution were close. The development of one device led to the next, improved version and though consensus amongst leading academics and key opinion leaders about the clinical value and a high use in clinical trials the commercialisation was not in focus and the device did not enter clinical practice.

Nine years later CA went public and raised money to carry the company through the commercialisation phase to profitability which was expected to be reached 40 months later.

Based on the abundant supportive data material from clinical trials Company CA was to establish the use of the differential diagnostic technology in primary and secondary care. A new commercially focused management team was put in place; the team was made up of senior people from big well-known companies with years of sales experience in medical devices.

Three years later the commercial break-through was still in the waiting however the P&L was suffering from expenses relating to the increase in commercial activities. Critically CA had not yet achieved general reimbursement for its products and use was primarily taking place in clinical trials. Unexpectedly Company CA needed another round of funding to secure the commercial break-through.

In order to validate the strategic approach taken the Board of Company CA commissioned Black Swan Consulting to provide an in-depth analysis of the current approach and, if relevant, recommend adjustments for how to proceed.

The A (Analysis)

Data collection

BSC was provided access to the company´s financial accounts including budgets and sales data, IMS in-market sales data, and strategy and operational plans from the last three years.

In addition to analysing the above materials BSC carried out three critical series of interviews:

  • Interview with the individuals of the current and former management team
  • Qualitative market research amongst KOLs (n=6) and selected primary care physicians (n=6) from three major markets
  • In-depth interviews with payers (n=6) from three major markets

Selected findings

The review of the internal data and plans were done by BSC in collaboration with an internal group of senior people.

Internal interviews and review of data

The analysis revealed a constant over-optimistic forecasting scheme in which failure to meet a given target led to increase of the coming periods´ targets so the break-even time point could be kept. This had led to a general discourage internal attitude of amongst employees, one of “the numbers do not mean anything and the targets do no matter”. More importantly, the perception amongst managers was that “the top is dishonest with us and it is the emperor´s new clothes but without an honest child” which, in turn, had led to low motivation.

AC had hired a number of commercial officers and, moreover, deployed own sales people in key markets like the US, Germany, France, the UK and others. Also, in addition to the HQ offices in Europe, offices were opened in the US and in Switzerland (see below).

AC was still to develop a pricing model and a uniform pricing structure. In some markets the device was placed free-of-charge in the clinic and the clinic would subsequently pay per test conducted. In other markets the clinic would be investing in the device but the individual test kits would be cheaper. Based on the data available limited parallel import was taken place across borders however volumes were small as were sales.

In addition to having prominent presence at all international scientific meetings and conferences CA had initiated a large number of commercial activities:

  • CA signed distribution contracts for a number of new territories including Japan, China and Eastern Europe. The sales expectations were significant and expected not only to compensate for the slow uptake in home markets but to constitute an upside however the contract objectives were dependent on local approval and reimbursement.
  • A new device series targeting primary care physicians was put into development. The development required more resources than that of previous models as the specifications set by the experienced device management team were challenging. Furthermore, the development was conducted in collaboration with a Japanese medico-tech company.
  • The US distributor was fired and a dedicated sales force of 35 experienced pharma sales representatives were put in place. In addition, CA increased its sales force presence in the UK and Germany by adding experienced medical device sales people.
  • Company CA had relied on technical development people for product support and “marketing activities” however with the new approach it was decided one year or so into the process that a dedicated marketing team was needed. As it was believed to be difficult to recruit an internationally experienced team locally the new marketing team was established in new offices in Switzerland. The team did not include a person responsible for pricing and reimbursement (market access) but relied on external support for this part.

Key opinion leader interviews

All the key opinion leaders interviewed were users of the diagnostic concept. They were excited by the technology and found it to have significant clinical potential and all praised the value related to monitoring of clinical trial patients had brought to research however they did not see that the new diagnostic method had a place in general practice as the differential diagnosis was too complicated for GPs and would require the involvement of specialists.

Primary care physician interviews

The primary care physicians had an in-depth knowledge of the disease as all saw patients on a daily basis. The current diagnostic procedures were cumbersome but part of the routine and, moreover, managed by well-trained nursing staff. GPs were frustrated by the sub-set of patients where the disease due to perceived non-compliance to prescribed treatment were not in control and who subsequently took up much clinic time.

Payer interviews

Due to the high prevalence and derived cost burden of the disease payers were knowledgeable about the disease including the treatment options and algorithms. They knew about the new device and some had been presented to economical cases for the use of the test but such had contained unconvincing and out-dated data material for supporting a reimbursement decision. Though interested in the combination of potentially improving the treatment offered and reducing costs, two concerns dominated, one related to hidden costs when changing treatment procedures, especially with lack of guideline support, the other to the unclear pricing.

Conclusions

The CA sales force activity towards physicians represented the greatest share of the company costs however CA was failing to understand the limited impact such activities have without having secured reimbursement and a place in clinical guidelines.

The European sales force used to selling medical devices to private clinics and institutions like hospitals did not understand the local reimbursement systems applicable for European health care provision. More importantly, the reps did not appreciate that the benefits of the test, so heavily endorsed by KOLs, were not embraced by doctors and nurses who generally saw the test as an unnecessary cost.

In the US the choice of pharmaceutically experienced reps were equally unlucky. The private physicians in the US would be able to pass on the cost for an optimised treatment protocol however the pharmaceutical representatives are not accustomed to direct selling (not done for prescription medicine) and hardly ever “asked for the order”. Irrespective, CA failed to negotiate cover with the biggest healthcare schemes.

The KOL endorsement had not been translated into guidelines and support for use in normal patients. Despite obvious advantages for use in clinical practice, the test methodology remained an interesting research tool in the mind of the physicians.

The lack of reimbursement was not appropriately addressed internally. The internal belief in the testing methodology´s value created a blind angle and the external decision-makers, i.e. the payers´, needs and methods were not appreciated. CA had developed a health-economical argument however this had been done externally and was six years old.

Drug prices had been declining over the last ten years due to entry of generic medication and the impact of cost reduction relating to differential diagnosis and monitoring was decreasing. CA´s health economical calculations presented to payers were considered out-of-date and the dossier´s focus on savings ignored the improved quality of life patient could achieve.

The decision to place the new CA marketing department in Switzerland made it detached from the mother company and without clear communication lines to the sales force who kept using old channels into the head-office.

The opening of new markets in Europe and signing of distribution contracts for China, Japan and other significant markets spread resources thinly and the necessary support for the new distribution partners was not available. In particularly the support for reimbursement processes was not available.

The P (Planning)

The following stepwise plan was developed by the joint BSC/CA team and presented to the Board.

  1. The sales potential related to the diagnostic method was confirmed however timelines for realising it were extended
  2. The market should be established in a stepwise approach starting with KOLs and buyers, specialist in secondary care and then, later, primary care
  3. Immediately stop non-profitable sales activities and cut burn-rate ASAP
  4. Immediately halt development of primary care device
  5. Strategic focus to be on establishing use of the testing method in secondary care
  6. Initiate targeted partner search in the US and prioritise European markets
  7. Move marketing into company HQ and upgrade with dedicated market access and pricing competencies
  8. Activate relevant KOLs in identifying the optimal use in disease management and support amendment of guidelines
  9. Obtain acceptance and reimbursement from payers based on an updated health economical dossier
  10. Sales support for uptake in secondary care but no separate primary care activity

The CA Board accepted the above plan in its entirety. Furthermore, the Board asked the project team led by BSC to propose for approval an implementation plan and, subsequently, execute on such plan.

The E (Execution)

The detailed execution of the revised strategy fell in three areas; please see below. CA managers and executives executed all elements and BSC served as project managers, sparring partners and additional resources for all critical steps.

Organisational change

The responsibility for sales and marketing was split:

Sales

  • The sales force was immediately reduced by approx 80% decreasing the burn-rate significantly
  • A KAM structure was implemented focusing the sales efforts on Payers, KOLs and key specialists
  • The distributor support was defined and made part of a new business development department. The department was resourced with 3 headcounts

Marketing

  • A senior Head of Marketing was added to the team
  • Over three months, the marketing department was moved into HQ and expanded with critical market access competencies
  • The market access function was established by adding two headcounts

Process change

  • A simple Balanced Scorecard was created by Board of Management reflecting the strategic direction and planning
  • Main targets were broken down into individual KPIs
  • The budget set-up and reporting were changed to reflect strategy plan and Balanced Scorecard

Communication and Leadership change

  • A communication plan was written for and with the Executive Team aligning external and internal communication around the few strategic targets CA was pursuing
  • It was agreed that top management would only communicate on strategic priorities and would only be visible in relation to such
  • Fixed quarterly town hall meetings were set-up around the time of reporting allowing management to communicate progress and build trust

 

The plan is still in progress however CA is making inroads and both inclusion in guidelines and reimbursement are now in place in the top-5 European markets and with the 6 top US health insurers. A uniform pricing model is in place. The financial break-even reached after 2 years at a lower revenue level than original forecasted led to a revision of strategy including new markets and, more importantly, a profitable primary care approach. Employee satisfaction and motivation has been measured biannually and has been steadily increasing as has employee retention.