Is High-Tech A Surefire Cure?

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Is High-Tech A Surefire Cure?
Pharmaceuticals companies strive to save money, improve customer service

By Jill Gambon
Issue date: Sept. 18, 1995

he latest catch phrase in the pharmaceuticals industry is "disease management." This refers to drugmakers' efforts to track the cost and effectivenes s of health care and, in turn, determine ways to save money. These efforts, which the companies say are vital to their success, center on information technology.

"This is where health care meets Total Quality Management," says Jeffrey Keisling, executive director of information systems at Rhone-Poulenc Rorer in Collegeville, Pa.

Rhone-Poulenc is setting up its own disease management unit. By gathering and evaluating how doctors treat various conditions and diseases, the company hopes to establish guidelines that would help doctors and health organizations better manage care. "This would be impossible without an information base," Keisling says. "Information systems are needed to measure progress."

Drug companies are also turning to IT for sales force automation, data warehousing, and computerized laboratories. Such efforts help boost sales, streamline administrative work, and speed the research and development of new drugs.

This move couldn't have come at a better time. The pharmaceuticals i ndustry faces a radically shifting client base and revised business economics that have put a squeeze on profits.

As a result, drugmakers have had to downsize, consolidate, and reorganize during the past few years. In an industry where a product's life cycle rarely lasts more than a dozen years and profits are no longer guaranteed, efficiency has taken on a new urgency.

"There's a tremendous revolution going on," says Tom Trainer , chief information officer at Eli Lilly and Co. in Indianapolis . " Now the name of the game is competition, reducing your time-to-market, reengineering your supply chain, and making manufacturing more efficient."

In fact, some pharmaceuticals companies have brought in technology managers from the consumer-products industries to refocus their efforts. In January, Lilly recruited Trainer from Reebok International. Demetrios Lappas, CIO at Warner-Lambert, came from Borden Inc. just over a year ago. "You bring your own sense of urgency an d your own sense of mission," says Trainer, InformationWeek 's 1994 Chief of the Year.

Trainer, with his background in consumer products, knows the importance of establishing closer ties to customers in an industry with short product styles. Trainer, who oversees a $200 million budget, consolidated Lilly's IT operations from 17 units into one.

Last year, Lilly bought pharmacy benefits manager PCS Health Systems Inc. for $4 billion. PCS, which processes prescription claims and negotiates volume discounts for large buyers, is the foundation of the company's disease management efforts. As part of this, Lilly plans a nationwide health-care information network.

Setting Standards
PCS' private network now connects 20,000 pharmacists nationwide. Lilly's goal: Add doctors' offices to the network and establish a central health information database. Once that plan is in place, treatment patterns, patients' progress, and costs could be monitored and standards for treating diseases set up. This would tip off insurers and doctors to ineffective treatments and allow for comparisons between health-care providers.

"Eli Lilly could become the Nielsen of the pharmaceuticals industry," Trainer says, referring to the media ratings giant. "We would gather, analyze, and package data and sell to all constituents in health care."

But why would a pharmaceuticals company get into the business of rating doctors and hospitals? Money and service. According to Trainer, only seven cents of every health-care dollar is spent on drugs, while the remaining 93 cents pays for services. If drugmakers can help insurers figure out how to provide services more efficiently, they may be able to generate income for themselves. Lilly is negotiating with several IT companies about investing in the network, which Trainer hopes to have in place within five years.

Straying From Tradition
While Lilly focuses on reducing spending on services, Rhone-Poulenc expects to expand its investment in them. The compa ny plans to offer services, such as case intervention, through its new disease management division. "Instead of a traditional pharmaceuticals product offering, services are created to improve quality and lower costs," IS director Keisling says.

For instance, by analyzing data on how a particular health maintenance organization (HMO) treats asthma, the disease-management unit can identify where the money is being spent and offer case-management and training to bring costs down, Keisling says.

Rhone-Poulenc is investing $2 million of its $105 million IT budget to build the system. Most of the investment will go to software. With the goal of developing the new unit within 12 months, Keisling is using rapid applications development tools to get the job done. The system is built on an Oracle database and will use online analytical processing tools to access and analyze the data.

To speed the long and costly drug discovery cycle, drugmakers are increasingly turning to computers for assistance. "It's bec ome horrendously expensive to research a new drug and bring it to the market," says Michael Grant, the Dallas-based VP of the information technology practice at A.T. Kearney, a consulting firm in Chicago.

Pharmaceuticals companies are also automating their laboratories to get faster results. Last year, Lilly bought Sphinx Pharmaceuticals, a small company that uses robots to mix and screen various compounds in search of new drugs. Previously, Lilly's chemists could screen about 900 compounds per quarter. With the Sphinx technology, that number has gone up a hundredfold, speeding drug discovery, Trainer says.

Historically, drug companies sold to doctors and hospitals. But with the shift to managed care and the evolution of large hospital networks, drugmakers now sell to health-maintenance organizations (HMOs) and hospital systems--customers with a sharp eye on the bottom line.

More Control
These new clients can negotiate better discounts and they wield more control over the market. "It used to be that drug manufacturers would lobby doctors and create an awareness and perception of their drugs," says Grant of A.T. Kearney. "Now, that's too passive."

To respond to those changes, pharmaceuticals companies have restructured their sales organizations, often splitting their staffs into geographic teams to be closer to customers. IT provides the backbone to make such a system work. Companies are investing millions of dollars in data warehousing, corporate networks, and mobile computing to give sales teams the tools they need to compete.

"IT is at the core of this," says Saul Kaplan, a partner in Andersen Consulting's pharmaceuticals practice in Boston. "Without the appropriate information for things like a pricing decision, the team is unable to create demand effectively."

American Home Products reorganized its 3,000-member sales force geographically after last year's $9.7 billion acquisition of American Cyanamid. Now the company is evaluating what technology the revamped organizatio n will need.

"Equipping 3,000 people with laptops and support is going to require a significant investment," says Ed Schefer, VP of IS at American Home Products.

In addition, American Home Products is investing heavily in workstations, PCs, and networks for its research and development and manufacturing operations, and spending less on mainframes, Schefer says. And imaging technology is helping to streamline the paperwork-intensive new drug approval process.

Before last year's merger, the company's annual IT budget was $250 million. Schefer expects that figure to decline once the two operations are fully merged.

With all the cost-cutting that's demanded, many drug companies have scaled back their research divisions and now look to small biotechnology firms and other outside partners to help with their drug-discovery efforts. Rhone-Poulenc, for example, has relationships with about 17 companies worldwide that are conducting gene therapy and other research, Keisling says.

Team Concept
To link its spread-out work force, Rhone-Poulenc Rorer has invested in private networks and groupware. Similarly, American Home Products uses Lotus Development's Notes groupware to link its global research crew. "Teams that are developing products can keep [aware of] the overall program," Schefer says. "Given the dispersed nature of the team, that's an important application."

Market forces continue to reshape the pharmaceuticals industry, even though the Clinton administration's health-care reform plans have been derailed, and with them talk of capping drug prices.

For drugmakers to survive, the prescription is relatively simple, says Michael Esposito, VP of Arthur D. Little Inc.'s pharmaceuticals and medical products practice in Cambridge, Mass.: Information must be used as a competitive weapon.

"Companies are spending more on information technology than ever before," Esposito says. "The biggest hurdle is how to use information effectively, to get better insights about customers and deve lop better products faster."

(To view the Pharmaceuticals chart in PDF format click here)

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