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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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February 16, 2005

Glaxo v. Pfizer: Sales Force Stand-Down?

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Posted by Derek

Glaxo SmithKline's chairman, Jean-Pierre Garnier, made headlines a few days ago with his comments on the size of the marketing budgets in the industry. His main focus is on the sales force, which is about the most expensive form of marketing we have. From the Reuters story linked to above:

"We do believe there is an arms race out there in terms of sales forces and that if you were to redesign the system from scratch you would end up with smaller sales forces," Garnier told reporters in a post-results conference call. "If more common sense comes back to the picture, I think it will be a good thing for the industry. Certainly, we are eagerly observing what others are doing."

The number of representatives promoting rival medicines has now reached the level where physicians are becoming overwhelmed and it would make much more sense to divert some of the marketing spend to more productive areas, he said.

"We do not need those large sales forces to do the job. We need them because the competition is planning to increase their noise level," Garnier said.

He's got a point, I'm sorry to say, although not for all the reasons he gives. We spend a lot of money on marketing in this business, as any number of people will be overjoyed to tell you. And like any other business, we expect a return on it. Why else does a company spend money? For some time, we've been able to earn as high a return on our cash by promoting existing drugs as we can spending it on R&D - in some cases, higher. That's partly because of all the money to be made from the drugs, and partly because of the spotty returns on research in the last ten years or so. Naturally enough, we've seen plenty of promotion.

But I have to think that the sales force has crossed over a threshold at some companies. Doctors have been getting swarmed by sales reps, many of whom don't even get close to seeing an M.D. any more. Further expenditures on more salespeople bring a smaller and smaller return, to the point where it stops making economic sense. Things have gotten to the point where you're better off giving the money to us dice-rollers over in the labs.

Garnier's comments clearly refer to Pfizer's situation, because that's the marketing machine that everyone else in the industry fears. But with all due respect, I don't think that it's all a case of "We're only doing it because Pfizer does it", though. If Pfizer's getting a lower return on its sales force than it could make by spending the money somewhere else, then that's their problem (and Glaxo's gain). Each company has to make that decision on its own, based on the markets it competes in and the products it has to sell.

And conversely, if Pfizer's getting a higher rate of return by running a monster sales force, then the rest of the industry just has to deal with it somehow - ideally, by making better products or by competing in Pfizer's under-served markets. Both of which are good for the customers, I might add, and we'll end here with the standard round of applause for Adam Smith and his Invisible Hand.

Comments (14) + TrackBacks (0) | Category: Business and Markets


COMMENTS

1. smallpharmarep on February 16, 2005 7:36 AM writes...

The lemming mentality of this industry always amazes me. In the early 90's, under the threat of the Hilary reform plan, all the companies started laying off reps, then after that passed, they all expanded, now it seems if Pfizer lays off, they all will follow. Not to mention the millions of dollars they all have spent on consultants who tell us to focus on the high prescribers, as if we needed someone to tell us.

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2. bigpharmarep on February 16, 2005 8:13 AM writes...

We have been amazingly sucessfull inspite of ourselves. We do need to scale down. I dont even know all the members of my "team". I did this when you were known as the xy rep. Now our customers don't know who to call because we are all selling the same stuff. I am very greatful for my job and I would not wish ill will on anyone, but it is time for out economy to level the playing field. It has been fun, but it is time for a change. If anyone would like to hire me to help them with that change, I may be available very soon. Thanks!

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3. bigpharmarep on February 16, 2005 8:14 AM writes...

We have been amazingly sucessfull inspite of ourselves. We do need to scale down. I dont even know all the members of my "team". I did this when you were known as the xy rep. Now our customers don't know who to call because we are all selling the same stuff. I am very greatful for my job and I would not wish ill will on anyone, but it is time for out economy to level the playing field. It has been fun, but it is time for a change. If anyone would like to hire me to help them with that change, I may be available very soon. Thanks!

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4. beenaroundtheblockrep on February 16, 2005 10:21 AM writes...

The author's point is well made - its really an issue of diminishing returns. Companies won't quit investing in their sales forces until the returns are financially unattractive and for a few organizations, that day is very near. Smaller firms won't be in this position right away, but the big boys are already there if they were to only ask and really *listen* to their customers and frustrated employees.

I frankly hope Pfizer (who will be the leader on this issue) takes a fresh new look at new structural ways that will allow more meaningful sales/client relationships that are based on something other than reach and frequency.

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5. DetailMan on February 16, 2005 1:19 PM writes...

If GSK and others are axiously waiting for Pfizer to lay off reps so they can begin their own herd-thinning then they may be waiting for a while. The "dirty little secret" is that turnover at Pfizer is so high that attrition alone will thin out as many reps as a lay off (granted, not as quickly) without the considerable costs involved.

Whatever it takes, it's time. The share of voice model is dead. The problem - nobody knows what to do without it!

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6. smallspcrep on February 16, 2005 3:26 PM writes...

Don't you think that as long as the business model of "big pharma" being a contract sales force for small pharma/biotech innovations continues that these large companies will be reluctant to cut back?

At the same time, if you want to work for a small, innovative and less micromanaged company there are no assurances that they day your company develops an excellent agent you'll find yourself with 5 or 6 co-promoters from one of the big firms.

Wall street, physicians and the public will have to force change on this indusrty.

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7. littleguy on February 16, 2005 3:39 PM writes...

I work for a small specialty company and have seen many reps who work in the "team" system with bigger companies come and go in my territory. I know that big pharma likes to show their sales data showing how bigger sales forces = bigger market share, but my question is, "Are you poisoning the well?" Hasn't the "swarm" of reps packing into doctors offices lessened access for all of us? What percentage of doctors do any of these sales professionals (From big or small pharma) actually get to talk to in a given day? I think that its definitely time for big pharma to rethink itself.

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8. John on February 16, 2005 4:45 PM writes...

Whether you are a Rep, or not, you have to see writing on the wall. The doctors have lost trust in us... there's too many of us, and it's harder to build good relationships when a doc is literally hounded by reps all day long.

The time is come... the end is near for most sales force people, and that's not necessarily a bad thing.

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9. LongTime Vet on February 16, 2005 5:29 PM writes...

With well over 20 years experience in pharmaceutical sales, I can assure you that I have absolutely no problem with access to my offices. Senior reps have far more respect among MD's than the Barbie and Ken's of the world. I don't think a radical change in the business model is necessary. Just wait for natural attrition to run it's course and then don't fill a certain percentage of those jobs.

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10. PharmRep on February 16, 2005 5:59 PM writes...

A scaleback will come withing the next 2-4 years, I believe. However, wholesale layoffs are expensive. The productive "model" to do this is to let attrition take its course and not fill those jobs until a reorganization can be made. Reps that leave usually were unhappy. And they are usually unhappy because they were not very good sales professionals. As far as access goes, my experience has been if you have something of value to offer, such as good information the physician can use, and you do this on a consistent basis, you get some time. Been in the industry only 5 years and have found that, in general, good reps get good time.

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11. AZguy on February 16, 2005 10:01 PM writes...

This story is on track. There are too many reps and the MD's are tired of it. It will be good for the company's and MD's to scale way back on reps.

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12. Cupcakes29 on February 17, 2005 1:27 AM writes...

One of the big problems I witnessed in my 10 years in the industry was every time new senior sales management came in, they had to change the field sales force's structure (and I don't necessarily mean a total reorganization) even if not "broke" perhaps to make a name for themselves and advance their own careers but always under the guise of increased sales.......so they spent millions on a consultant to justify their ideas and direction for top management approval. Rarely is the massive field sales forces' comments, ideas or opinions taken into consideration (yet they are the very ones who deal DIRECTLY with the customer, the physician, every day!). The changes resulted in a huge "share of noise" not voice to the physician who often refused to meet with any reps except those he/she had an ESTABLISHED RELATIONSHIP with. Should not the tides turn now? Isn't a more experienced, and usually older rep, more valuable to a company than another Barbie or Ken? Isn't it the relationship, not how many calls with signatures that drives business, in any industry for that matter? So why does senior sales management spend so much time focused on quantity of calls micromanaged by District Manager's acting as call-report police? What happened to "mananging your own territory as it was your own business"? Doesn't it take a certain personality that thrives on business freedom, goal setting, and accomplishment to be in sales anyway? So big pharma, why the sales "cage"? If you don't trust us, don't hire so many of us...but don't kill the geese laying your golden eggs.

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13. GM medium pharma on February 21, 2005 6:31 AM writes...

• First question - what does it mean in fact size of sales forces? To my mind it’s just one of market entrance barriers set by leaders for newcomers. Would those leaders, like GSK and Pfizer, be interested to lower this barrier? I doubt as this would mean giving opportunity for some company to take part of their cake. Yes, - it’s expensive, painful for big players, but for smaller – even not affordable.
• Second question – does having big sales forces works? Fortunately or unfortunately, - yes, it works. I would like to make a parallel with FMCG - they could be advertised to target groups via media, when prescription medicines hasn’t this possibility, but big sales forces can do in fact the same. Physicians are irritated by frequent visits and hate them, but strange enough prescribing mostly promoted products. Why? Simply short visit with product name and slogan, USP are working like “live TV spot” and even against wish of physicians fixing this product in their minds. GP’s usually are working under rather severe time pressure and when it comes to prescription, they are prescribing first product in certain indication which comes to their mind – that is – mostly promoted. And it’s not necessary to look far away for proving data – biggest players have usually biggest sales force capacities and highest market share. I agree, that with precise targeting certain downsize of sales forces could be possible and reasonable, but by sure – not drastic.
• Third question, - is it worth to have big sales forces? If company has good portfolio adequately loading sales force capacities and healthy pipeline – sure – yes.
• Fourth question, - what’s behind discussions about downsizing of sales force capacities? This is very evident – a) on one hand – price cuts, generic competition, parallel trade, governmental pressures, etc, - resulting in decreased profits and on other hand - b) portfolio problems and uncertain pipeline forcing to adopt structures in order to have acceptable bottom line.

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14. NoFreeLunchMD on February 24, 2005 10:25 PM writes...

I think part of the solution to the size of the pharmaceutical sales force is going to have to come from the secondary consumer: the doctors who prescribe these drugs. The more of us who refuse to see pharm reps, the less effective pharm reps will be. After all, ultimately, *I'm* the one with the 'scrip pad. If I want to prescribe drug X instead of drug Y, it's my call. And ultimately, I'm going to make that decision based on the available data in the literature. I'm a member of No Free Lunch. I refuse to speak to pharm reps and I refuse to accept any gifts, food, or trinkets. Not an easy commitment for a poor resident to make.

And there's the problem. Drug companies market cool stuff. I mean, some drug had a really cool slinky. I'm a pediatrician and the kid in me REALLY wanted that slinky (he almost threw a tantrum when I told him "no," too). But whether it's fancy lunches or cool rainbow slinkies, drug companies choose their marketing so as to make it tough for doctors to say no. The large academic centers, such as mine, have banned drug reps from seeing doctors, but what about docs in private practice? Maybe the AMA needs to start rewarding them in some way for adopting "no drug rep" policies. Maybe the AMA can offer cool slinkies, too.

Of course, this assumes that the cost reduction from the decrease in marketing would be reflected in the cost of drugs, which is an admittedly optimistic view.

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