Wednesday, January 21, 2009

Are More Rent-A-Reps On The Way?

That's what Deutsche Bank analyst Barbara Ryan suggests in an investor note after digesting the news that Pfizer is cutting about 2,400 sales reps, or roughly one-third of its sales force, as part of its ongoing downsizing.

In her view, tapping contract sales organizations makes sense, since revenues now follow a "cyclical pattern surrounding patent expirations" and most US drugmakers will lose more than 25 percent of their revenue base during this upcoming period. The answer? A new model, of sorts, that involves moving from a fixed cost to a variable cost base in order to maintain margins.

How would it work? A mix-and-match approach that calls for augmenting a drugmaker's best salespeople with a CSO. "Mature brands will be managed by less costly outsourced sales forces, which could cost as much as 25 percent less, which can be pulled before patent expirations," she writes.

Of course, such gambits are already under way. Ryan, in fact, points out that Merck tried this a few months ago by signing a deal with InVentiv Health to market Cozaar and Hyzaar just as the drugmaker axed 1,200 sales reps. These sorts of efforts, by the way, were foreshadowed in an IN VIVO article in 2006:

"The drug industry has accepted the need to outsource R&D--now, with sales productivity down, and the rising cost and risk of owning too much commercial infrastructure, why not outsource more of the sales effort, too? Big and small pharmas resist the idea but will eventually have to accept it."
And since then, the need for a new model has been hastened by a few familiar factors - more product recalls, fewer product approvals and ongoing complaints from some physicians about the number and effectiveness of reps walking through their doors. The bright side? This is one job that can't be outsourced overseas.

image from flickr user 'Howdy, I'm Michael Karshis' used under a creative commons license


Anonymous said...

So the model becomes:

Outsource the high-tech jobs overseas and outsource sales domestically.

Wonder what the consequences of that model will be. Will we have people who will want to go into science? Or will pharmaceutical innovation move overseas too?

Well it won't matter the companies are multinational so have no allegiances to any particular country's workforce. Or even to a country whose tax dollars support the basis science and discovery that they need to build upon.

Ed Silverman said...

Hi Anonymous,

More R&D is going overseas already, of course, which means decisionmakers may reside in the US - at least as US-based companies are concerned - but more doers, as I call them, will be doing their work elsewhere. As for the kids, maybe they will find work in Asia.


Anonymous said...

Rent-a-rep? Ms. Ryan, you cannot be serious. In fact you have to be down right stupid. You are an analyst for Deutsche Bank? And you get paid for the opinion you have? Good god!

For your information, here's the skinny on Contract Sales Forces. In a nutshell - they suck. Nothing against the people doing the job. Bottom line is I have observed contract jobs at numerous companies and know that the share-of-voice they purport to provide is nothing more than a sample delivery service. The incentive plans for these companies is based on activity and not based on numbers that make a difference to a bottom line. I know. I know. Some CSOs are supposed to have "skin in the game", but this has never mattered in my experiences. Reps make the rounds and drop off sample signature cards. They rarely, if ever, give a detail, and they return to pick up the card never observing a signature or engaging a customer in a discussion.

This industry got sucked into the Primary Detail Equivalent as the measure to build sales forces and manage activity. So you hire 6-8 groups of people in a geography to relentlessly hammer physicians. Out of the 6-8 you might have 1 or 2 reps who have any idea what they are doing. The rest are the reason why PhRMa now exists and why the industry has had to cut back on the business practices. Offices got tired of the endless parade of idiots coming into their offices and offering nothing of VALUE.

Some companies chose to go the CSO route to increase their Share of Voice, but most failed miserably. If this practice becomes the norm, you can forget having access to providers. They will shut everyone out because of the lack of value the CSO provides.

Pharma needs to leave the PDE in the 90's and move to a model of HIGHLY TRAINED Reps who can bring value to a customer.

Anonymous said...

BMS is hiring an entire new CSO for upticking their reps. If new products dont get launched, get rid of them before the full timers.

Anonymous said...

It is easy to blame the so called rent-a-rep and say all they do is 'show up and throw up' a marketing message but isn't that what the droves of Pfizer, Merck, etc, drones do anyways. The ability of the CSOs to prepare and send in reps on a moments notice puts them ahead of the curve to maximize profits and do the same job as the over paid mass market reps......sorry but true

Anonymous said...

To the 7:50 poster you hit that nail on the head. I have worked in specialty for companies like Merck and have been the sole rep in my territory for years I have numerous customers who tell me I am valuable to them and their business because I do not "show up and throw up" and they can rely on me...besides I am their rep and nobody else.
To the 11:01 poster, no I am sorry but you are incorrect. The training and product/disease/science training I had to endure was brutal. I know my products and my competition inside and out and can have an in depth scientific conversation easily with my docs. Many contract reps or "rent a reps" don't care they don't add value...they ADD to the droves of reps already in the field. I say pair down the company reps to 1-2 or at most 3 a territory and train them vigorously as I have been done. Let them partner with their physicians rather then being held to ridiculous call avgs, spewing mind numbing marketing messages...your customers will thank you. There is no more company/employee loyalty in this industry or any workforce for that matter and it disgusts me!

Anonymous said...

CSO representatives for the most part receive the host company training and fall under their rules for product knowledge,competition, pharma regulations and detailing. Many have the same skill set and education as big Pharma employees. All CSO companies require at least a 4 year degree. Many of the reps hired are ones that have been displaced from big Pharma companies due to downsizing.
Don't blame the CSO emplyees because the major pharma companies went for share of voice instead of quality marketing. Doctor offices were loaded with 4 - 6 reps from each company selling the same products. That is what closed the door and started this new lay-off trend.
Please don't assume all CSO reps are only signature collectors. May regular big Pharma employees are smug about working 4 day weeks and 4 hour days and fall into the same category.
I agree that the companies should have only one or two reps per territory calling on doctors. We need to go back to bringing value to the offices, not just wasting their time.

Anonymous said...

Many CSO's are now looking at ways of differentiating themselves from competition by gaining revenue directly as a result of achieving agreed outputs such as sales growth, qualitative capability scores (ie usefulness, knowledge of product, intent to rx) rather than getting paid on a Rep days work (or not). With this incentive CSO's are now focusing on training and development, working in partnership with MNC's marketing department and actually increasing their own profit by being part of the products success. Soon the days of the "rent a rep" tag line will be gone-it will be replaced by "variable sales resoucing".