Don't Come Knockin' On My Door

The pharma industry doesn’t need more stats to tell it that knocking on doors doesn’t work any more, but some new figures blast that cold reality. (A comprehensive review of what needs fixing in pharma's commercial model is in the December IN VIVO. Our take on Merck's stab at reinvigorating its commercial presence is here.)

The latest data comes from California-based market research firm SK&A, which found the percentage of doctors who require reps to make appointments for visits rose 22 percent between June and December 2008 from 31.4 to 38.5 percent (of doctors who see reps). The number of physicians who won’t even see sales reps at all rose from 22.3 percent to 23.6 percent (of all surveyed).

Put another way: about 40 percent of general practitioners--that is, the ones who see reps at all--now require appointments, up from 33 percent six months ago. The trend rose for specialists too-from 28.3 percent in June to 36.6 percent in December. Every kind of practice and specialty is getting tougher, although specialty physicians are more likely to completely bar reps than GPs. Among the toughest to get to: pathologists, diagnostic radiologists, and neuroradiologists. No specialty stood out as particularly friendly, although dermatologists, allergists, and diabetes specialists were least likely to impose total lock outs.

The survey didn’t ask why doctors are increasing their restrictions, but SK&A researchers do speculate. Doctors are busier, under pressure to see more patients – and, affiliated with large organizations that increasingly institute system-wide rules. Not surprisingly, then, health systems are the most restrictive: more than half require appointments and 35 percent forbid rep access altogether. Of free-standing medical practices, those owned by hospitals stand out: 44.6 percent of those that see reps require appointments, while 31 percent keep their doors shut.

Lest anyone dismiss this data as fly-by-night, SK&A says it conducted telephone interviews with 227,000 medical practices representing 640,000 doctors—that’s nearly all of the active practicing physicians in the U.S. The response rate was 94 percent.

There is a silver lining. Some 76.4 percent of those surveyed, including the group that requires appointments, still see reps. And those appointments could be more productive. The survey didn’t measure quality of interaction, but SK&A CEO Dave Escalante points out that doctors who agree to visits by appointment may be opting for higher quality time with their rep, which scheduling in advance could provide. SK&A, however, didn’t look at the reasons for the new barriers to access or the quality of doctor-rep relations, although multitudes of others have.

The message? Well it hardly needs to be repeated, but hard numbers always resonate: large armies of sales forces are a model that just won’t work anymore.--Wendy Diller

image from flickr user matt.davis used under a creative commons license.

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

Thinning Sales Forces

The stories about cuts in sales forces are commonplace. The Pharmalot blog reported another downsizing on Monday, July 14: this one from Boehringer Ingelheim cutting half of its neurology sales force (another 200 sales positions shed).

As if to add insult to the pain of the continuing force reductions, the big pharma firms have found yet another way to “thin” the ranks of drug sales forces.

In addition to cutting the ranks, they appear also to be out to downsize the remaining reps themselves. Those reps who do remain employed are being pushed away from the entertainment table.

As part of the revised Pharmaceutical Research and Manufacturers Association Code on Interactions with Healthcare Professionals released on July 10, sales reps will not be able to take medical staff out for meals.

That’s a smart policy from a public relations/policy perspective. There clearly has been an outcry from medical groups (the Association of American Medical Colleges, for example), politicians and the media against entertaining and meals.

PhRMA President Billy Tauzin spoke convincingly and candidly about the bad impression left by private meals in restaurants while introducing the new code recently. He said those types of meals do not send the right message about the serious educational objective of appropriate contact between drug companies and the medical professions.

But PhRMA did not note one of the fine distinctions made in the new code about the ban on free meals. It relates primarily to the beleaguered sales reps.

"The Pink Sheet" looked more closely at how the code describes the ban on free meals (see here). There is a clear exemption for modest meals (pizza and sandwiches) delivered to doctors’ offices or medical centers with an educational presentation. PhRMA defended that exemption noting that “even the counterdetailers” use food to find a slot for their anti-brand messages.

When you look more closely at the prohibitions against meals, it becomes clear the prohibition is really against reps taking docs out for food. Other company execs (beyond the sales forces) can continue to provide occasional, modest meals for doctors.

The new code and explanatory Q&A does not get into specifying who might be the new class of dining execs but that might seem to be a new function for the medical sales liaisons. Sales reps can attend dinners outside of medical settings in one situation: if the meal is part of a presentation by an adequately trained expert physician and the rep attends to help with the logistics of the meeting.

There is a deeper significance to the focus on the sales reps for the cutbacks on wining and dining. It is another example of the ongoing effort to drive expenses out of the detail force: a form of industry-wide standing down in the face-to-face sales effort. From that perspective, it is closely related to the cuts in the numbers of sales reps. Companies have always been reluctant to cut the sales forces and sales force expenditures unilaterally; they feel more comfortable if they believe that all their competitors are making similar moves.

The pharma firms were willing to walk away from entertainment by reps because it looked unseemly and it was expensive. One of the critics of industry marketing practices, Sen. Herb Kohl (D-WI), estimated that gifts, meals and continuing medical education expenditures could represent as much as $19 billion per year in industry spending.

That probably overstates the saving potential from the recent code changes but the point is well taken. Just getting back a chunk of that money would create an attractive pool of resources that the companies need to support profits from their aging product portfolios and to free up funds for more efforts at consumer marketing and/or reaching the medical professions through new media. There will be lots of other places that money can go.

The new PhRMA code does not go into place until the beginning of next year. That means there should be some very interesting and rough budget re-allocation debates within the pharma companies during the final months of this year.

Drug execs have talked for years about a time when they would not need the large armies of reps for face-to-face detailing. Some companies already have strategic plans for the next decade that do not include lines for detailing expenditures.

Banning the detail forces from the fancy restaurants is just another step towards a much different world for drug marketing – one that has moved away from the personal sales efforts that have dominated for nearly sixty years.

Size Matters for Specialist Drugs, Too

Sales force size, that is. ZymoGenetics’ ex-US commercialization deal with Bayer HealthCare on lead recombinant human thrombin didn’t come as a huge surprise: the west-coast biotech had always said it would seek a partner ex-US.

But what was interesting about today’s deal was that Bayer also gets to co-promote rThrombin in the US for the first three years post-launch, in exchange for up to 20% sales commission plus bonus payments up to $20 million. Now, this is a specialist drug, sure—it was filed in December 2006 as a safer alternative to bovine thrombin for use in helping control bleeding during surgery, and the entire US market is today worth only $250 million or so.

But ZymoGenetics isn’t the only one going after it (which, incidentally, says much about the growing competition even for niche products). It shouldn’t have too much trouble displacing King Pharmaceuticals’ bovine-derived product Thrombin-JMI, given the recombinant drug’s superior safety and convenience. Bovine thrombin has a black box warning due to immunogenicity, which doesn’t affect rThrombin; the Zymo product can be stored for two years at room temperature, unlike some plasma-derived drugs.

But Johnson & Johnson is also on the loose, thanks to a 2004 deal granting the Big Pharma European and then North American rights to Omrix Biopharmaceuticals’ human blood-plasma derived thrombin, which, like rThrombin, is due for approval later this year.

Zymo argues that surgeons don’t like human plasma derived products either, and that the Omrix drug will also likely carry a warning. But a battle pitting Johnson & Johnson versus Zymo's planned 50-strong US sales force looked too one-sided, whatever the products. That helps explain why Zymo’s share price has remained so muted this year.

It also helps explain why Zymo agreed to the three-year US co-promote--even though it was earlier firm in its intention “to commercialize rThrombin in the US on our own”.

Zymo will still be in charge of US pricing and commercialization, and will book US sales. But Bayer’s added muscle will allow Zymo to quickly penetrate the market, converting a maximum number of hospitals to recombinant thrombin as fast as possible, and also countering any threat from J&J. With the support of Bayer’s 70 US sales reps and 25 scientific liaisons, “we’ll have the largest field force in the hemostasis market,” Zymo's president and CEO Bruce Carter said on the conference call following the deal's annoucement, “as well as what we believe to be a superior product.”

As for Bayer: it has long abandoned global, Big-Pharma style ambition in favor of a more specialist focus. Like other mid-sized pharma, it has tried to position itself as a flexible partner that’s willing to consider ex-US rights only—and let’s face it, that’s increasingly all that’s on offer in today’s sellers’ market, as we've discussed in previous IN VIVO articles.

But the Zymo partnership offers a glimpse of how mid-cap pharma may now be able to leverage the size they do have—relative to many a biotechs, anyway—to secure what are effectively global product deals for products with (relatively) low risk.

And the cost isn’t bad either: Bayer pays Zymo $30 million up front, $40 million on approval, and up to $128 million in milestones, most of which are sales based. Ex-US, it’s in charge, and pays Zymo double-digit royalties.