Business Analysis: Death of a salesman

Big pharma is facing pressure to cut its sprawling sales forces

When the sales rep from GlaxoSmithKline or Pfizer or AstraZeneca, or any of the world's largest drug companies, loads up the boot of the car with sample products, leaflets and freebie pens to give to doctors, he or she may be looking forward to a day of up to a dozen meetings. Most of the day, though, will be spent in the car. Those dozen meetings will add up to less than an hour. Probably much less. These days, the drug company rep might be shooed out of the surgery door after a minute or even just 30 seconds. The salesman's job has always been a tough one, but it has got steadily less productive over the past few years. In the pharmaceuticals industry, within a decade, we may even be facing the death of the salesman.

It is a subject that is increasingly exercising executives across the industry, and the reason why so many eyes are trained today on Pfizer, the market leader, which has promised a strategy update. All the signs are that Pfizer will unveil a major cost-cutting drive that will slash its global workforce - but what will it say about its sales force?

The worry for the industry is that there has been a decline in the number of new drugs being launched since the start of the decade, but the number of sales reps has continued to rise. There is no getting round it: "share of voice", the relative prominence a pharmaceutical company's marketing machine can get for its product over rivals, can be as important as a drug's scientific merits in determining prescription volumes.

Pfizer's sales force is the biggest in the industry, numbering 38,000 across the world. Its size is one of the major reasons the company has the world's best-selling drug, the cholesterol-lowering Lipitor.

If Pfizer cuts its sales force - lowers its voice, if you like - then others can follow.

Wall Street and the City are desperate to see a big bang, something, anything to suggest that the industry has found a dramatic solution to the problem of collapsing drug prices and poverty of new blockbuster products, a classic margin squeeze that has forced the valuations of drug company shares sharply lower since the start of the decade.

Sales and marketing budgets are typically twice the level of research and development budgets, suggesting that spending on a short-term sales push has been elevated to the detriment of long-term investment.

But the revolution does not start today. According to Premal Pajwani, a healthcare analyst at Eden, the niche broker: "Initial hopes of a major restructuring and cost-cutting programme, including a 20-30 per cent reduction in Pfizer's US sales force, appear increasingly unlikely, dampening hopes of a wave of industry-wide cost cuts."

The smoke signals are very hard to read, but Pfizer may well have concluded that there is a "first mover disadvantage" in cutting sales reps whose activities still provide a decent return on the cost of salaries, commissions and expenses.

Jean-Pierre Garnier, GSK's chief executive, had been telling investors privately that, even if Pfizer were to make a bold move to slash its sales force, he would not follow immediately. There is hay to be made by having a narrower gap between the numbers of reps. Dr Garnier instead talks about a "third mover advantage".

The revolution does not start today, because there will be no big bang, no bold moves. Rather, investors should expect evolution, and it is already happening.

Companies are increasingly using contract sales forces run by other specialist firms, introducing a degree of flexibility that will make future cuts less difficult and costly. AstraZeneca cut its effective sales force by 500, almost 10 per cent, by restructuring contract arrangements last autumn.

And more importantly, companies are also experimenting with other ways of reaching doctors. In particular, they are using the internet, guiding doctors through product information, a process called e-detailing.

Tony Zook, the senior vice-president of US commercial operations at AstraZeneca, said the company's promise to investors is to make its existing sales force more efficient, not to cut it.

"We have done a lot of work with e-detailing, using the internet as a contact point for doctors to support our reps' traditional interaction, making us able to pull back on the number of visits we do," he said.

For the doctors this is preferable to a snatched meeting in the middle of a busy day. The only trouble is that internet use by doctors is not universal. Mr Zook said: "We have found that when physicians have access they enjoy extracting information at what is a good time for them, but that the level of access is not the same across the country."

Their use of the internet will inevitably improve, however, and advertising companies report that some of the fastest-growing areas of work for their pharmaceuticals clients is in the arena of internet marketing.

Alasdair Mackintosh of Capgemini, the management consulting giant, says his clients have also experimented with call centre-based approaches to GPs, simply adapting existing professional advice lines to make cold calls.

And the pharmaceutical industry appears to be getting more confident of reaching the GP or junior hospital doctors indirectly. Mr Mackintosh said: "Doctors are not only influenced by reps, they are also influenced by their peers, and drug companies have recognised these networks of influence and realised that targeting key opinion leaders can improve sales efficiencies." Senior hospital doctors and specialists who regularly publish research work are being targeted.

So alternatives to the sales rep are gradually being put in place. The growing inefficiency of the existing marketing model has forced executives to think more radically. At this stage, while a sales rep still pays for his or herself, it is difficult to see a speedy reduction in the numbers out in the field. But there are reasons for believing the sales rep could stop making a decent return.

In part, it is pressure on a doctor's time which has led to the reduction in the length of rep visits, but it is also in many cases pressure from local health authorities and, in the US, care organisations.Sweden has gone furthest and completely outlawed all rep visits without permission from the health authority.

This is being seen as the latest front in the war on healthcare costs. Doctors do not see the costs of the drugs they prescribe, but the primary care trust in the UK or the insurers in the US do and they are keen to wrest influence over prescribing habits from the reps, to stop overprescribing of expensive medicines and push doctors into using cheap copycat alternatives where possible. In some cases, surgeries are offered cash payments in return for changes to their prescribing habits. The UK Health Select Committee is calling today for new curbs on drug reps.

With a suspicious public in both Europe and the US, and aggressive federal and state agencies in the US, all focusing on pharmaceutical company marketing practices, many drug company executives believe that regulatory and legal events are more likely to spell the end of the traditional sales rep than anything that comes out of Pfizer today.