Opinion: Trigger Points - Pharmaceutical Executive

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Opinion: Trigger Points
Timing is everything. But when is it right? As pharma begins to confront the looming issue of sales-force downsizing, execs should keep an eye on six factors that can help answer that very question.


Pharmaceutical Executive



Kim D. Slocum
FOR SEVERAL DECADES, conventional wisdom in the pharmaceutical industry has held that a large sales force is the key to commercial success. However, in recent years, a number of warning signs have emerged about the effectiveness and long-term viability of this expensive asset. While few are saying it publicly, a number of pharma executives are now exploring the possibility that it could be only a matter of time before the industry's dependence on personal selling comes to an end.

As with any substantial change to a business model, timing is critical in regard to significant sales-force downsizing. Jump too soon and risk losing market share to competitors who maintain their representatives. Jump too late and damage the firm's income statement by maintaining a large and wasting asset. While daunting, this timing challenge is not insoluble. There are six triggers that industry executives should be monitoring to better understand the appropriate timing for substantive change in their selling models.

1) PRESSURE ON MARGINS

At present, pharmaceutical companies are highly profitable. This means that they are the only constituency in all of healthcare that can afford the considerable expense associated with maintenance of a large sales force. Any substantive decline in industry profitability would be a key event in forcing a rethink regarding the fixed costs of a large sales force. Over the past five years, industry has seen a steady decline in annual sales growth rates. In the crowded chronic-disease categories, the declines have been even more dramatic. In large part, this has been due to cost shifting to consumers in the form of three-tier benefit designs, and more recently, the advent of "consumer-directed" (aka high-deductible) health plans. These vehicles have offered growing proof that the markets for a number of pharmaceutical products are much more price-elastic than previously thought. The advent of new four- or five-tier benefit designs that impose significant coinsurance for specialty pharmaceuticals may well slow the explosive growth that sector has experienced.

Medicare is the wild card in this equation. While at present the Part D program appears to be in good fiscal health, Medicare as a whole is not. It is unlikely that Congress will leave prescription drug coverage untouched in the event of continuing concerns about the solvency of the program under which it is housed. Notably, all these pressures come into play downstream from the physician's prescribing decision and represent forces over which the medical community presently has little influence. They therefore represent factors that really can't be influenced by the efforts of sales representatives, but do have significant impact on the effectiveness of physician-focused promotion.

2) PHYSICIAN COMPENSATION

There are clear signals from both the public and private sector that we will experience ongoing changes in physician compensation. At present, physicians are generally cost-insensitive prescribers of pharmaceuticals, since they have little personal financial stake in the consequences of their prescribing decisions. As a consequence, they tend to be responsive to the benefit presentations that are the stock in trade of pharmaceutical sales reps.

Should pay for performance or alternative physician-compensation programs become more mainstream—especially if the metrics for such programs incorporate "efficiency" parameters, such as total generic prescribing—the effect of pharmaceutical sales representatives may be blunted unless companies do a much better job of tying representatives' sales messages to this new phenomenon.

Related to this is the potential growth in the use of techniques like health technology assessments or evidence-based medicine that increasingly will help payers make determinations about which agents are appropriate for physicians to utilize.


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