Pharmaceutical Industry

Downsized Pharma Sales Force Must Work Smarter

Pharmaceutical sales reps must work smarter now that there will be fewer of them on the street. Pfizer, the world’s largest drug company, said last week that it would lay off almost 2,400 sales reps and managers, or a fifth of its U.S. sales force. The move may be the beginning of wider cuts by others in the drug industry.

This is a time for pharma sales teams to work smarter rather than take the so-called Mongol horde approach, said Chris Lundgren, EVP of SK&A Information Services. The best way to deploy your sale force is to understand the makeup of physician offices, such as group practice sizes, group practice linkages and office managers who can facilitate detailing efforts. It starts with the basic knowledge of having the business address instead of a home address.

Drug makers have sharply increased the size of their sales forces over the last decade as the research productivity of the companies has plunged and the pipeline of important new drugs has dwindled.

The bloated sales forces, analysts say, have alienated doctors and contributed to high drug prices. Many doctors now complain that they are overrun by too many representatives who have little useful information.

Because Pfizer led the sales force expansion, other companies will probably follow its decision to cut back, said Michael Krensavage, a drug industry analyst at Raymond James.

The other companies were reluctant to cut their sales forces while Pfizer was continuing to have people on the ground, he said. It seems like it’s the end of an arms race.

Now, with revenue barely rising at most companies and Democratic leaders in Congress vowing to wring savings from the Medicare prescription drug program, drug makers are under pressure to bring their costs down.

Paul Fitzhenry, a Pfizer spokesman, said the company expected to notify affected employees by mid- to late December. The layoffs should be complete by Jan. 1, he said.

The layoffs will be spread broadly across the United States sales force, including both field representatives and managers, not confined to any geographic area or category of drugs.

This is overdue, said Les Funtleyder, an industry analyst at Miller Tabak. Pfizer was probably the innovator in the Mongol horde’ approach to the sales force, and that model served them well in the past. Now they simply don’t need as many.

Several other analysts lauded the move as a positive step for the company that could have an industry-wide impact, possibly sparking other companies to follow suit.

We see this move as a positive for the industry given the excess capacity that exists within pharma sales organizations, wrote Bank of America analyst Chris Schott, in a note to investors.

Goldman Sachs analyst James Kelly noted Pfizer is not the first company to significantly trim its sales force, citing Wyeth’s 15 percent cut last year. But this recent move could embolden others, he wrote, to take similar action.

Source: The New York Times, and Associated Press reports. Dec. 5, 2006