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While staff sales forces continue to shrink, the contract sales business is expected to nearly double over the next five years
The thinning out of pharma sales forces is a well-recognized industry trend. Less well known is the growth in contract sales, partially a direct result of that winnowing. According to IMS Health, contract sales organizations (CSOs) are in the process of doubling their workforces between now and 2015—from about 6,000 to 10,000-12,000. Leading CSO organizations have been showing >12% profitability since the middle of the past decade, and are forecast to do even better in the next five years, according to market researcher Kalorama Research (New York).
“Traditionally, the advantages of contract sales are shifting a fixed cost—a sales staff—to a variable cost, and being able to turn the CSO on or off over a finite period of time, usually no longer than 18 months,” says Terry Tormey, president of Tormey Consulting (New Hope, PA), and former president of Nelson Professional Sales (now Publicis Selling Solutions). He adds, “Sales managers who hire a CSO expecting to get the same level of ability at a lower cost are setting themselves up to fail. The best-run programs keep as much the same as possible—salaries, incentives, territories, call schedules and so on. At the end of the day, you will want parity between the cost and expectations of the CSO and an internal sales staff.”
CSOs say that they are on top of one of the strongest trends of the current market—the growth of managed care formulary placement; they are also promoting their ability to reallocate sales resources almost at the drop of a dime. CSOs are aggressive—or confident—enough even to fund co-promotion of products along with the brand owner—and to reap higher-than-average rewards.
Today, pharmaceutical and biotechnology companies are placing greater emphasis on brain over brawn through the use of more carefully designed sales teams. Such teams often involve a mix of internal and third-party reps, and the judicious use of the growing number of options available in today’s e-detailing toolbox.
In general, the use of CSO personnel “provides an elegant way for drugmakers to fulfill their own unmet needs, by filling in missing pieces related to either the size of their existing permanent sales force, or the particular clinical or specialized therapeutic-area expertise they possess in-house,” says Chris Wright, principal and leader of the U.S. pharma practice for consultancy ZS Associates (Evanston, IL).
Specifically, today’s CSOs can help drug makers to:
“Experienced CSOs can assemble a team of field reps numbering from a few dozen up to 500—700 and get them up and running and out in the field in less than 12 weeks,” says Paul Mignon, president of inVentiv Selling Solutions (Somerset, NJ). “That kind of flexibility is a great value to pharma and biotech companies as they work to react quickly to all types of exogenous factors.”
As the successful deployment of contract teams continues to deliver results throughout the industry, a growing number of biopharma companies have begun to take a hard look at some long-held assumptions. “Drug makers have traditionally considered sales and marketing to be a closely held core competency and have built extensive in-house teams and the infrastructure to support promotional activities, launches and general portfolio expansion,” says Bruce Carlson, publisher of Kalorama Information (New York). “However, driven by the lean-and-mean business model that is at work today, more and more companies now consider sales and marketing to be a prime candidate for outsourcing.”
Still, skepticism remains in some quarters.
“The lingering misperceptions continue to be the biggest obstacle we have to overcome,” adds Mignon of inVentiv Selling Solutions. “If you think the contract sales business is what it was 10-15 years ago, then you haven’t been in the market.”
“Anyone who distrusts the concept of using contract reps has typically been burned in the past or may be concerned about losing control. That’s why partnering with a reliable, experienced ally is so important,” adds Daryl Gaugler, SVP and head of North America for Quintiles Commercial Solutions (Parsippany, NJ).
As for the unwillingness to relinquish control, Rick Keefer, president and CEO of Publicis Strategic Solutions Group (Lawrenceville, NJ) says: “In the past, we would often hear clients say ‘we can build it better internally,’ but this has changed. Today, clients are realizing that not only do they no longer have to — or want to — ‘own’ everything internally, but that in fact doing so can put them at a competitive disadvantage.”
Unfortunately, “many still believe that contract reps are somehow less-qualified individuals — that they are not on par with internal pharma industry reps, or that they couldn’t get a job with a drug company and thus ended up joining a CSO as a training ground,” says David Kerr, SVP of business development for PDI, Inc. (Parsippany, NJ). “This is simply not the case.”
“We have been advising pharma clients about the strategic use of outsourced sales teams for more than 20 years and I’ve never seen any evidence — even in side-by-side comparison studies — that CSO reps are less qualified or less effective than internal sales reps. says Wright of ZS Associates “Think about it — they have to be just as capable, if not more so, because their entire reputation and financial success (in an increasingly crowded field) depends on it.”
“At the end of the day, all CSOs must be able to show that a dollar invested in their sales teams will yield a higher return than that produced by the company’s own internal sales force,” adds Kerr of PDI. “We don’t get labor any cheaper — you’ve got to pay for the expertise you need. It’s more about developing a more nuanced sales-team strategy and deploying the right resource for the mission.”
To shed the lingering “rent-a-rep” reputation, today’s leading CSOs are constantly broadening and refining their service offerings, and through innovative contracts that involve more risk-sharing and pay-for-performance terms, are working to become a seamless extension of the drug maker in the marketplace. For instance, in addition to the flexible deployment of field sales teams whose members are hand-picked to meet different product- or region-specific needs, today’s CSOs also routinely provide other types of sales support, including:
And advocates say that since the less-than-successful performance of individual reps or a lackluster overall outcome could jeopardize ongoing contract renewal with the CSO, CSOs place a great premium on recruiting, training and coaching the most capable and highly motivated sales personnel. “All of today’s CSOs have a better-established infrastructure to recruit, train, deploy and assess all types of reps, as needed,” says Chris Nickum, VP and Global Practice Leader for Commercial Effectiveness for IMS Management Consulting (Plymouth Meeting, PA).
“These turbulent times have forced us to become the companies we are today,” says Gaugler of Quintiles. “More than ever, CSOs are able to function as true allies with the biopharma industry, enabling drug makers to use our services as a change agent.”
Putting ‘more skin in the game’
While CSO contracts have historically been based on a straight “fee-for-service” arrangement — with payment to the CSO based on, say, the number of physician details completed by the contract rep in a given time period — more complex risk-sharing agreements are becoming more the norm today. Such contracts utilize a ‘management-by-objectives’ strategy, says Nickum of IMS, and aim to both incentivize the CSO reps with a combination of sales and incentive-based pay, and spread the risk among both parties by linking the CSO earnings to tangible operational benchmarks, such as an increase in the number of scrips filled or renewed, growth in the total sales revenue for the product, an increase in market share during a given period compared to some baseline, or the ability to influence switching rates among products.
“When contract sales arrangements are less about simply collecting call signatures and more about achieving the clients’ strategic goals, the CSO is truly putting its own profit at risk against product performance in the market,’ says Gaugler of Quintiles.
In some cases, the deal goes even further, with the CSO essentially functioning a strategic partnership for co-promotion, taking over the full sales and marketing responsibility for less-strategic brands within the portfolio and even putting its own money beyond the outreach effort. This approach helps to maximize the upside for drug makers, especially when it comes to resuscitating a mature brand that may have been all but written off from a field-sales perspective due to the re-deployment of the internal sales force to other product lines.
“With a little mining work, we’re often able to identify languishing brands and literally bring them back from the brink of death with some added sales-force push,” says Kerr of PDI.
Rethinking the numbers
After years of ebb-and-flow adoption patterns, the use of contract pharma sales personnel has been growing consistently for the past several years, and many industry insiders are bullish about its future in the years to come. According to IMS Management Consulting, the so-called “arms race” drove the total size of the U.S. biopharma sales force to its recent high of 110,000 (both in-house and contract reps) around 2004—2005. Since then, the total number of reps in the U.S. is projected to stabilize at around 70,000–75,000 by 2015. However, within that mix, the number of contract reps is on the rise; the current estimate of 6,000 contract reps in the U.S. is projected to reach 10,000–12,000 by 2015, according to IMS.
Meanwhile, from 2003 through 2010, the revenue of the global CSO market grew at a compound annual rate ranging from 12% to 17% per year, according to Carlson of Kalorama, which projects that global revenue within the global CSO sector will grow by 16—17% per year through 2013.
Right-sizing the sales force
Industry observers agree that the strategic use of a contract sales force can help drug makers to cut their overall physician-outreach costs by 10 to 25%, as a result of several inherent cost-saving aspects of the approach. For instance, while contract reps are only put to work as needed in response to product-specific, seasonal or regional drivers, the fixed overhead costs related to recruitment, training, sales team management and support, performance assessment, data management, human resources and other forms of IT support are not only assumed by the CSO but are amortized over concurrent contracts with the CSO’s numerous clients.
“It may be a win-win strategy for all parties — the manufacturer/marketer shifts much of the financial burden to the CSO by offloading these overhead costs, and the CSO is able to disperse the costs internally across all of its concurrent contracts,” says Samir Bhattacharyya, VP of Covance Market Access Services (Gaithersburg, MD).
Meanwhile, the most important aspect of proper pharma sales-team design, whether using internal or external reps for a given product line, “is to ensure that the size of the team is appropriate — optimized in terms of number, clinical expertise and seniority — and that the right rep is used for the task,” says Mignon of inVentiv Selling Solutions. “Just getting that ‘selling to scale” concept more closely aligned with the task at hand can make you more efficient.”
“In many cases, it makes no sense to deploy highly trained, highly compensated internal reps when the particular detailing effort does not require that level of expertise,” says Kerr of PDI.
Beyond direct and indirect cost savings, other intangible aspects of today’s evolving contract — such as the ability to more effectively mitigate business risk — are also appealing to biopharma companies that routinely face relentless scrutiny from the media and the investment community.
Between 2006 and 2008, many of the 10 major biopharma producers, including Pfizer, AstraZeneca, Merck, Bayer, Schering-Plough, Johnson & Johnson and others, shed more than 53,000 employees, many in marketing and sales positions, and during the 2008-2009 period, another 10,000 rep positions were eliminated, according to a 2009 study by PricewaterhouseCoopers. “Any time a pharma company downsizes its internal sales force, it requires a lot of human resources maneuvering and creates quite a bit of drama. The news is often heavily covered by the Wall Street Journal, and analysts interpret any downsizing as a bellwether of the overall health of the product or the company,” says Wright of ZS Associates. “By contrast, if a finite CSO contract is not renewed for any reason, it is seen as just that — the negotiated work has been completed so the contract has been allowed to end.”
Accommodating the product lifecycle
Historically, most biopharma companies have preferred to keep physician-detailing efforts related to the launch of a new product in the hands of their internal reps — with two notable exceptions: when the size of existing sales force is not sufficient to reach the entire universe of potential prescribers; or when the new product is destined for a new therapeutic sub-specialty (and thus a specialized prescriber profile) in which the company has no existing clinical or sales expertise.
Meanwhile, in some scenarios, the company may opt to devote its internal sales staff to detailing complex, specialty therapies and then contract with a CSO to deploy an outsourced team to carry its core primary-care product slate forward.
In general, specialty medicines that are developed to treat rare diseases or specific disease subtypes are aimed at a relatively narrow therapeutic category, so they tend to have a much smaller target audience of potential prescribers. These high-cost specialty therapies often demand specialized sales reps who can effectively communicate complex, clinical information, complicated injection- or infusion-based administration procedures, and requirements for specialty distribution or storage requirements.
Biopharma companies are finding that the ability to partner with a CSO with solid experience in communities of specialty prescribers — such as those in oncology, cardiology, dermatology, women’s health or pediatrics —makes strategic sense, because the CSO can fill the missing pieces in the company’s existing sales force. CSOs with established expertise in these areas are able to assemble sales teams with the needed clinical expertise, and often already have close ties to prescribers and KOLs in that niche therapeutic area. “Different CSOs are often populated with experienced specialty reps who already know the territory in different therapeutic areas — and that’s helpful when a biopharma company says: ‘I want the reps who have worked this patch before,’” says one industry observer.
Meanwhile, during the launch of any promising new product, the enormous sales force push often drains attention and internal sales resources away from older drug portfolios. In these cases, resource-constrained biopharma companies often end up turning their backs on older drug franchises allowing them to simply coast rather than actively pushing for continued uptake in the marketplace could still yield substantial sales.
The move to regional sales team design
The impact of managed-care decisions from private and government payors — which can blunt the physician’s ultimate ability to make prescribing decisions and thus directly influence the potential revenue profile of a product — often varies by region. “Changes in the insurance formulary status, reimbursement scenarios and coverage decisions can significantly alter demands for individual products — and when there is one or more dominant payors in a given region, these decisions can directly impact the financial fortunes of affected pharma products in that region and thus call for a rapid increase or decrease in detailing firepower,” says Bhattacharyya of Covance.
By way of example, Nickum of IMS Management Consulting says: “In Alabama, two or three payors dominate the landscape ‘so you’re either on or you’re off.’ By comparison, Los Angeles has more that 300 different plans in play.” Based on payor trends, Nickum notes roughly eight or nine distinct regions have emerged in the US, and brand teams should consider the particular impact of dominant payors’ stance on individual products in each region when designing their overall sales-team-design strategy.
“The ability to win a favored formulary status may be a big bonanza for given product — but only in St. Louis,” says Wright of ZS Associates. “Where effective reps may have once been able to influence doctors to prescribe a given product, new formulary constraints in a given area may effectively bind the prescribers’ hands, and in those cases, it may no longer make sense to deploy a large detailing force in that location.”
“This impact of building on-again/off-again sales teams, in terms of its impact on internal staffing is very inefficient for biopharma companies relying on their internal sales personnel alone,” says Keefer of Publicis.
However, when a given product receives a demotion of sorts from the dominant payor in a given region, the drug maker’s recommended response may not be universal. For instance, some may see this development as a reason to pull sales reps out of that region. Others may respond by deploying additional contract reps to that region in an effort to educate physicians about specific clinical outcomes or advantageous aspects of the product that may encourage them to continue prescribing it, even if doing so may require prior authorization or incur a larger out-of-pocket expense for the patient.
CSOs are in a much better position to than drug makers to quickly ‘hire and fire’ capable reps to quickly add more feet to the street in, say, Indianapolis, while thinning the ranks in Phoenix, as needed, says Wright of ZS Associates, adding: “There’s enormous strategic value in getting this right — in not missing opportunities that may crop up suddenly, and not overselling into regions where it’s unlikely that ongoing detailing effort will have any meaningful impact due to external payor constraints.” He notes that while this may not have been the reason companies used CSOs in the past, “the need for rapid, differential deployment of skilled reps to deal with the payor volatility is sure to drive demand for contract sales teams in the future.”
Piloting new ideas
The nimble nature of the today’s CSO offerings is also helping biopharma brand teams to experiment more with novel outreach ideas, and today, “a growing number of drug makers are using small teams of contract reps to test and pilot new techniques and tactics for expanding reach, broadening the audience, testing new message, to test a premise devised by the brand team without disrupting ongoing promotional efforts, and before scaling it up with the full sales force,” says Kerr of PDI.
“Drug makers are obviously reluctant to hire 80 people to try something that may or may not work,” says Nickum of IMS Management Consulting. By contrast, because CSOs are able to quickly assemble and disassemble customized field-sales teams of any size, “it’s easier than ever for brand teams to say ‘let’s try this,’ and test or pilot their innovative outreach strategies before committing to a full-scale rollout or deciding to pull the plug on the concept,” adds Mignon of in Ventiv Selling Solutions. PC