Effectiveness of Pharma Sales and Marketing

This BNET article outlines the latest to-20 ranking drug companies by sales and marketing productivity. It shows that productivity is increasing, despite recent lay-offs in sales forces. But, according to many, there is a long way to go.

BNET produced the numbers by dividing a company’s revenues by its spending on SG&A, producing a revenue yield per $1 of SG&A. The majority of SG&A costs are sales force and advertising expenses. The yield is a rough guide to how well a drug company martials its marketing resources each quarter.

This news comes as the debate about the need for sales reps continues. Many have suggested that the knowledge economy and IT will dramatically reduce the human interface of sales. However others, such as futurist Alvin Toffler, argue that one cannot do without the human interface. Technology may reduce it, but the human touch cannot be replaced. Already in Australia, electronic detailing is fast growing in popularity.

But IMS Health says pharma sales need an even bigger overhaul.

The pharma-market analysis firm says the industry should re-deploy about $15 billion in promotional spending because–to put it bluntly–those dollars aren’t yielding enough sales. Instead of viewing doctors’ offices as ground zero for most marketing efforts, drugmakers should broaden their focus to include drug-benefit plans. 

This analysis is supported by some interesting stats in this  Business Week article ‘The Doctor won’t see you now‘:

Big Pharma companies are learning that storming doctors’ offices with multiple overlapping salespeople is woefully inefficient. Fewer than 25% of visits to physicians result in actual face time, says investment bank Leerink Swann & Co. in a Jan. 3 report. That’s a lot of wasted effort for folks who typically cost their employers $200,000 per year. Other companies that could benefit from sales-force cuts include GlaxoSmithKline PLC (GSK ) and Sanofi-Aventis (SNY ), say Leerink analysts. Lehman Brothers Inc. (LEH ) adds Schering-Plough Corp. (SGP ) to that list and predicts that a 20% reduction in sales expenses across the industry would lift large-cap pharma earnings by 3%. Spokespeople for those companies say they have no current plans for cuts.

Pharmaceutical companies that have already shrunk their sales forces are finding innovative ways to do more with less. Bristol-Myers Squibb Co. (BMY ), which has cut 1,300 salespeople since 2004, tracks physicians’ prescribing patterns and adjusts its promotional activity accordingly. A full 18 months before its cholesterol-lowering drug Pravachol lost patent protection last April, the company halved the sales calls dedicated to the drug and instructed reps only to call on doctors who were already prescribing it. “We figured those who hadn’t prescribed it yet weren’t going to start now,” says Tony Hooper, Bristol’s president of U.S. pharmaceuticals. Despite the changes, prescription rates didn’t falter. Between 2000 and 2006, overall productivity per rep jumped more than 40%, Bristol says.

Some companies, including Bristol and Merck, are supplementing often brief physician visits with “e-detailing.” They might, for example, point doctors to interactive Web sites that teach them about new drugs and that can be updated instantly with fresh clinical-trial data to support their sales pitches.

For some interesting analysis on total marketing spends by pharma, see this article.