Healthy Sales

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Imagine running a company with thousands of salespeople who never actually sell anything. That's exactly the case in the prescription pharmaceutical business. "The pharmaceutical [business] has the largest sales forces of any industry," says Rod Johnson, service director for customer-facing technologies at AMR Research. The sales force at a top tier pharmaceutical company, like Merck, Johnson & Johnson, Bristol-Myers Squibb, Eli Lilly or Pfizer/Warner Lambert, could easily number more than 6,000 in the United states alone.

Yet pharmaceutical reps don't actually sell drugs; their job is to convince physicians to prescribe drugs that will, in turn, be sold by pharmacists.

The large numbers, along with the complexity of tracking results and legal requirements connected to the pharmaceutical business, mean drug companies have a tremendous opportunity to impact the bottom line by eliminating inefficiencies.

For years, they've have been doing just that with sales force automation software. The industry was one of the first to embrace the technology. "Pharmaceutical companies have been doing SFA since 1985," says Dave Hanaman, executive vice president and co-founder of C3i, a Siebel partner specializing in e-business services for the life sciences. Now, the industry is under increasing pressure to bring down costs because of, among other things, managed care, the increased pace of new drug introductions and a number of high-profile pharmaceutical company mergers. Tailored pharmaceutical SFA solutions--and now also full-blown CRM solutions, including service and marketing as well as sales--are in hot demand, even as the needs of the industry are changing.

The stakes are high. The global pharmaceutical market is worth $250 billion a year, according to a Deutsche Banc Alex. Brown report. Worldwide there are about 220,000 sales reps in the top 50 pharmaceutical companies. Even as pharmaceutical companies consolidate, the number of reps continues to grow. "The prediction was major company mergers would lead to down-sizing," says Jeff Smith, co-founder of the Institute for Pharmaceutical Sales--a recruiting company for pharmaceutical sales reps--and previously a drug company rep for seven years. "But we're seeing just the opposite."

Day in the Life

So what's the life of these reps like? What is it that makes selling a prescription drug different from selling a life insurance policy or an air conditioning system?

First, there's the fact that a pharmaceutical sales rep is not selling the product directly to the end user. "Reps don't sell products," says Matt Wallach, director, product marketing for Siebel Life Sciences, "They provide information." Reps provide physicians with information on drug benefits and side effects, plus clinical research data and competitive comparisons, to try to influence the healthcare provider to prescribe their company's drug.

And it can be intimidating to talk to highly-trained medical specialists. "Basically, you're telling the doctor that what he's doing is wrong," says Smith. "And you're talking to someone who'll forget more than you'll ever know."

A rep visits six to 10 physicians a day. According to the Deutsche Banc report, the 70,000 pharmaceutical sales reps in the United states collectively made 37 million physician sales calls in 1999. As with most other industries, the 80/20 rule applies: 20 percent of the doctors prescribe 80 percent of the product. So the rep arranges to visit the most important "customers" once or twice a month. In some parts of the country the rep might need an appointment, says Smith. "In New England, New Jersey and New York, I found you often needed an appointment. In Texas it was easier to get in. But every office is different," he says. Physicians you can't see at the office, you might be able to catch when they are making their rounds at the hospital, says Smith.

Compared to most other products, the development cycle in the pharmaceutical industry is long. It takes between 10 and 15 years to develop a drug. Companies have many products in the pipeline, which they spend millions of dollars developing and testing, but which don't show adequate effect and so are never approved. "Pharmaceutical companies are reliant on a few successful drugs," says Hanaman. When they come out, there is a small window of opportunity before the drug goes off patent and other companies come out with similar competing drugs. "So they have to hit it with all barrels blazing," he says.

Companies examine the clinical data, the marketing department crafts a message and a highly trained sales force brings this message to doctors. But the doctor usually allows the rep only a few minutes to make a case. So the rep has to be sure to stay on message. "The rep is at the end of a long line of product development and marketing," says Hanaman. "A lot is riding on that sales call."

Delayed Gratification

Another peculiarity with pharmaceutical sales is that reps don't get an instant sale. At the end of the visit, they can always ask whether or not the doctor is going to prescribe the drug, and the doctor may even say yes. But the rep obviously isn't there when the prescription is actually made. "Doctors lie," says Smith. The only way pharmaceutical companies know who is prescribing what is by purchasing prescribing data aggregated by third party companies, the best known of which is Westport, Conn.-based IMS Health. However, there is a delay in receiving that information. A rep has to wait eight weeks to get IMS data indicating whether or not the doctor was convinced by the five-minute spiel and went on to prescribe the drug.

And the doctor isn't the only one the rep has to convince of the benefits of the drug. "In the old days, the only way to influence prescribing behavior was with face-to-face visits to doctors by the sales force," says Hanaman. But now large buying groups get into the act. Even if you manage to convince a doctor your product is best, the Health Maintenance Organization he works for or the patient's insurance company may not agree to cover the product. HMOs routinely substitute less-expensive generic drugs for name brand ones. Group Purchasing Organizations (GPOs) and hospital chains also buy in bulk and negotiate cut-rate deals. So, in fact, pharmaceutical companies have separate sales forces dedicated to selling to the purchasing organizations and insurance plans. Those sales people jockey to get their drugs on formularies, or lists of approved drugs.

Finally, pharmaceutical sales reps are unique in that the government tightly regulates everything they do. The Food and Drug Administration (FDA) initially approves a drug for a specific use. Detailed descriptions of how that drug works and which diseases it is active on, plus dosage and side-effect information, are printed on what's called the package insert--the folded paper inside the box when you buy medicine. Sales people cannot promote drugs in ways other than those described on the package insert, even if the drug subsequently proves effective for additional treatments. "The FDA will not allow reps to say certain things," says Smith. "They walk a thin line as to what they can say."

Additionally, when reps make a sales call, they usually drop off a sample of the drug. And the Prescription Drug Marketing Act (PDMA) regulates how these samples of controlled substances must be tracked. The rep is required to describe how the drug acts and what the side-effects are before handing over the sample. In the pharmaceutical industry, this is called "detailing." Then the rep must collect, either on paper or electronically, the physician's signature confirming receipt. "If anything goes wrong, drug companies are liable in a big way," says Hanaman.

Complex Sales Process

Admittedly, pharmaceutical sales is complex. But there are certain advantages to selling in this industry. "You're talking to a higher-level clientele than if you were selling cars or computers," says Smith. "You get more respect. Drug companies pay well, and they give good benefits."

The complexity virtually guarantees that pharmaceutical sales reps need SFA and CRM software to do their jobs without a slipup. All the major CRM vendors have sold into the pharmaceutical space. But a vast majority of deals go to the few vendors that have specialized in this area. Until a few years ago, the two top contenders were Morristown, N.J.-based Dendrite, founded in 1986, and strategic Technologies, a unit of IMS Health. About three years ago, though, Siebel saw the interest in developing CRM solutions for vertical markets and came out with Siebel ePharma--and subsequently with solutions for over a dozen other industries. Now, according to Siebel's Matt Wallach, vertical solutions make up the majority of the company's license revenue.

Then, in July 2000, strategic Technologies and Siebel announced an alliance to jointly develop, market and sell Siebel ePharma. IMS spun off strategic Technologies in September of 2000, and the new, independent company changed its name to Synavant.

Dendrite still boasts the largest installed base. Next in market share, according to Dendrite's Mark Cieplik, are software systems developed in-house by pharmaceutical companies themselves. But Cieplik predicts that pharmaceutical companies will no longer be able to afford to develop these systems in-house as cycle times get shorter. Synavant, which is no longer selling its solution, still has a large installed base. But many of those customers will be looking for new solutions when that company ceases to support its old solutions.

Lest you think Dendrite and Siebel are the only contenders, don't forget stayinFront (formerly Great Elk), which just announced sales to some second-tier pharmaceutical companies, and YOUcentric, which in alliance with KPMG has come out with RxWeb for the pharmaceutical industry. "We've finally persuaded analysts that it isn't a two-horse race anymore," says stayinFront's Warren Tobin. Decidedly, with the number of pharmaceutical sales reps growing by at least 15 percent a year, according to Deutsche Banc Alex. Brown's Conan Laughlin--who recently initiated coverage of Dendrite--more CRM vendors want to get in on the pharmaceutical action. Laughlin estimates the global market for pharmaceutical CRM at about $1 billion. Siebel's Wallach is more conservative, giving a rough estimate of $678 million.

Two Questions

There are two questions pharmaceutical sales reps need to ask themselves, according to Siebel's Wallach: "Who do I talk to?" and "What do I talk about?" Pharmaceutical CRM systems have several unique features that help reps answer those questions.

As in other industries, CRM systems in the pharmaceutical industry contain customer contact and address information. However, in the pharmaceutical industry, even this basic information gets complex. Additional data, such as the doctor's medical examiner number and state license number, has to be included. And doctors are usually affiliated with more than one hospital or insurance plan. At each hospital, they have a different address and assistant. They also have affiliations with each other. One doctor may influence a whole prescription group. These well-known physicians are known as "key prescribers." And all these relationships need to be recorded in the CRM system.

In addition, the CRM system has to capture all the drug company employees who interact with each doctor, from sales reps and marketing people to professional services reps. Therefore, as it adapted Siebel Sales to fit the pharmaceutical industry, Siebel had to change the relationship between contacts and accounts. This complex interaction between all the drug company's employees and all its doctor/customers with their myriad affiliations is called a "many to many" relationship. "There could be many reps from the same company calling on the same doctor," says Hanaman. "So they'd better get their information straight."

Using the CRM system, the sales rep can sort on different criteria. "For example," says Wallach, "a rep could look for all the high prescribers in a specific county who like golf and haven't been visited in over 30 days, and invite them all to a golf outing." According to Smith, it's important to be able to save this information to compare with next month's results.

Reps also use the CRM system for call reporting. They plan what they will say on the call, record the products discussed and make note of which promotional items were dropped off. Sample tracking functions help them manage their drug sample inventory. Any information they in turn gather about which products the doctors say they are prescribing can be useful back at headquarters. As pharmaceutical reps are particularly pressed for time, ease of use is important, says Smith.

An essential feature of any pharmaceutical CRM system is how it handles the vast amount of data available. There are three buckets of data, according to Hanaman. First, there is primary information collected by a pharmaceutical company's sales, marketing and service departments describing what was talked about on calls. Second, there is the company's sales history, which drug sold to whom in the past. Last, there is third party data from sources like IMS. Each year, drug companies spend millions of dollars to purchase third-party data. Dendrite offers its own prescribing data through a non-exclusive relationship with leading U.S. pharmacies. Using analytics, the CRM system has to draw intelligence from all three information sources. Ideally, thanks to CRM, salespeople entering doctors' offices know whether or not the doctor has prescribed their company's product in the past, if not, which competing product he is prescribing, which clinical data they can present to try to change the doctor's mind, and whether or not he attended the most recent event their company sponsored. "I don't know of another industry that has to make sense of such a lot of data," says Dendrite's Cieplick, Hanaman agrees. "The data in most pharmaceutical systems would bring systems in other industries to their knees," he says.

Additional pharmaceutical CRM system modules can include formulary management for keeping track of which drugs insurance companies, HMOs, hospitals and the government will pay for; as well as handheld and wireless capabilities. The systems have to be robust enough to handle the frequent realignments typical in the pharmaceutical industry. Tailored solutions don't come cheap. Siebel, for example, charges $350 a year more per seat for its base vertical solutions than for its Siebel Sales solution. And that's not including special modules.

Take It Direct

Although reps will always form the backbone of pharmaceutical sales, the Internet is starting to develop as an alternate source of information.

A majority of doctors have indicated they'd be interested in "e-detailing," or getting information on a drug from the manufacturer's Web site, requesting a sample and having it delivered by FedEx. It's understandable that there's a segment of physicians who prefer to get information on the Web, says Wallach, because "there's a ratio of one rep to seven doctors. If you're an important prescriber, you could have two reps in your office all day, every day. You could have more reps than patients. Busy doctors are saying, 'Send me an e-mail when there's new information on your Web site.'"

But when introducing a new channel, pharmaceutical companies have to make sure it is integrated with their other channels. Too often, according to Wallach, drug companies' customer contact channels are not well integrated. If a doctor visits a Web site to request information or log a question, and then subsequently calls in to the call center, the call center rep usually asks for a name and address, and then says "Now what can I do for you?" Instead, according to Wallach, the CRM system should allow the call center rep to say, "Hello, Dr. Smith, is it about the samples you requested last night on the Web?"

Perhaps even more important than cyber-savvy doctors are the Web-surfing health-care consumers. Before consulting their doctor, consumers go to the Web to check out their ailment 43 percent of the time, says Wallach. And, 88 percent of the time, when consumers ask for a drug by name they get it. Wallach tells pharmaceutical companies, "This means consumers have more influence on prescriptions than all of your sales reps combined."

Realizing the importance of reaching consumers with their message, drug companies have stepped up direct-to-consumer advertising, something that wasn't even allowed a few years ago. According to IMS, direct-to-consumer advertising reached $1.3 billion in the first half of 2000. That's compared to $907 million for the same period in 1999 and $1.3 billion for all of 1998. Top-ranking campaigns included Merck's Vioxx for arthritis, Schering-Plough's Claritin for allergies and AstraZeneca's Prilosec for gastrointestinal disease.

"The Internet offers a huge advertising potential," says Hanaman. "The Wall street Journal reported that in the first six months after the start of direct-to-consumer advertising, prescriptions were up 19 percent. Everyone knows there's a goldmine in there. The direct sales force is still critical, but it's not everything."

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