Health Care and Government

Selling change at Lilly: Company overhauls strategy its thousands of sales reps use to tout drugs to doctors

May 15, 2006

Eli Lilly and Co. is rolling out a new approach to selling drugs, one that aims to build deeper relationships with doctors while cutting the number of sales reps knocking on their office door.

The reorganization project, dubbed "sales force of the future," is just what the doctor ordered, according to Lilly executives. They say physicians want fewer sales calls and a deeper knowledge base from those who still stop by.

"Doctors want that primarily because they're treating patients and they're treating disease; they're not ... worrying about how this one little pill will work," said project director Beth Sexton.

Lilly officials say they launched the reorganization strictly to better serve doctors. They say it will involve no job cuts at the 42,600-employee, Indianapolis-based company.

However, the move reflects an industry trend driven by bottom-line concerns, analysts say. After swelling their sales forces in the 1990s, drugmakers now are looking for ways to cut costs. As a result, many are streamlining and, in some cases, shrinking sales forces.

"Generally speaking, the industry has an overcapacity in sales force," said Shaojing Tong, a pharmaceutical analyst for New York-based Mehta Partners.

The number of pharmaceutical sales representatives in the United States tops 100,000, according to industry estimates. Lilly declined to reveal the size of its U.S. sales force, but Tong said it might number around 4,000.

What the future holds

"Sales force of the future" made its U.S. debut in January with neuroscience drugs. It expanded earlier this month to include diabetes products. Deirdre Connelly, president of Lilly's U.S. affiliate, called it a "journey of five years" that eventually will encompass the company's entire product portfolio.

Instead of sending four sales reps to a psychiatrist's office to pitch Lilly's four main neuroscience drugs-including top-seller Zyprexa-the company may now send one or two to cover that portfolio, Connelly said.

The company wants to guard against office-visit overkill and build better relationships. Doctors have told the company they want sales reps who understand competitor products as well as their own and know a lot about the diseases they treat.

"What they're saying is, I want a partner to help me better serve my patients," Connelly said.

Instead of organizing its salespeople around individual products, Lilly will organize them to support portfolios of similar products and to support geographic areas.

Connelly said the regional approach will help the sales force work more effectively with doctors in regional health care organizations and with government payers like Medicaid and Medicare.

Lilly, which has launched nine products since 2001, spent "a good deal of time" over the past year studying its U.S. sales organization, President John Lechleiter told a shareholders' meeting late last year.

"After several years of adding significant numbers of sales representatives in anticipation of these product launches, our focus now is on increasing the effectiveness of that sales force," he said. "It's an effort that I'm encouraging from the ground up."

The concept generated muffled applause among some Indianapolis doctors.

On the receiving end

Dr. Andrew Riggs doesn't anticipate sweeping change from the new approach.

The pediatric endocrinologist at St. Vincent Children's Hospital orders Humatrope, a human growth hormone, from Lilly. But the company's sales representative already is knowledgeable about the drugmaker's insulin products and other treatments.

He said representatives from other companies provide similarly broad views.

Sales reps keep doctors up to speed on new products and new uses, but they're only one of many sources of information doctors use, he said.

Dr. Ana Priscu would welcome fewer visits from sales reps. Priscu, an endocrinologist with St. Francis Hospital and Health Centers, sees at least a dozen each week, including several during lunches.

She said she appreciates the idea of having "only one person to see for more than one medication."

However, many patients-especially older diabetics-depend on free samples the sales reps leave behind. She wonders whether fewer visits will yield the same amount of samples.

"From a patient care point of view, I don't think it's going to be as good as it is now," she said.

An industry trend

Drug companies spent much of the past decade in a sales force arms race, but they have reversed course the past couple of years, said Herman Saftlas, an analyst who covers Lilly for Standard & Poor's.

Tong said companies added salespeople to support the launch of potential blockbuster drugs as well as to support "me, too" drugs, medications similar to treatments already on the market. Such drugs lean heavily on marketing to drive sales. The rising cost of research and development, coupled with complaints from doctors, spurred companies to scale back, analysts say.

Industry giants and Lilly rivals New York-based Pfizer Inc. and New Jersey-based Merck and Co. all have announced sales streamlining plans, Saftlas noted.

"It makes sense to maximize the efficiency of your sales force," Saftlas said.

In 2004, Lilly announced a plan to cut roughly 1,000 jobs and close U.S. sales offices to reduce costs and improve efficiency.

The plan called for reassignments but no layoffs. Its worldwide work force then shrank by more than 1,800, reaching about 42,600 at the end of 2005.

Dr. Jon LeCroy thinks Lilly's latest restructuring is a push to keep that reduction going.

"We still hold the belief that part of the intent seems to be to encourage some reps to leave voluntarily and continue Lilly's focus on voluntary headcount reduction," LeCroy, a New York-based analyst for Natexis Bleichroeder Inc., wrote in a report late last year.

Not so, Lilly's Connelly said.

"We need to have the very best sales force serving our customers, and we need them all," she said.
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