A world without reps

A world without reps

Given that the blood glucose monitoring market is dying a slow and very painful death the question becomes what’s next. Or perhaps a better question might be will the diabetes drug space learn anything from what happened in the BGM market. Just as Diabetic Investor accurately predicted that the BGM market would transform into a commodity market where price trumps performance, it looks very much like our prediction that the diabetes drug space will follow this path will also come true. Which makes one wonder can the diabetes drug companies avoid many of the mistakes made by their BGM counterparts.

One lesson that should be learned is the value or should we say lack of value of a large field sales organization. The harsh reality is that companies like Lilly (NYSE:LLY), Novo Nordisk (NYSE:NVO), Sanofi (NYSE:SNY) and AstraZeneca (NYSE:AZN) can easily replace the functions performed by their large and very expensive field sales organizations with technology. The simple fact is given the changing dynamics of the market combined with new regulations i.e. Sunshine Act, reps aren’t allowed the time to develop and maintain relationships.

In todays interconnected world the first place physicians go for information on a new drug or an issue with an existing drug isn’t the rep but the internet. In today’s world where reps are no longer allowed to drop off free samples, the internet becomes the primary source of information about a drug. In today’s world where reps can no longer take a physician out for lunch or bring in lunch for their staff, the internet becomes the primary source of information. In today’s world when a physician’s choice of therapy options is often dictated by the patient’s insurance coverage, what value does the rep bring to this process?

Finally think of it this way it costs approximately $250,000 per year to keep a rep on the field, this cost includes not just a reps salary and benefit package but the staff required to support that rep. Now multiple that number by several hundred and one begins to get a clearer picture of the equation. Then add in the fact that drug prices continue to face pressure and that payors are increasingly opting for single source providers. Just as the BGM companies back in the day were being squeezed from all sides, this same scenario is playing out in the diabetes drug space. The bottom line is a huge and very expensive field sales organization is luxury these companies can no longer afford if they expect to remain profitable.

There has been a great deal of speculation over what will happen to the AstraZeneca field sales organization should Pfizer (NYSE:PFE) be successful in acquiring the company. Many have speculated that given the rising cost of this acquisition that Pfizer will have to make deeper cuts in the field sales organization than originally anticipated. While this may be true the fact is even without being acquired Astra would have likely made cuts to their field sales team, the same goes for Pfizer. The same goes for almost every company in the diabetes drug space, a market which will only get more competitive in the future.

Perhaps the best way to look at this is to go back in time and think about how mobile phones have made pay phones obsolete. Or perhaps think back to when everyone had a VCR and there was no such thing as a DVR or Netflix. There may be some who remember when computing consisted of large, expensive desktop systems which used 5.25 inch floppy disks.  And believe it or not there are some, Diabetic Investor among them, who can remember what the world was like before the internet came along. Yes believe it or not the world did function just fine before the internet came along. Yet we digress.

The point here is that as technology evolves so too does the world around it. Diabetic Investor takes no joy in writing this but the facts are what they are. We do not like seeing seasoned highly talented sales professionals who once worked in BGM still looking for work. Still just because there is a human cost to this transformation that the transformation should not be made. This would be like an American league baseball team declining to use a designated hitter, while every team they play uses one. Failing to adapt to the changing market dynamics puts a company at a major competitive disadvantage.

Will each and every rep position be replaced by technology? We doubt it. However can a good portion of these positions be eliminated, have their functions replaced by technology without adversely impacting sales. The honest answer is yes. The future won’t be a world without reps but it will be a future with fewer and fewer reps. Companies who fail to see this will be at competitive disadvantage in a market which is moving ever closer to becoming a commodity market.