Death of a Salesman

Death of a Salesman

Back in 1949 Arthur Miller won a Pulitzer Prize for his classic play; Death of a Salesman.  The play was loosely based on Millers uncle, who like the play’s main character Willy Loman was a salesman. Depending on a person’s point of view the play is either a condemnation of capitalism or a realistic portrayal of the rough and tumble world of business.   Although written long ago, the theme is alive and well in the diabetes device world.

As Diabetic Investor reported shortly before the Thanksgiving holiday, LifeScan, the glucose monitoring unit of Johnson and Johnson (NYSE:JNJ), became the latest BGM company to reduce head count. LifeScan is not unique by any means as Abbott (NYSE:ABT), Roche and Bayer have all seen their sales teams shrink as the BGM market has now fully transformed itself from a medical device to a commodity style market where the only things that really matter are price and formulary access.

But it’s not just sales people who are getting the ax as BGM companies have trimmed, more like taken a chainsaw to marketing  and research and development budgets as well. The harsh reality is these companies are not charitable institutions; they are for profit entities whose number one priority is to protect the interest of their stakeholders. Stakeholders who expect these companies to make money so their investments will grow in value.

While Diabetic Investor does not like to see anyone lose their job, one has to wonder why the salespeople who are complaining loudly today did not see this coming. After all these are the same people who consistently complained that management wasn’t seeing what was really going on in the field, that management did not get it that meters where no longer a medical device but a commodity. Salespeople accurately noted what Diabetic Investor has been stating for years, all this fancy technology while way cool doesn’t mean a thing if the meter does not have preferred formulary placement.

The simple fact is most of the major BGM companies really don’t need an army of expensive salespeople and it’s not just because meters have become a commodity. Back in the day when there were true differences between systems, salespeople and their relationships with physicians were invaluable.  Although we have seen an explosion in the number of systems available, the reality is there is little difference between systems now. Small sample size, no-coding and faster test results have become commonplace. Frankly physicians no longer need a salesman to explain how a systems works or why it’s different than a competing product. Physicians and patients want to know one thing; is this system covered by insurance.

Should a physician or patient need more detailed information, something that used to be provided by a salesman, is now widely available on the internet.  Is it a surprise to anyone as the market has become ultra-competitive that BGM companies have spent their shrinking resources more towards web sites and other interactive media? Whether it’s the web or downloadable apps, the fact is this type of technology delivers a large bang for the buck, never complains, and doesn’t need health benefits, a company car or expense accounts.

Actually what’s going on in the BGM world is only the beginning and will soon spread to pharmaceutical side of diabetes.  Just as meters have become a commodity so too soon the same will happen in the insulin world. Already we’re seeing signs of the coming commoditization of the short-acting insulin market, a move which will only accelerate with the arrival of generic insulin. The same is true with long-acting insulin as Lantus will see patent protection expire in 2014.

Looking ahead companies like Novo Nordisk (NYSE:NVO), Lilly (NYSE:LLY) and Sanofi (NYSE:SNY), just to name a few; will need far fewer salesman as they just don’t have that many new or truly innovative products coming to market. Novo is the perfect example of a company that will be caught between the proverbial rock and a hard place, as the company will need salespeople out promoting their new insulin’s; Tresbia® and Ryzodeg®. Yet, these new products will come to market only shortly before Lantus goes off patent and while different than what’s on the market today they do not offer a compelling benefit over what’s already available. Making matters even more difficult many believe that these new insulin’s will find getting favorable formulary placement difficult, as payors see the same thing that Diabetic Investor does.

The reality is the old days of having an army of salespeople are becoming not just overly expensive but ineffective. Truth be told, this should not come as news to any salesperson in the diabetes device or drug sector, as the handwriting has been on the wall for some time. This does not mean salespeople are not needed; rather their role must evolve as the markets they operate in evolve.  This is not unlike what has gone on with our armed forces after the draft ended years ago.  With military service no longer compulsory the armed forces had to adept to a new set of rules, ultimately doing more with less people.  This is exactly what’s happening today in the diabetes device and drug sector, doing more with fewer resources.  Given what’s going on Diabetic Investor suspects that the LifeScan won’t be the only company announcing more cuts during this holiday season. Unfortunately for many salespeople in the sector it will be a lump of coal in their Christmas stocking.