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Peter Rost, M.D., is a former Pfizer Marketing Vice President providing services as a medical device and drug expert witness and pharmaceutical marketing expert. Judge Sanders: "The court agrees with defendants' view that Dr. Rost is a very adept and seasoned expert witness." He is also the author of Emergency Surgery, The Whistleblower and Killer Drug. You can reach him on rostpeter (insert symbol) Please read the terms of use agreement and privacy policy for this blog carefully.

Pfizer's shell game: Cuts 20% of sales force

So the news is finally out, after months of speculation. Pfizer, the #1 drug company which started the arms race among pharmaceutical sales forces, is finally cutting back.

And they’re not cutting back lightly. 20% reduction is a huge change when it comes to the 11,000 sales people they have on board. Most doctors, however, probably won’t miss those displaced sales reps, since Pfizer also pioneered having multiple sales forces calling on the same doctor. So I guess the cutback means those docs will only get bagels once a day in the future.

And while this is a sad development for the people involved, it probably isn’t a bad development for patients. Less sales people means less hype. But let’s get real. 2,000 more or less sales people among around 100,000 in the entire sector isn’t going to make much of a difference.

The real difference may be that for the first time Pfizer is changing course, and since many of the smaller companies are simply trying to mimic what Pfizer is doing, they will feel they have the permission to do the same.

So careful disarmament appears to be underway in the drug business.

And here’s the part you may not read anywhere else, since most journalists really don’t know how a cutback such as this one affects a drug company.

The truth is, it doesn’t; not much anyway.

Here’s the deal. I’ve reviewed lots of sales force models, sales force restructuring scenarios, etc. And based on all the data we had, we found not only that more sales reps give a diminishing return, but we also found something else, which we didn't expect.

We learned that before that diminishing return hits home, there is a very wide flat area. What that means is that each new rep pretty much paid for himself; but he didn’t add much incremental revenue.

So the good news was that you didn’t have to be a rocket scientist when you organized a pharma sales force. A few thousand more or less really doesn’t make much of a difference. In the end, whichever size was used, they brought home about the same profit.

So why is Pfizer doing this?

For those of you who don’t know, Pfizer is trying to achieve annual savings of $4 billion by 2008.

2000 reps, with a salary cost of $100,000, plus car and a few other costs, probably no more than a total of $200,000 brings in a saving of about $400 million a year. That’s not exactly chicken shit, but it is less than 1% of Pfizer revenue and only about 3% of profit.

No major celebration from Wall Street in sight based on those cutbacks.

So, again, why is Pfizer doing this and why now?


On Thursday, November 30, 2006 at 10:00 AM EST, Pfizer will hold its 2006 Analyst Meeting. And they probably don’t have terrific news. So they want to show they can be tough. Instill confidence in the Wall Street types.

And that’s the reason they do this now.

After all, when Pfizer’s biggest new product, torcetrapib, which reduces cholesterol, turns out to actually raise blood pressure, well, then a mass-firing of sales reps may detract some of the attention from Pfizer’s dry pipeline.

But there is more. When we look back at the drug industry, ten years from now, we will probably recognize that this was the turning point, when an entire industry started seriously contracting. So if you own drug company stocks, watch out. The worst may yet come.


Anonymous Alex said...

I've been saying this awhile.

The people running these large corporate businesses (ex: CEOs, CFOs, etc) aren't particularly good business-minded people. Despite their MBAs and certifications and stovepipe view of the world.

In effect, monkeys could some of these people's jobs. Afterall, Wall Street will tell them what to do.

But this is what happens when corporations pollute the educational system with donations.

Anonymous Alex said...

The Hudsucker Proxy comes to mind.

Anonymous shade said...

Do you think this has anything to do with the success of direct-to-consumer advertising? When patients are asking their doctors for the latest hyped up product, in effect it turns them into free reps. Not only that, but paying reps.

Anonymous Cary said...

I guess the cuts being to sales reps and managers because this is the most bloated part of the budget. It seems logical to trim all the fat before getting rid of the meat. I think Phizer's lack of innovative drugs in the pipeline has some correlation to the size of its sales force. They focused too much on pushing the product and not enough on inventing it.

Blogger Michael said...

I think you inferred it, Peter, but didn't come out and say it: The sales force cut will only help Pfizer. It won't do a thing to lower its drug prices.

So consumers won't feel a thing.

Anonymous open vault said...

Finally things are begining to move. You want to be a sales rep with lot of years, just few years before retirement. Freedom 55. Those will be the lucky ones. The rest, what are they going to do. Once they get out there to look for sales jobe, the reality will hit them hard, for they have been shielded from reality by the lala land called big pharma.
I know for after I left or better term, forced out after many years, with decent income mind you, I found out that no one pays as big pharma for little work. The smart reps did only enough and let the rest of the multiple sales force do the work. Between up to ten of them the sales job was done anyway. The joke:How many drug reps it takes to sell one single drug to same doctor? As many as the big pharma company can afford. Well this will change and it will save lot of our docs' valuable time to do what they are paid to do, look after the sick.
Now next task will be to change the nasty ways of the big pharma to save even more time and money.
Doc I hope you will let me know.

ps. Michael, anything they do is to help them, the big pharma. If there were not regulations making sure that they have to make more or less good drugs, they would sell you any white or any other colored powder.

Anonymous Anonymous said...

No one is saying one thing, yet, about what all these lay-offs do to the job market, and to those already out there in salesjobs facing more competition. Pfizer's decisions may be followed by similar decisions elsewhere, which reminds me of something quite different.

You recently wrote, Peter, about having voted to come here, and having made the decision to become an American. Now read on Yahoo, today, how legal immigrants to the U.S. face green card logjams and are bypassed by illegal immigrants. That is similar to my story. I came here as well, legally, with degrees, skills, excellent workrecord, and with my husband, a neurosurgeon. A few years later I was single, did even College over again, then Grad work, and...could not get work: overqualified. I had also become an U.S. citizen. I have done all sorts of "jobs" and odd "jobs", from working in patient accounting to high school teacher, to the legal department of Glaxo, and on and on. I am an economist and mathematician, plus 4-lingual. Read what the Yahoo article says. I am frustrated up to over my head with the situation in the U.S., as an immigrant. However, I see that soon even American professionals who are now self employed, such as physicians, will be replaced by others. Increasingly, pharmaceutical companies, and others, such as medical appliance manufacturers, employ, and then start to "own" physicians, for example. An orthopaedic surgeon who also becomes an orthopaedic consultant, for example, can make a lot of money, however, if not in name, he may well de facto become an employee. And employees can be replaced with workers from anywhere. And then, one step further, with computer automation and integration, these too will be replaced. The question is where will everyone go and how will they make a living. We already have over 300 million people in the U.S. With legal and illegal imports, we will have other logjams in addition to those at the "greencard factory".

Anonymous Alex said...

I suppose this will reward the executives in someway.

Maybe there is a surplus of salespeople. Maybe not.

And certainly they're not innovating enough and mostly fighting to extend patents and investing too much in advertising.


Like I said earlier.

These aren't particularly very good business-minded people.

They're lazy. And greedy.

And they get rewarded for that. Bad idea.

It really is management at its worst.

Blogger Pharma Giles said...


An interesting analogy regarding monkeys doing CEO's jobs. Monkeys are paid peanuts. Unlike CEOs.

And yet the simian similarites are remarkable. One reflects, for instance, on the events during a recent board reshuffle at A Major US Pharma Company Whose Name Will Not Be Mentioned, where it was notable how those who did not abase themsleves to the new Alpha Male of the troupe were forced to become outcasts.

Maybe Jane Goodall should spend some time working in Big Pharma.

Anonymous Kanada Konection said...

From what we heard so far, we can make the same conclussion as Tom Backwell of National post in his excellent article couple of years ago, that big pharma companies have become nothing but "amazing marketing machines".
For those not in business here how multiple sales forces in action lookes like. An actual excerpt from a memo sent to the whole sales force of six GP and two spec. sales forces:
"Given our goal of driving Diovan to be the #1 prescribed ARB, we continue to need a #1 detailing effort in the market place.Therefore all the six GP sales teams will now support Diovan. This change allows us to increase our reach of Diovan message to more customers. Making this change will allow us to leverage this market opportunity when it occurs.
In summary, to meet the strategic opportunity outlined above, we have adopted the Cycle 1, call plan in the following manner:
Sales force selling position
PC: Diovan
WH: Diovan
CNS: Excelon
CV: Diovan
FP: Diovan
GI: Zelnorm
These changes will help us achieve our 1004 sales goals!! And bonuses for you.
Thank you....."

Signed: The name with heald to protect the guilty.

Although the chart did not work well, one can count the number of times same drug was promoted by all six sales forces.
Notably is absent any reference to well being of patients, contribution to the well being of population and other "trivial" goals, that the big pharma is supposed to exist for. In actuality it is as if we exist for the big pharma to sell their drugs to not other way around.

Blogger MsMelody said...

Peter--Thanks for the information.

Alex--Great comparison

DTC advertising; maybe if some newly-unemployed drug reps face bleak re-employment prospects, they can join the bandwagon to rid our airwaves of DTC advertising. I think this has done more harm to our healthcare system than is immediately recognized. Isn't there a saying about "a little knowledge is a dangerous thing?" And that what DTC provides. . . a (very) little knowledge.

The low-volume, quick speak caveats that appear very briefly at the end of a televised DTC advertisement serve as substitutes for INFORMED CONSENT, removing responsibility from the drug manufacturer.

A doctor who acts with a degree of circumspection, and directs a patient to perhaps a different drug (or no drug at all), may find himself fired if a patient cant obtain the "latest and greatest--as shown on television."

Sorry for the rant!

Anonymous Anonymous said...

On the up side, maybe a couple more appt. slots will open up now for real patients.

Anonymous Alex said...

I love the Financial Times newspaper. LOVE IT. It's the only print paper I'll pony up money for.

Two stories I found today as I caught up on my reading were...

Pay of College Heads Starts to Hit $1M
- E Gordon Gee of Vanderbilt earned a salary of $905,296 + $265,915 in benefits last year
- Audrey Doberstein (retired) of Wilmington College comp pkg was $2.7M
- Donald Ross (retired) was Lynn univ was $1.3M last year

Many others from their survey were in the very high six figures.

NY Property Broker turn to former fashion models to sell its luxury developments
ID Model Management is training, marketing, and helping actresses like Angie Everhard get their broker's licenses.

Anonymous Anonymous said...

Interesting stuff. Light on facts and heavy on guess work, but makes
you think.

What I couldn't understand was how Rost draws the conclusion that the 20%
cut back in sales at Pfizer spells more long term term cutbacks at Pfizer
and therefore at all Pharma companies. Even if I believe that this were
true about Pfizer (plausible given some bad decision making) the huge
multi-billion dollar profits drug companies can make on even one drug
seems to suggest that this is an industry that is going to do well for
a long time. If Pfizer goes down I would imagine another company would
simply step into its shoes and suck in all the profits.

Blogger beeta said...

What do you know about the National Association of the Self Employed?
I am Self Employed, and I was aproached by an agent today.
Some of the benefits sound great.
The health insurance was over my budget (I find health insurance rates on the other side of sane).
Anyone has any input on the organization?

Anonymous Alex said...


I don't know about NASE personally.

But, the only thing I have to say about organizations like this is "be careful".

My experience has been if they offer "accreditation", skip it entirely because it's not worth the paper it's printed on and is worthless out in the market place.

If they offer "certification", still be very cautious because even if it's recognized, experience and accomplishments will carry more weight.

Most of them tend to be very good at one thing and one thing only: sending their renewal invoices.

Anonymous Alex said...

Oh and Anonymous (above Beeta),

next time why not do like Nascar and include a little "I'm with Pharma / Pfizer / (pick your own)" logo / link with your comment.

You're pretty lame in the stealthy department.

Blogger Peter Rost said...

OK, a few short comments. Nope this doesn't have anything to do with DTC, it has to do with the fact that the winds are changing. DTC drives sales, which means companies can afford more reps. May sound counter-intuitive but that's how it works.

As for billion dollar profits and industry will continue to do well. Here's the deal. Companies don't care about how much money they make, only how much more they make. Big pharma is in an impossible situation. Objectively they could cut profits in half and still be more profitable than any other business, but to them and their stock this would be disaster. So they'll do anything (except cut CEO compensation) to continue to produce amazing profits. Look at Pfizer - profit of $14 billion per year.

Blogger Sam said...

And that $14 billion/year is NET-- Gross exceeds $51 billion/year.

Also, is it true that Hank McKinell while CEO (and even now still Chairman 'til Feb.) has simultaneously been on the Board of Directors at Exxon Mobile???

How sad and wrong is that???

Then I read on today that Pfizer in all of their altruism is making HIV (as yet unapproved and unregulated) drugs available to segments of poor populations from 30 different countries-- who otherwise would not have been able to afford any medication at all. These "patients", the article continues, will be part of the late-stage clinical trials for Pfizer's new AIDS medicine.

So, they can be guinea pigs for Pfizer and experience who knows what kind of horrific side effects or receive no medical care at all. (A far cry from Oprah and Bono's drive to get HIV medication available for 3rd world country populations).

Granted, this is an improvement on the efforts of Pfizer in Africa in the mid 1990s to do this exact thing, but without telling the patients that they were receiving only experimental drugs and being monitored as part of this clinical which would help them seek FDA approval back in the states where they couldn't legally or ethically conduct such practices-- all as reported this year in the New York times after suit was filed against Pfizer in a New York Federal Court by attorneys representing those African victims.

And we think it's George Bush going around the world making everybody hate America??? Sure, he's done his share of the work, but he's certainly not without competition!

Thanks Hank, and all you've done for consumers of life-saving (altering) medications and petroleum prices.

What a winner (wiener)!

All the best!

Anonymous Anonymous said...

Pfizers CEO/attorney in fact knows that he cannot fire 1000 older reps
without it being noticed.
He cannot fire 2000 older reps and replace them with 1000 bunnies.
But he approves the hiring of 1000
new bunnies in August....and then he decides to lay off 2000 employees, 1000
younger employees and 1000 older employees.
So does he think you have to go to
Harvard to understand that his intentions were to fire 1000 or more of his older force to keep from paying them a pension?
Managers claim they were told to put reps on plans to prepare for this. They wanted to pretend that
reps with great numbers had performance problems. It does not take
a Harvard degree to see their

Anonymous Alex said...

And that $14 billion/year is NET-- Gross exceeds $51 billion/year.

Today, when you hear how corporate america cannot afford the benefits for employees, remember it's always just an excuse. Companies can afford it, but the nonsense about the "bottom line" they love to use is the excuse. US companies were competitive when employees were paid well, in the time before rock star ceos.

Btw, an interesting perspective on how times have changed.
The Gospel of Work vs. the Gospel of Wealth
by Russell Mokhiber and Robert Weissman

It was a company town.

A company region, actually.

The Mohawk Valley in upstate New York.

The Remington boys had started a gun company.

And they had come to dominate the region.

There was even company scrip.

Scrip you could use like money to buy food, and clothes.

Get a haircut.

Even donate to the local church.

And when you went to church, Mr. Remington was there.

So, if you had a complaint, you could tap him on the shoulder.

And talk about it.

People were generally happy.

Then the gun trust came to town.

And sabotaged the whole deal.

And down it went.

That's the story line of Worked Over: The Corporate Sabotage of An American Community by Dimitra Doukas (Cornell University Press).

Doukas, who is now a professor at Dalhousie University in Halifax, Nova Scotia, says that in the late 1800s, corporations, once they took control of production, tried to change the culture of the United States.

From the gospel of work to what Andrew Carnegie called the gospel of wealth.

"If we look at the United States in the 19th century, we see a popular culture that was, in a word, anti-capitalist," Doukas said. "And this was reflected very much in the political scene of the time. You had to be in favor of the working man. You had to support and praise the common man. The basic idea is that work is what dignifies a person. It is an anti-aristocratic ideology. It goes way back, really. Aristocrats were characterized as parasites, as people who lived off the work of others. Whereas good, virtuous American people worked hard and were expected to enjoy the fruits of their labor."

So, for example, Abraham Lincoln, in his first annual message to Congress in 1861, makes his statement about capital and labor: "Capital is only the fruit of labor. Labor is the superior of capital and deserves much the higher consideration."

But when the corporations came in and took over, the major message was -- no, it's capital, not labor, that produces the wealth of society -- it's capital that deserves the greater consideration."

And this is what Doukas means by "the sabotage of an American community."

"Sabotage in the sense of undermining or continually poking at it, first with very little sophistication, poking at the basic value set of the society," she says. "And the reason they poked at it is because the corporate value system could not co-exist with the American value system."

On the whole, working for the Remingtons was a positive thing. There were no strikes. The Knights of Labor were influential at the time. And people look back with fond memories of the time.

"To work for the Remingtons was not to have a job in our sense," Doukas told us. "The people worked as contractors. They sold what they made to the company. They were organized into departments under a senior highly skilled craftsperson or artisan. Each of these persons could conceive themselves as working independently."

Working people took offense at being wage slaves -- what most of us are now. They had a sense of independence from the man. And the man was right there in the community. You ran into the man -- on the street. You could talk with the man.

Now, the man sits atop a giant corporation, unreachable, unknowable.

"A whole way of life was organized around working for the Remingtons," Doukas says. "People looked at it as being wholesome -- American, virtuous, dignified -- and still today they look back at that period. Even today, there is a tremendous sense of history among local working people. They are tremendously critical of the present day situation."

So, there was economic democracy under the Remington family?

"In this very particular sense -- back then, you had local ownership," Doukas said." The biggest boss sits in a pew next to you in church and was there to be buttonholed after church. There was direct access. You can think of it as economic democracy, maybe, in the broadest sense. But locally, it is more like a ranked system where skilled workers saw themselves in some sense as ranking lower than the Remingtons. And yet the high ranking person was accessible to them. At the same time, there was a sense of the tremendous dignity of being a working person and creating the wealth of the country. And this is how people spoke of it for better than a century. So, it is democratic in the basic sense that if you had a grievance, you could get some sort of action on it, and fairly directly. You had a voice -- ground to stand on."

Anyone who is from upstate New York knows that it's one of the most beautiful regions of this country.

And for years it has been battered by big corporations that don't give a damn about the region.

Doukas says there was a time when the man cared.

Hard to believe.

But it's worth taking a peek at her book and making your own judgment.


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