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Smooth blend

CSOs are doing well, providing an array of salesforce solutions for pharma, but what must they do to ensure long-term survival?

If Ray Mears was asked what the keystone to his becoming a successful survival expert was, he would more than likely answer that it is the knowledge and ability to adapt swiftly to the terrain around him.

While at first glance, the M3-M4 corridor is perhaps not as wild and inhospitable as the Sahara Desert or the deepest depths of the Congo (apart from Camberley on a Saturday night), contract sales organisations (CSOs) will do well to listen to his advice.

Flexibility is paramount if they are to keep drumming up business from pharma companies looking to complement their salesforces at varying stages of product life cycles.

It has been a challenging and in some cases difficult year for the extremely competitive UK CSO sector. While the term `shake up' is an exaggeration, there has certainly been a lot of jostling in the pack as CSOs seek to outdo each other in terms of both repositioning and differentiating the services they provide.

The biggest recent eye-opener has been Irish drug wholesaler United Drug's £10m acquisition in June of the third largest CSO, In2Focus. United Drug, already the owner of the number two CSO, Ashfield Healthcare, was quick to point out that the deal meant the combined salesforces of the two dwarfed that of the UK's largest CSO, Innovex.

As outsourcing companies, CSOs have also felt the pinch of the Pharmaceutical Price Regulation Scheme (PPRS) over the last 12 months. Duncan Morris, managing director at the fourth largest CSO, AmDel, says that the PPRS bit hard into a lot of pharmaceutical companies, especially the smaller ones, and consequently the money they had originally set aside for extra salesforces was cut out.

I've spoken to several of the major pharma companies over the last few months and their message is now that they need to redress the balance between their own core reps and the level at which they outsource by lowering the former slightly and raising the latter slightly, he says. While it's been a tougher year this year for CSOs, I think the overall outlook is extremely bright.

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All change

Traditionally, CSOs have made headway by providing syndicated sales options to companies looking for extra message delivery on key products, but lately this model has been challenged, at least by the smaller new entrants.

Recognising that the syndicated approach will continue to work for seasonal products, such as hayfever treatments and flu vaccines, they have up to now championed specialist dedicated teams as the future of the CSO.

However, with return on investment (RoI) very much the name of the game, there is now an admission that the highly profitable syndicated approach still has its place, mainly because there are a considerable number of pharma clients around who still want it.

Steve Kerridge, managing director of In2Focus, admits that when the company was set up five years ago, it had no intention of providing syndicated teams as it did not believe it would be the mainstay for the future. Since then, it has had to alter that stance.

In the last year, we've added a couple of syndicated teams, purely and simply because of customer demand, he explains. It's really just responding to market dynamics - if you've got syndicated teams with some capacity, you'll often get a company you really want to work with wanting a first line or second line detail, and if you haven't got it they will go somewhere else.

It is just the nature of the beast; if a firm has one particular product that requires extra effort it does not justify buying in a whole team.

Kerridge still remains convinced though that the high quality selling approach lies within dedicated teams, borne out by the theory that many pharma companies are challenging selling models: The traditional 60-man salesforce is going to be less viable going forward and people will want more focused hotspot activity in the areas of best possible return everywhere.

Most companies that we're talking to at the moment are saying they would prefer people working practices like accounts, where they're pulling it through and working with the practice to change prescribing behaviour rather than loads of multiple reps selling the same product to the same doctor and just going in to deliver a message, he says.

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Dedication's what you need

Many of the newer, smaller CSOs espouse the dedicated approach, citing it as the best method of targeting customers effectively. With the NHS splintering into several specialist markets, such as Primary Care, hospital, dispensing doctors and clinical nurses to name but a few, the industry is slowly waking up to the fact that it doesn't just have one type of customer.

The newer raft of CSOs believe that this new landscape requires specialist teams. Syndicated teams, despite remaining hugely profitable, have come under criticism for focusing on the quantity of calls and noise generated, rather than the quality of the sales interaction. But is this criticism justified?

Morris at AmDel admits that as margins are getting squeezed at many companies, unless they have two or three products to put into a dedicated team, they are currently looking for more syndicated options.

We're trying to take the old syndicated model and recognise its strengths, but we have also recognised that the key problem with it is the lack of consistency of good people within those teams.

Richard Purchase, director of fieldforce excellence and service deployment at Innovex, believes it is not the time to proclaim `the day of the representative is dead, long live the account manager'. He says it is not so much a question of dedicated versus syndicated as focusing on what pharma companies both want and need.

We have customers come to us wanting to outsource specialist and dedicated teams but there are also customers who just want a shared team simply because their particular brand or overall portfolio doesn't require a dedicated team and they want to mitigate some of the costs, he notes.

That's why some of the smaller CSOs claim that this type of shared approach is a thing of the past because you do have to have a critical mass of people to genuinely offer a shared team, otherwise it's a big risk for a CSO to take on if they can't find a partner for that product.

He adds that CSOs in the future are going to be judged on three essential criteria: the ability to demonstrate excellence in salesforce effectiveness, the ability to be flexible - particularly when changes occur at a local level, such as products going on or off primary care organisations' formularies - and the ability to deliver on their promises.

If a CSO can't do all of these three things and do them consistently then they're unlikely to be in business next year, according to Purchase.

The real deal

The acquisition of In2Focus by United Drug has led to inevitable speculation that the second and third biggest players in the CSO market will, at some point down the line, merge to form a powerhouse that would dwarf even Innovex.

For its part, United Drug has insisted that the deal will not drastically alter the complexion of its two CSOs; the duo will continue to exist as separate entities that will pitch against each other for frontline pharma business. However, AmDel's Morris believes that the purchase of In2Focus means that the choices for pharma companies in terms of services provision have arguably diminished.

I think [In2Focus] was trying to position itself as more of a quality organisation, but if you have two companies at the end of the day there has to be some consolidation of the services between the, even if it's only the back office function. So it will be interesting to see what happens, he says.

Ashfield has chosen to remain tight-lipped about its future plans but Kerridge at In2Focus is adamant that being bought by United Drug will not result in his company being swallowed up by the larger rival. He argues that the synergies simply aren't there because they represent two essentially different business models and In2Focus has additional parts, such as business research consulting, salesforce auditing and benchmarking effectiveness.

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People will realise over time that nothing's changed at In2Focus since the acquisition and we're still running the business on exactly the same basis as we did before, he says.

If we were to pull the two companies together, we'd effectively become one amorphous mass and you would therefore have to dilute or change the aspects of the models that customers are buying. It's different to a pharma merger where for every job there are suddenly two people and they rationalise down to make massive savings.

In our business, the margins are relatively small, our overheads are pretty lean and a merger just wouldn't make business sense.

For years, Innovex has prided itself on being the UK's number one CSO; does it see the recent developments between its two main rivals as a threat?

We certainly don't feel threatened by the acquisition, says Purchase. I'd say the fact that numbers two and three had to come together demonstrates that we've been doing all the right things - we actually take it as a perverse compliment!

Fast and furious

One particularly thorny subject for syndicated teams over the last few years has been the very high turnover of reps. CSOs are now trying to address this problem, most of them with apparent success. Purchase says Innovex' overall attrition rate for this year will be below 20 per cent, the lowest it's been for several years. Kerridge says In2Focus also enjoys a similar low rate.

Both men are keen to point out that in their individual cases, the stereotypical `here today, gone tomorrow' rep who grows their feet under the desk for 18 months at a CSO and then disappears to a better paid job at a pharma company, is not as prevalent as it once was.

No CSO would dispute the fact that RoI is the key issue going forward; if they can't prove this to their clients then they simply won't be around in the years to come.

Up to now, it appears that the pharma industry has driven the agenda. In a chameleon-like fashion, CSOs have picked up on pharma's requirements and tried their hardest to mould and integrate themselves in a supporting role providing add-on functions without betraying the seams.

CSOs admit that the pharma industry has been slow to adapt to its new environment, so if they are going to espouse flexibility, specialisation and innovation shouldn't they, if not actually take control of the steering wheel, at least start to guide the industry into newer selling models?

CSOs and pharma firms are learning from each other, says Morris. But we also go outside to other industries and we look at what makes them highly successful, and we take that on board. We are always trying to raise the bar as high as we possibly can in terms of the quality of the people we've got so we can claim to be at least as good as a traditional pharma industry.

So while CSOs are bullish that they can continue to operate in a challenging and changing marketplace, the emphasis is no longer on mere survival.

If the CSOs of the future really want to prove themselves, they will have to go beyond the stage of living on the wild roots and berries of pharma outsourcing and start digging in to build a robust base camp.

The Author
Gareth Carpenter is assistant editor of Pharmaceutical Marketing

2nd September 2008

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