In 2013, as part of an effort to rebuild its image, GSK announced major changes in its sales and marketing practices. Particularly noteworthy was that GSK would no longer tie the compensation of its sales representatives (reps) to the number of prescriptions written by doctors with whom they interact. Instead GSK sales reps would be paid based on their technical knowledge, the quality of service that they provided their clients, and the company’s business performance. At the time, GSK CEO Sir Andrew Witty rationalized this move in the following way.
“We believe that it is imperative that we continue to actively challenge our business model at every level to ensure we are responding to the needs of patients and meeting the wider expectations of society.”
This is a pretty noble sentiment. After all, the pharmaceutical industry is often criticized for overly aggressive sales practices in the marketing of drugs. By making this change, GSK believed that such aggressiveness would be curbed and that the incentive for inappropriate behaviors would be eliminated. So how’s that working out for them?
The answer pretty much came last week, when GSK announced major cost cutting measures which would lead to an annual savings of $1.6 billion. The cuts are being made because of bleak revenue forecasts. Unfortunately, a large part of these cuts are coming at the expense of its R&D division. As reported by John Carroll in FierceBiotech, hit hardest will be the GSK labs in Research Triangle Park in North Carolina, where 900 jobs will be eliminated. GSK explained these changes as being needed to help them compete against the changing competitive landscape.
“ In the US, we are reshaping and reducing the size of our commercial and R&D operations (now 17,000 employees) to be more agile to flex with shifting market demands. Cuts are not being made across the board but are strategic, focused changes to allow GSK to operate more efficiently. This is not a change in our strategy, which has helped us deliver more new medicines than any other company in the industry in the past 18 months. This is a rescaling of work to reflect market forces that were anticipated but have accelerated and are affecting the entire industry.”
Cuts of $1.6 billion are not usually made by companies that have launched “more new medicines than any other company in the industry in the past 18 months.”
What is left unsaid is that GSK has been hit by declining sales, especially in its sales of respiratory drugs. Sales of the chronic obstructive pulmonary drugs (COPD), Seretide/Advair, which earned $8.5 billion last year, are expected to drop in 2015 and 2016 due to competition from a new generation of drugs. GSK, has its own new COPD drug, Anoro, but it is not likely to make up for the erosion of Advair sales.
One wonders if GSK’s woes are due in part by trying to compete against increasingly aggressive rivals. If you don’t market drugs, how do you expect to sell them? GSK’s COPD franchise is being hit pretty hard and normally a company would actively tout its products to meet the challenge. But the relatively passive approach to sales and marketing taken by GSK precludes such an approach. It is hard to believe that a sales rep, whose compensation has little to do with the number of prescriptions that a doctor will write, will be as effective as a competing rep who has a lot more to gain. A less incentivized sales rep is simply not going to be as motivated.
Ironically, it is R&D that is now being impacted as a result of these declining sales forecasts. That is unfortunate. At a time when there are great opportunities in drug R&D, one would hope that a pharmaceutical company would be at least maintaining its R&D commitment if not increasing it. GSK, unfortunately, is taking a different path and following others like
For those who don’t appreciate the importance of sales success to R&D, this should be a cautionary tale. The greater the amount of revenue that a company generates, the more it can invest in R&D.
