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Deirdre Coleman probes the implications of GSK’s bold move away from incentivizing prescription volume and questions whether their new business model can truly deliver value.

By Deirdre Coleman on Feb 11, 2014

GlaxoSmithKline plc has issued a plan to end direct payments to physicians for promoting its prescription drugs and will no longer pay to have key physicians attend industry conferences. The new policy will also stop the use of individual sales targets and instead pay its salespeople on the basis of technical knowledge, quality of service and overall business performance, according to GSK. The plan, which comes just months after its ethics were challenged by a bribery scandal in China, will be rolled out over the next year and is expected to be in place by early 2015.

Image Saving or Towards Enhanced Transparency?

Prescription volume will no longer be the driving force for sales representatives, removing the incentive for inappropriate behaviors such as overly aggressive marketing. A media frenzy has ensued with vocal industry critics viewing GSK’s announcement as a cynical ploy to deflect attention from the bribery scandal and spin a better image for the company. In 2012, GSK reached a $3 billion settlement with the U.S. government over charges that it marketed some drugs off-label, to treat medical conditions for which they had not received approval by the Food and Drug Administration.

GSK chairman Andrew Witty insists the latest change in sales incentives is not related to the Chinese bribery scandal or off-label charges, but that it is another step in the company's attempts to make its actions transparent.

"We recognize that we have an important role to play in providing doctors with information about our medicines, but this must be done clearly, transparently and without any perception of conflict of interest," Witty said.

According to Kara Zubey, Senior Director, Business Strategy at Endo Pharmaceuticals, the implications of moving away from volume-based incentives will have its challenges: “Changing sales force attitudes is VERY hard. I give GSK a lot of credit. After all, most of the for-profit businesses run today compensate salespeople based on volume. We are asking sales professionals in the pharma industry to change an important motivator.  There are likely many people out there who welcome this change so I think what you’ll find is that GSK will attract those types of sales professionals and lose ones who are more comfortable in the traditional selling model. The reason behind the change is clear: more and more lawsuits and FDA warnings/fees around off label-promotion together with the high cost of sales reps and decreasing margins is forcing our industry to find more cost-effective ways to sell products as well as protect against compliance issues. It is not that our reps don’t want to help customers, it is just that regulations make it hard to answer the questions that customers ask and their hands are tied. So, removing volume-based sales incentives will kill two birds with one stone”.

It will be a case of “wait-and-see” for others in the industry before they rush in to follow suit.

The impact of GSK’s new incentive structure remains to be seen. Zubey does not think other pharma companies will rush to follow suit. “I think the jury is out though regarding how this will impact top line revenue. I think it also depends on the lifecycle of the drugs being sold; a launch drug needs that immediate boost and compensating reps on “customer satisfaction” may not meet the revenue goals that are expected. I am very curious to watch GSK and see how it performs. It will be a case of “wait-and-see” for others in the industry before they rush in to follow suit. On a side note, I think there is an approach that is somewhat in the middle of what most of pharma does and what GSK has done. You can have a combination of different sales forces that do different things and have different skills/compensation”.

Delivering Value

The real impact will come from fundamentally changing the sales model from largely brand-oriented to being predominantly customer-oriented

 “The sales rep is still the leading mechanism for communicating approved label information for drugs. Reps need to deliver value however, giving the time-pressed HCP answers to their questions and addressing their needs and concerns. When a new drug comes onto the market, HCPs want to learn more about the treatment options it provides. They need solutions to the problems they encounter with patients: adherence programs for patients to stay on medications, patient education about products and diseases, disease diagnostic assessments, and ways to ease the high cost of medications. Reps must fully understand the HCP’s desired patient outcomes. This requires two unique new selling skills: a high level of customer understanding, and an ability to ask questions that clarify the outcomes the HCP seeks. Customer understanding means that the rep knows the HCP’s practice and the patient decisions that are made during the day. It also includes an understanding of the time demands and the trade-offs the HCP must make. The real impact will come from fundamentally changing the sales model from largely brand-oriented to being predominantly customer-oriented; being a valued information resource for the prescriber and providing solutions to their problems”, concludes Zubey.

Do GSK’s bold decisions on incentive compensation and speaker programs foreshadow an industry shift? Time will tell if other pharma companies follow suit. The Sunshine Act presumes that paying doctors and providing them with meals are an integral part of the pharmaceutical business and the US Government and most consumer groups believe that the major problems associated with such payments and perks will be solved by transparency. The bet is most companies will take a wait and see approach. If GSK loses market share to companies that continue to incentivize reps with sales targets and offer speaker programs (as many think will happen), then GSK will be an outlier and may need to reconsider its transparency building measure. Then again, their business model appears to place a lot of value on transparency, and perhaps a loss in revenue will be acceptable or made up in other ways.

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Kara Zubey will be speaking at eyeforpharma Philadelphia in April, 2014. For more information on her presentation click here.