Category Archives: Management

healthcare.gov

Why didn’t President Obama just read PharmaReform?

If  President Obama really wanted to know if Healthcare.gov was ready to go live on October 1 he should have read my last two blog posts ( September 11 and 12).  Having now listened to most of the Congressional hearings on the failed launch, it is clear to me that CMS was not being honest about the disastrous state of the website in the months leading up to the launch on October 1.

Again, even if the President had read PharmaReform, I’m certain CMS would have blown it off,  just as they have obviously ignored all the internal clues, information, and data demonstrating poor and functionally inoperable system performance of the site.  My assessment is that Healthcare.gov was doomed from the beginning.  Here are just a few of the issues that compromised the development and successful launch of Healthcare.gov.

  • Outdated IT procurement requirements limiting contractor selection, possibly precluding more capable and competent providers of IT services from participating in the bidding process (apparently the list of qualified vendors was compiled in 2007 … over 5 years ago and more than 2 years before the start of the project).
  • CMS blindly entrusted contractors depending on money (a virtually unlimited budget with hundreds of millions of dollars) and hiring lots of people rather than enlisting, securing, and deploying expertise to help build the site
  • Total incompetence at CMS in managing the project
  • Ignoring, suppressing, dismissing, or rationalizing bad news concerning the functional status of Healthcare.gov during development  
  • Total lack of coordination across the functional components of the project
  • The politically driven deadline (October 1)  wasn’t taken seriously by CMS leadership, contractors, project managers, and development teams until the final months leading up to the launch.
  • Poor, deceptive, if not outright dishonest communication about the status of Healthcare.gov, by contractors and HHS/CMS leadership to the Obama Administration and Congress

One of the most disappointing and frustrating take-aways from listening to the hearings is that this whole Healthcare.gov debacle could have been avoided had HHS and CMS management done their jobs.

mike@pharmareform.com

drugs

Big Pharma R & D Failing

Research and development … innovative new drugs … “the life blood of the pharmaceutical industry.”

Tens of billions spent on research and what does Big Pharma have to show for their investment?  What do the multi-million dollar a year CEO’s and executive teams have to show for their brilliance in delivering the much needed new treatments they keep promising?   Not much, according to the FDA calendar for 2013 drug approval decisions chronicled in a recent article by Seeking Alpha (http://tinyurl.com/qjdyc3m).  Moreover, based on their pay and bonuses (http://tinyurl.com/p57yt5o) CEO performance reviews obviously do not put much importance or weight on drug discovery or approvals. 

Here’s my assessment.

From what I could determine, only five drugs (suvorexant, dabrafenib, tivozanib, dolutegravir, trametinib) discovered and developed by the sponsors are what I would consider “new”.  GlaxoSmithKline developed and sponsors three of those five drugs and one was developed and sponsored by Merck.  Two new drugs (efinaconazole and sofosbuvir) were acquired and then developed by the sponsors, Valeant and Gilead.

Six additional drugs scheduled for FDA decisions in 2013, are merely reformulations or new delivery systems for already approved drugs.

And finally, there are five,  already approved drugs,  awaiting new or expanded indications. 

Think about that for a second.  Tens of billions of dollars spent on R & D and technology acquisitions every year for decades and only seven new drugs.   Every year PhRMA touts the thousands of new compounds in development, several hundred by disease state.  How many Big Pharma company executives get up at the never-ending investor conferences to brag about their pipelines of new drugs coming?  With more than a thousand drug or biotech companies, spending tens of billions of dollars year after year and we only get seven new drugs?

I would also point out that, from my perspective, only Merck and Glaxo qualify as Big Pharma.  Ok, Pfizer is in the joint venture on dolutegravir, but still.  Even if you throw in Cubist and Gilead, where are the rest of the Big Pharmas? 

This is a sad commentary on disastrous pharmaceutical R & D productivity (and the lack thereof). More importantly, it’s a very scary picture for investors and worse for those with diseases for which there are few or no therapeutic options.

Perhaps Pharma will figure out that it is not more money that delivers breakthrough new treatments.  Focused, high-level basic science expertise (not just academic degrees) and a deep multi-disciplinary understanding of the target disease are required to crack the drug discovery code.  Unfortunately, for the past couple of decades, Big Pharma hasn’t valued discovery research. They would rather just write a check than do the hard work.  And the results show.

How Bad Behavior Evolves in Pharmaceutical Companies and Probably Other Big Businesses

There appears to be an interesting pattern of corporate behavior that seems to evolve over time and accelerates with the need for executive incentive compensation driven financial performance (sales growth). This behavior is especially noticeable in larger organizations and is government protected if your behavior is within a large corporation (too big to fail).

Whenever there is a need or demand for more robust financial returns, the evolution advances another step.  Here is the progression of behavior that seems to transpire in the context of Pharmaceutical industry executives but it probably applies to other industries as well (think investment banking). So, here’s how it goes…

We have a great product that really can help people.  We have the resources to  make sure physicians and patients know about it, know how to use it  appropriately and safely.   We want to be credible in the market and trusted so let’s  make sure we are ethical about our marketing and sales.

This evolves to…

There is a much bigger market for this product than we are currently capturing …  we’ve probably been to conservative in our promotion so what do we need to do to grow this product even faster?

The plan sounds good,  as long as we have the regulatory language to market it that way.

It looks like it should be ok from a regulatory perspective if we present it like this so we can argue it is our interpretation of the package insert language.

Still need more sales…

OK, it may be questionable from a regulatory perspective but is it legal?  We can  deal with a warning from the FDA if it comes and we’ll probably end up in lengthy but inconsequential litigation to determine if it really is illegal  …  so let’s go with it.

Wanting more sales…

Nobody has called us on our marketing and sales activities yet so what else can we do?

Ok, not sure if this is really illegal but even if it is … what are we facing here?   We might have to pay a fine or something … but nobody’s going to jail.

Notice how fast “ethical” gets dismissed without much thought.

In the end, money and greed protected in the labyrinth of  “Big Corporate” decision making drive this scenario.  For those who want less regulation and less legislation, you can expect even more aggressive business practices.  Without strict enforcement and personal (not corporate) accountability with behavior deterring consequences, regulation and the law are meaningless.   mike@pharmareform.com

used-car

Do Manipulative Pharmaceutical Sales Techniques still work?

I’m curious and seriously don’t know the answer to this as it’s been a while since I’ve been in the field.  As a VP of  Sales (admittedly long ago) our management team continuously looked for training programs and techniques to help our sales force be more effective in the physician’s office.   Some were pretty basic but others were just outright manipulative.  I guess in the days of “reach and frequency,”  “reminder detailing,” and unencumbered access we thought we were being cleaver and maybe they even worked to some extent.  At the same time, I have to believe some of these types of techniques also contributed to physician frustration, resentment, and ultimately denied access.

The reason I am asking the question now is because I still see pharmaceutical sales training programs offering what appear to be decade’s old sales techniques that border on manipulative.  Even back in the day when I was selling (admittedly even much longer ago) we learned about “closing the physician”, challenging them, and “getting them to commit.”     I now wonder how much damage these basic sales tenants, combined with a few “tricks,” did in terms of our relationship with physicians.   The reason I say this is because there is nothing more demeaning than to have a sales person try their manipulative sales pitch on you when you go to a store to buy something.  The automobile industry learned this the hard way.  You would think the pharmaceutical industry would have learned by now as well.

But, maybe these techniques and “tricks” still work.  What do you think?  More importantly, how do physicians feel about being sold this way?

mike@pharmareform.com

Five Irreparable Mistakes made by Pharma

Over the past several decades the Pharmaceutical Industry has made more than its fair share of mistakes but there are five that may be irreparable.   These mistakes that will be near impossible to correct, even in the long term.

  1.  Taking  manufacturing for granted

Pharma executives still don’t get it.   cGMP – compliant pharmaceutical manufacturing is difficult and requires expertise.  It also takes considerable investment to support the quality systems and to maintain operationally.  Pharmaceutical companies often looked to manufacturing for cost cutting opportunities disguised as challenges for operational efficiencies.  Some found outsourcing to be the answer to lower costs and a way to abdicate responsibility.  Others merely delayed repairs and maintenance, reduced labor costs (e.g., hire lower cost, inexperienced technicians and supervisors) or shortcut quality.  And now we wonder why the industry is plagued by seemingly endless episodes of FDA interventions, product recalls, and plant closures.

  1. Valuing “talent” and organizational savvy over expertise

Compensation has been driven by getting promoted, not by the expertise you brought to the table.  People skills, slick presentations, and “managing up” were critical success factors for corporate ladder climbing.  For some it was being lucky enough to be on a blockbuster product team or having a sales territory that embraced private practice over managed care.  Broad general management was valued more than individual contribution as an expert.  For example, wouldn’t you think that individuals who discovered the blockbuster products or figured out how to deliver them safely would be compensated as well as some of the executives who benefited financially from those discoveries?  Without expertise you don’t discover breakthrough products, you can’t consistently manufacture cGMP- compliant products, you can’t run efficient organizations, you can’t be a credible source of information, and you can’t rebuild public trust and confidence.

3.      R & D focus on “development “ rather than discovery research

Just find a patentable compound that has some disease modifying affect that is safe enough to get through the FDA and get it to market as fast as possible.  Fill the pipeline so the CEO can brag to Wall Street about the number of projects in the pipeline, regardless of their real clinical value.  But drug development, while expensive, is the easy part.  Drug discovery is the hard work.  I’m not talking about the simple  “hit and miss” screening for activity.  Finding that new breakthrough product with clinically meaningful benefits for patients requires multidisciplinary expertise, a comprehensive understanding of the underlying pathophysiology of the disease, and takes a long time to produce results.  Most of Big Pharma no longer has the expertise or “know how” to do drug discovery well or efficiently.

  1. Abusive customer practices

If unethical and illegal marketing and sales practices were not enough to erode public trust and confidence in the industry; abusive pricing practices have certainly done so. Desperate patients have been subjected to expensive therapies that, for many, caused more harm than good.  In many cases, the drug companies knew full well they were profiting not from helping patients but rather by putting patient health and safety at risk.  For all the good the industry has done, most patients and the healthcare community don’t care anymore because they no longer trust the industry.

  1. Wasteful spending

Lack of money was never a reason not to do something, including building organizational empires, ramping up sales organizations to tens of thousands of individuals, spending billions on ineffective Direct to Consumer advertising, and billions on promotional “medical education” lunches and dinners.  Tens of billions were spent on R & D that resulted in more “me too” products than true clinical breakthroughs.  And when a Big Pharma got desperate to show growth they spent tens of billions to acquired another struggling Big Pharma at a premium price only to dismantle the acquired company, pay exiting executives lottery size bonuses for getting the deal done, and promising investors long term better results which never came.  We’ll never know what good could have been done with the hundreds of billions of wasted money over the past couple of decades.

The cumulative impact of these mistakes is enormous.  And, as much as these seem like they could be fixed, the damage has been done. What’s most depressing is that the executives managing drug companies contributing to these mistakes were handsomely rewarded for these industry-destructive behaviors.

So, has the pharmaceutical industry done anything good?  We’ll look at that in the next post.   mike@pharmareform.com

Mindset Change Needed for Re-Engineering Pharmaceutical/Biotech R & D

In the previous post and in the book Pharmaplasia I suggest a need for a new approach to pharmaceutical R & D.  There are two essential elements to this proposal.

The first has to do with scientific and corporate integrity.  If the research scientists and corporate executives are not honest about what you have and what you have seen in drug development (if their priority is to protect the “potential“ of your compounds), you can’t make good decisions about your pipeline products.  Research scientists or corporate executives trying to preserve compound “potential” by strategically navigating around potentially damaging data, half-truth disclosures, or blatantly ignoring negative results and their implications can easily sabotage any corporate effort to produce a more robust pipeline with a higher probability of success.  The second essential element will be meaningless if this first element is ignored.

The second essential element:

Know more about your compounds before they go into Phase III clinical trials.

A more comprehensive basic science understanding of your compounds before they enter the clinic, especially expensive Phase III trials; can increase the probability of success.

For safety, this requires an aggressive exploratory preclinical program that “looks for toxicity” (going well beyond the regulatory requirements) and understanding what you find and what you see … not just being able to explain it away.

From an efficacy and safety perspective, if your compound affects one biologic system, what other systems does it affect? Have you really looked or have you been focused on “getting an indication?”   Do you have the basic science data to support the premise/hypothesis for efficacy (or comparative superiority)?  Have you scientifically challenged the premise with alternative outcome possibilities with data to support the different probabilities?   Or, is it still just a hypothesis you plan to prove in Phase III?  Are you sure you have the right endpoints for your Phase III trials?  Have they been sufficiently validated (high probability statistics) in Phase II studies?  By this I mean, have you done more than just a couple of regulatory required trials?  Have you looked at design alternatives that could affect outcomes for different endpoints options?

This strategy may take longer.

But, rather than how fast can you get how many compounds into patients and to the market, research teams and corporate executives need to shift their mindset to increasing the probability of success.  You can do this with a more comprehensive approach to preclinical research.  Thoroughly understanding how your products are going to perform in Phase III trials (or comparative trials) before the trials commence.  Eliminate the “surprises” with better, more comprehensive science around the products.  Be exhaustive in exploration, honest about the findings, inclusive of interpretations, and have better data to support the “go forward” premise or hypothesis.  This all may seem like a simplification but if you’re interested in a more elaborate discussion, I invite you to read about the need for pharmaceutical R & D change and recommendations for change in Pharmaplasia.

Sure there will still be failures, but they should be fewer.  But perhaps the biggest benefit from this approach is the potential for new discoveries of safer, more effective products.  Better diagnostics, more definitive efficacy benefits (maybe we are looking at the wrong endpoints), and advances in the understanding of human biology await this new Pharmaceutical R & D model.  Not to mention, less contentious regulatory reviews, renewed hope for patients with difficult to treat diseases, and more certainty for the investment community.  mike@pharmareform.com

Why so many Surprising Disappointments from Pharmaceutical R & D?

FDA rejections of new drug applications (insufficient efficacy or safety data), totally unexpected drug failures in Phase III trials,  bewildering “no significant differences” demonstrated in comparative trials, eye opening safety issues in late stage trials or raised by FDA Advisory Boards.  In many cases, negative results sufficient to delay approval if not “kill the drug.”

Along with these stories come the unscientific rationalizations of failures. “That’s drug development.”  “High risk, high reward.” “Biology is complicated.” “Diseases we are trying to treat today are far more complex.”

These are not new headlines for the pharmaceutical industry.  In fact, and unfortunately, they have almost become a cultural industry expectation. Patients ride the roller-coaster of hope and disappointment while investors, also frustrated, keep hoping for that occasional “big win” that makes it all worthwhile.

The pharmaceutical and biotech industries have to find a better R & D model before patients lose faith and investors no longer feel that the “drug discovery and development lottery” is worth playing.

How many more times can Big Pharma place big bets on “promising“ compounds with limited “proof of concept” only to find out they have been sold worthless technology that can’t even make it through a traditional development program to gain market approval?

How many Pharma pipelines boast the number of compounds in development merely to demonstrate that they have something worth investing in, while knowing full well most of the compounds have little or no chance of really making it to market or producing a profit?

How many compounds in these Pharma pipelines (or biotech compounds for that matter) have been strategically developed so as to embellish the efficacy “potential” without exposing or exploring the design flaws that might compromise this “potential?”  How many of these compounds have been carefully tested so as to avoid any suggestions of toxicity that might be difficult to explain or might raise concerns during a “Big Pharma due diligence” (for biotech) or worse, during a regulatory review?

But many of you might be thinking…well that’s just the way pharmaceutical and biotech R & D is.  Well, you’re right… it is and it has worked for decades when the benefits of drug treatment (versus no treatment) outweighed the risks and the market was far more receptive to paying for mediocre “follow-on” products?

Find a compound with biologic activity (remember “get a hit in high throughput screening?”), see if it causes any “apparent toxicity” (do the regulatory required testing but don’t look too hard beyond that) in a few animal models.  Do a quick Phase I trial to see if it causes any “apparent toxicity” in a few volunteers.  Your objective is to get into and out of Phase II (not to really understand what happens in Phase I or II).  Now, pick a dosage schedule and the easiest, fastest indication to establish a quick proof of concept. Then, if you’re a biotech company, find a Big Pharma to buy your compound and/or your company.  If no buyer, get more investment to start a Phase III trial.  If you’re a Big Pharma, push it into full-blown Phase III clinical trials as fast as possible on a timeline that shows investors your “quick to market” development strategy and then “hope for the best.”

The problem is that this historical Pharmaceutical/Biotech R & D model is no longer viable.  So what has to change?   mike@pharmareform.com

Five Predictions for the Pharmaceutical Industry

I don’t pretend to have a crystal ball but trends and evolving patterns can lead one to predict pretty accurately what is going to happen in the future.  As the predictions in Pharmaplasia have pretty much come to pass and continue to play out,  I decided to take another shot at formulating what appears to be in store for the pharmaceutical industry over the next five to ten years.  So here goes…

  • Big Pharma investors will become less tolerant of multi-billion dollar mega-acquisitions of companies and technologies that benefit executives, bankers, and lawyers but do little to improve the acquiring company.  Investors will no longer accept excuses when these overpriced deals don’t deliver on the expectations and promised returns.
  • Biotech investment will continue to decline as investors become increasingly rigorous in their due diligence, identifying true innovation with meaningful clinical potential rather than investing hopefully in purported innovation hyped by articulate CEOs looking to win the “buy-out lottery.”  With the first prediction in play, there will be fewer “buy-out lotteries” to be won.
  • The continued product focus of pharmaceutical R& D is leading to a prolonged period of fewer truly innovative clinically important new treatments.  The acquisition opportunities for development-ready, truly innovative technologies in small biotech companies will slow dramatically.   And,  merely shooting at “disease targets” with chemistry, without a comprehensive understanding of the pathophysiology of disease, leads to a “hit and miss” mentality, lacking in appreciation for the complexities of human biology.
  • The market will continue to experience significant drug shortages until the healthcare market is willing to pay prices that support high quality cGMP-compliant manufacturing and the pharmaceutical industry (including generic drug companies) realizes that high quality cGMP-compliant manufacturing is a critical success factor, important enough to make the necessary investments to consistently sustain it.  This is difficult for Pharma executives because manufacturing has always been the place to look for operational cost cutting and investment in manufacturing expertise and systems is not as “sexy” or newsworthy as placing a big bet on a “hyped up” new drug technology to excite Wall Street analysts.
  • Unfortunately, the pharmaceutical industry will not have the necessary experience base or leadership to navigate this perilous journey.  Downsizings, retirements, and industry changing career choices have diminished the necessary operational (think research and manufacturing) experience and expertise from the industry.   And, those who have survived and aspire to take on leadership roles have mentored during a period characterized by “me too” drug and acquisition driven R & D, questionable (if not illegal) marketing and sales tactics, and a corporate priority for investor interests over patient well-being.   Not exactly the development track you’d prescribe given the organizational challenges  and the complexities of the evolving healthcare market these new leaders will face.

Realistically facing the prospects for the future can help identify opportunities for changing what isn’t working and developing plans to take corrective action, if necessary.  If you don’t believe my predictions are valid, or you believe I have been to negative, then there is nothing to change.  Big Pharma can continue doing what it is doing.   Seems to me  that’s been the consensus position for some time now.

mike@pharmareform.com

How Pharmaceutical Companies can help Increase FDA Productivity

First, I am not going to defend the FDA or ignore its organizational dysfunction and seemingly antiquated review processes.  No doubt, the agency is underfunded and lacking in the necessary expertise to carry out its broad and geographically disperse responsibilities.   At the same time there are steps the pharmaceutical industry could take to help increase FDA productivity.

Historical precedent would suggest that pharmaceutical companies are more interested in getting products to the market than making sure their products are safe, effective, or even needed.  They tend to do the absolute minimum to get through the regulatory approval process (fastest, easiest indication first), hoping to argue there way through questionable safety data and relying on marketing to find expanded revenue opportunities in patients for whom they have little or no proof of efficacy or safety.   Some of the antics reported in the trade and lay press would suggest that pharmaceutical companies are continuously trying to find new ways to “game” the system.  If you need the details, there is a good review of the past forty years of industry missteps and flagrant disregard for regulatory expectations in the book Pharmaplasia™.   It is clear that the FDA has been put on high alert police mode by what historically has appeared to be an out-of-control, intentionally non-compliant, almost defiant pharmaceutical industry that can’t be trusted.

In this context, is it any wonder that the FDA is skeptically cautious, more demanding for proof of claims, and sometimes even slow and seemingly uncommitted when it comes to product approvals and issuance of guidance documents yet deliberate and critical, albeit intermittent and inconsistent in their enforcement?

Here are five steps the pharmaceutical industry could take to help improve the regulatory process and FDA efficiency.

  1. Focus on Innovation
  2. Makes safety issues easy for the FDA to understand
  3. Make manufacturing quality an organizational priority
  4. Commit to ethical and regulatory compliant marketing and sales
  5. Establish a base of credibility

Focus on Innovation

Despite the sunk costs of discovering and developing a product that companies hoped would turn out better than it did, don’t bog down the FDA review process with products that have little or no clinical benefits over what is already available on the market.  If you feel compelled to bring a comparable product to market, don’t try to make it sound better than it really is to substantiate a higher price.  Again, trying to angle for a labeling claim advantage that doesn’t really exist consumes FDA time and resources.

Make safety issues easy for the FDA to understand

It is mind-blowing to me that pharmaceutical companies can get to a final advisory board meeting prior to an expected approval and find out there is a concern and unanswered questions about an animal toxicology study or clinical finding?  Well, maybe the company was hoping it would just slip by and nobody would notice the data or they thought they could argue their way through the questionable or disturbing data.  Why not be proactive, anticipate the concern and just get the data to prove it’s not an issue?  Well, maybe companies still believe in the “don’t look for it unless it is a regulatory requirement” theory because they might find something they don’t like or can’t explain.  I appreciate the need for speed in development but you have at least 3 to 5 years after a product starts clinical studies to sort out any safety issues.  That is, if you really want to take the risk to understand the basic sciences of the concern or potential problem.

Make manufacturing quality an organizational priority

First, the answer to industry manufacturing issues is not lower quality standards, fewer FDA inspections, or less rigorous, less critical inspections.  In fact, I am a proponent of maintaining high quality standards,  more frequent and more rigorous inspections, including of foreign facilities.

As challenging as pharmaceutical manufacturing can be, I don’t see why pharmaceutical companies should expect anything other than a clean slate, no 483’s,  when the FDA inspects their facilities.  With appropriate management manufacturing expertise and robust quality systems in place, avoiding 483’s should not be a matter of chance or wishful thinking but rather a matter of fact.  Clean, high quality, cGMP – compliant manufacturing would make FDA inspections (and follow-up) easier, less laborious, and less time consuming.

Commit to ethical and regulatory compliant marketing and sales

“Pushing the regulatory envelop” and “off-label” promotion can drive revenues and increase your market opportunity but also puts tremendous additional workload on the FDA.   So much so that it is clear that pharmaceutical companies have taken advantage of this burden by trying to be clever in their advertising and promotions knowing full well the FDA can’t police everything and the chances of being caught are remote.  Even if caught, the consequences are minimal (a “slap on the hand” in the form of a letter) unless the Department of Justice pushes for some financial penalty.  And then,  it just becomes a cost of doing business.  Unfortunately, pharmaceutical companies may feel they will be at a significant commercial disadvantage if they don’t “push the regulatory envelop” because “everybody is doing it.”

An industry-wide commitment to ethical and regulatory compliant marketing and selling would make non-compliant outliers more obvious and allow FDA to focus resources  on the more egregious and potentially harmful marketing and sales activities.

Establish a base of credibility

If the pharmaceutical industry were trusted, credible, and committed to regulatory compliance the FDA would not have to spend as much time, effort, and resources trying to sort out the “gamers” from bona fide efforts to bring safe and effective innovative new products to market, to maintain high quality manufacturing standards, and to market products in compliance with the approved label claims.  Yes, I believe there are companies and their CEOs who profess this to be their intent, but the historical record suggests there are few who have been able to deliver or credibly live up to this commitment.

mike@pharmareform.com

salesman

Pharmaceutical Sales Representatives are not Selling

Have things changed that much or have sales reps with the help of their lawyers just figured out how to characterize the pharmaceutical sales representative position so as to align their cases with the FLSA definitions for “non-exempt?”  Granted, it has been a while since I have been in the field (as a rep or riding along) but I always felt pharmaceutical sales reps were pretty autonomous, responsible, and accountable for “selling” the company products (legal and regulatory constraints considered) and “managing” the business in their territories.

Ok.  I’m not an attorney but the recent U.S. District Court ruling (Kuzinski, et al. v. Schering Corporation, Civil No. 3:07cv233 (JBA), August 5, 2011) would seem to suggest that all pharmaceutical representatives will have to be classified “non-exempt” hourly employees and be eligible for overtime pay.

By the courts’ strict interpretation of the FLSA (Fair Labor Standards Act) definition, pharmaceutical representatives do not actually make sales. Basically, they do not “consummate sales or obtain contracts or orders” or “binding commitments for purchase” from the physicians they call on and therefore do not qualify for the “outside sales exemption.”  This is hard to argue when a Department of Labor FLSA literal definition for prescription drug “sales” would only occur at the pharmacy or within the supply chain (e.g., wholesalers, chain pharmacies, buying groups, and hospitals) through negotiation, contract, and transaction activities that do not directly involve pharmaceutical representatives.  Despite arguments about the regulatory requirements dictating the role of physicians in the prescription drug sales process, without a lenient interpretation (consideration for regulatory and prescription drug market limitations) of the FLSA definition, it is unlikely that pharmaceutical representatives could ever qualify under the “outside sales exemption.”

The court’s interpretation of “administrative exemption” as it pertains to pharmaceutical representatives, however, is even more disconcerting.  It seems that if you do any training, supply any company developed sales materials or territory management assistance, or provide any management oversight, the courts will determine that “the primary duties” of pharmaceutical representatives do not include the “exercise of discretion and independent judgment with respect to matters of significance.”  This would suggest that the only way to qualify for the “administrative exemption” is to make sure pharmaceutical representatives have complete autonomy (totally independent of any corporate input), do their own training and planning, do whatever they want in the territories that they define as theirs (on their own with no physician or account data supplied by the company), decide and say what they want about the products they choose to promote, and are not managed or supervised in any way.

While this may sound absurd, this is not meant as a sarcastic commentary and certainly is not meant as legal advice but rather a practical observation of how the courts seem to be interpreting the FLSA definitions for “outside sales” and the “administrative exemption” as they pertain to pharmaceutical representatives.  As a result, if the courts continue to rule on these grounds,  I believe pharmaceutical companies will have little choice but to classify pharmaceutical representatives as “non-exempt” hourly employees and will be forced to implement some of the types of tactics discussed in an earlier post.  mike@pharmareform.com