Medical Device Link.

Originally Published MX March/April 2006

ADVERTISING, DISTRIBUTION, & SALES

Medtech's ever-changing global marketplace demands innovative approaches to sales and customer relations.

Moderated by Steve Halasey

For all the time and money that medical device companies spend on product research and development, at the end of the day it is the sales effort that determines a company's success in the market. Recruiting and managing a sales force to meet the needs of medtech's continually changing environment is no small task, and often presents challenges that can absorb a significant amount of attention from company leaders.

To find out more about the challenges that medtech companies face in developing and managing their sales forces, MX invited a panel of seven industry sales experts to share their views (see sidebar).

MX: How has the purchasing power changed in the medical device marketplace over the last decade?

Stuart Raetzman: Ophthalmology is an important area for most health systems, and generally the ophthalmologists' preference has held sway over purchasing power. Consequently, at Alcon Laboratories (U.S. headquarters in Fort Worth, TX), we have not felt the impact of corporate purchasing power as much as companies in other sectors. The importance of clinical value is still higher in ophthalmology than in other areas.

John, is that the same for you?

John Rooney: Yes. In the interventional field, acquisition costs do not outweigh clinical value. To a large extent, physicians still call the shots about which products they want to use in a procedure. Although purchasing and acquisition costs are becoming more-significant issues, group purchasing organizations (GPOs) do not have a big hold on this yet.

Matt Margolies: There's always been a difference between capital equipment and a disposable or commodity-type product. Integrated networks, depending on where they are in their supply-chain initiatives, are starting to say, 'We want to take it out on our own, but we still want to have that safety net of the GPO.'

Most of the GPOs are moving toward dual-source and tri-source contracts, versus the sole-source contracts that we used to enjoy. GPOs are important to our company. We still need to have a presence there, but we are starting to develop our network deals based on where the integrated network tells us it wants Viasys to offer value.

Trent Reutiman: Start-up companies, at which the technology has not yet achieved critical mass, rely heavily on clinical success. Additionally, OmniSonics is looking for opportunities to create value beyond pricing. We try to drive training and education programs through GPOs to increase the visibility and utilization of our new technologies and procedures.

How is this shifting power base affecting companies' sales strategies? What do companies have to do to accommodate all of the different groups that are influencing sales?

Peter J. Masloski: We are definitely seeing a shift from the national GPO sole-source agreements, and decision makers are emerging from further and further down the chain. Regional offices, shareholders, and integrated delivery networks (IDNs) are becoming more important. My clients generally pay more individualized attention to those groups in order to provide them clear accountability within their organization and give them a single point of contact. In some cases, my clients have expanded their dedicated account management teams to cover some of these entities.

Demonstrating Cost-Effectiveness

Are manufacturers in the position of having to demonstrate the cost-effectiveness of their products?

Margolies: Customers are coming to expect that manufacturers will give them a fair price, especially when the clinical value is there. But manufacturers are no longer just selling equipment; they are selling a solution. Companies have to understand data exchange and information technology (IT). Equipment must be linked to the hospital networks, and manufacturers have to show their customers the process for doing that. Customers are willing to pay for that service, as long as the cost is reasonable and the manufacturer is providing a solution to their problems.

Reutiman: While I was with RITA Medical Systems (Fremont, CA), a company establishing radio-frequency ablation as a cancer therapy, we focused on identifying both the potential clinical opportunity—which is a completely new opportunity specific to hospitals and not necessarily to GPOs—as well as the financial opportunity. The more effort that smaller companies, such as those where I have worked, put into identifying both types of opportunities for stakeholders, the greater level of success they will have.

How are companies assigning the task of making the economic argument to their customers?

Masloski: In some cases, internal organizations are being developed to determine the economic value of a product. In other cases, companies are bringing in reimbursement specialists who are not necessarily directly linked to the sales force. These entities help interpret the economic value of products and ensure that customers are correctly coding and capturing the appropriate value for the products and procedures.

Margolies: Not only does a company need to understand the current data and push on reimbursement folks for updates on current procedural terminology (CPT) codes, but that company must also look to the future. For Viasys, the diagnostics business is critically important, and understanding the future of reimbursement in the diagnostics realm is crucial. Will Medicare continue to reimburse outpatient procedures in a lab, or will the sector move toward home-care diagnosis? Those shifts could dramatically affect our business, so our company needs to understand what is happening not only today, but also in the future.

Consumer Considerations

Is there a direct-to-consumer (DTC) angle to what your sales organization does and, if so, how does that affect your relationship with healthcare professionals in terms of the selling proposition?

Raetzman: DTC efforts affect small companies differently than big companies, and they have an important impact on a company's sales strategy.

The key to DTC initiatives is ensuring that a company's physician customers are ready when those consumers come in. A company's reach is key. A market leader probably has the sales infrastructure necessary to make sure the entire physician base is ready for patients before it turns on its DTC initiative. A smaller company may have difficulty with that.

Greg, the diabetes market lends itself to healthcare consumerism and DTC marketing. What are your thoughts on the sales importance of those two trends?

Greg Meehan: It is quite a transition when you get into DTC advertising or building a therapy using a DTC strategy. One of the biggest challenges faced in the diabetes sector is that a lot of the business is direct to the consumer. With diabetes, there is a heavy patient-training component involved. If the physician and the staff do not have the capacity to do the training, then the manufacturer has some significant challenges in trying to get its therapy out into the marketplace.

If a consumer wants a product, that person will go to a physician. If the physician does not have the resources to train the consumer, the physician oftentimes will talk that person out of beginning that therapy simply because he or she does not have the means to support it. When this situation occurs in our business, the company is challenged with providing the capacity on behalf of the healthcare professional. The manufacturer has to do the training.

David, what are your thoughts on DTC marketing trends?

David G. Brown: U.S. Surgical has not made specific efforts to drive potential patients to its surgeons. However, consider bariatric disease. Patients do seek out physicians for information on treatment, and part of our company's job is to prepare the surgeon for the continuum of care that goes along with that disease state. Physicians need to be able to engage patients when they come to them, regardless of the impetus behind the visit. Sales organizations need to anticipate that need, and physicians should be supported through marketing efforts.

Is the sheer expense of DTC marketing one of the reasons that more medical device companies haven't pursued these initiatives?

Meehan: Yes, it is very expensive, and that has been one of our challenges: the return on investment (ROI). It is tough to reach enough consumers to see that return.

Our [diabetes] therapy has achieved 23% penetration in the type 1 market and is virtually untouched in the type 2 market. There is a huge opportunity in this market if we can get the word out to consumers and motivate them to ask their physicians about the benefits of pump therapy and request to go on pumps.

Masloski: There is a subset of the market where consumer advertising is even appropriate. In those cases, it becomes a question of reach and capability. Does the organization have the capability to reach that group with a message that is going to stick and is the ROI going to be there?

Strategies for Growth

It seems every company is facing the imperative to grow, no matter what its stage of development. How are your companies modifying their sales strategies to accomplish the goals put in front of them?

Masloski: Many of my clients look to new products—or at least relatively new products—to continue their growth and increase their market share. This places stress on the size and structure of sales organizations. As a company continues to add new products, it has to worry about the capacity of its salespeople. Do they have enough bandwidth to be able to promote new products or are they beyond their capacity? Does the company need to think about changing its sales model to make sure it is going to get the right kind of representation and the right kind of expertise for its customers? As a company grows and expands, it has to think about potentially changing its structure.

A company also has to worry about growing pains with its sales force—adding new territories, splitting territories, disruption in customer relationships. So in addition to all of the integration, planning, and alignment of strategies, companies also have to ensure that their sales forces are well designed, aligned, and set up correctly to be able to implement those strategies.

Rooney: Our company is moving to a lower cost to serve. We have about 3500 customers nationwide, based on procedural data on ICD-9 codes, and about 1000 of them constitute 80% of all procedures in the market. We are moving the other 2500 to a lower cost to serve by leveraging inside sales support. We hope this will allow us to implement the correct-size sales force to really focus on those 1000 customers that represent the bulk of the market. Currently, our sales team is distracted with all of the smaller accounts, which are just as heavy in administrative demands as large accounts.

Hiring the Help

With all the companies looking to grow, is it a challenge to find good salespeople?

Brown: From a strategic perspective, finding talent in the marketplace is never easy, and it is a huge investment of resources, particularly in management time and effort. From a sales leadership perspective, the key is establishing a commitment to investing the time and effort needed to get the right people into the sales organization. The age-old question is into what size body of water should a company cast its net. If a company is looking for people with previous experience in medical sales, it is competing in a fairly small pool and will have some challenges. More often than not, there are a lot of other companies' castaways in that talent pool. But if a company is casting its net into a wider talent pool and can train people who come onboard—which is what Tyco does—the company can ultimately do very well.

Are start-ups and emerging companies at a disadvantage in a marketplace like medical devices in which there is a lot of competition to find salespeople?

Reutiman: The only disadvantage is there is an even higher onus to make sure the company hires the right people. Start-ups and emerging companies are also less likely to have all of the training resources of larger organizations. There is a strong onus on pinpointed hiring.

Start-ups are attractive employment opportunities to certain types of people, depending on where they are on their career projections. There is a unique role to be played in an emerging organization. Start-ups usually have not completely implemented a sales plan, and sales personnel may participate in the codevelopment of this plan. For the representative, there are numerous opportunities to have an impact on a company's strategy and deliver value to the organization.

All of you have significant experience in managing a sales team. What do you consider the most challenging aspect of the management part of sales?

Raetzman: As a business matures and the needs of the business become more sophisticated, managing that transition from a freewheeling start-up mentality that isn't very structured to one that is a little bit more sophisticated can be a tricky job. The representatives who have done a very good job and have helped build your business may not be all that thrilled about having to use a new sales force management software program or take on more administrative or business-planning tasks.

Rooney: Another factor that sales managers face is being able to train salespeople to distinguish themselves from the other people who are knocking on the doors of physicians' offices. Doctors see a lot of people each day. Positioning the salesperson as a partner with the doctor is easier said than done—and a bit of a cliché. But one way to do it is to help your sales force understand the issues and the terrain that these physicians and hospitals are facing today.

Meehan: The biggest challenge comes when a rep who does not have past management experience is promoted into an area manager or district manager position. One of the challenges that they face is balancing all the requirements of the job, which requires identifying what is most important, what is least important, what must get done today, and what can wait for tomorrow. This also requires balancing time among recruiting, coaching top performers, and coaching poor performers.

Automating Sales

How useful are software systems such as sales force automation and customer relationship management (CRM) packages? What are their most important functions?

Raetzman: The difficulty with CRM platforms is that they were all built for massive pharmaceutical sales organizations, then the vendors tried to retrofit them for the medtech area. I have not found one that is remarkably helpful for the medical device side. They are still more pharmaceuticals based, which is an issue. I would love to see software that meets the specific needs of the medical representative.

Brown: I have gone through this, and I am still going through this right now. Our company has a system that is customizable and very flexible in adapting to what U.S. Surgical is looking to do. As such, the key issue in implementing a system is defining what the tool should be able to do. As a seller, there is nothing more frustrating than operating within a system that causes confusion or in which information isn't readily accessible. The system should be easy to use and help reps manage their territories.

Meehan: The systems are only as good as the reps who use them. At Medtronic, due to the nature of our call points, there is so much data to manage that we have created a homegrown system called MM Sales. It operates almost like a fighter pilot's cockpit, in which operators have multiple heads-up displays in front of them. At any time, reps can take a quick look at all of the key metrics and information needed to effectively manage their business.

Rooney: A lot of these are off-the-shelf programs. A company must really take the time to build the system slowly with the help of the representatives and the managers in order to get what they want out of it. Most managers come from long sales backgrounds, and they bring the software that they have used over the years with them. Getting them to switch to another system is very difficult if they are not involved in designing it.

From a cost standpoint, can emerging companies afford the systems that are out there or the development of a custom system?

Reutiman: Many times there is a temptation for a smaller or start-up organization to avoid a heavy investment in IT. However, I am a strong advocate of IT. There is a tremendous upside to gathering all of the important information elements of an early-stage opportunity and harnessing as much of that information as possible. Clinical and financial interpretations are paramount in an early organization, and it's beneficial to invest in a system to capture these up front.

Sales and Ethics

The marketing and sales practices of medtech companies are coming under increasing scrutiny. A couple of years ago, industry association AdvaMed (Washington, DC) revised its code of ethics, which some companies have adopted as a guide for sales interactions with healthcare professionals. As current chairman of AdvaMed, Medtronic president and CEO Art Collins has been one of the big proponents of the AdvaMed code of ethics. What effect has his involvement had internally at Medtronic?

Meehan: If it does anything, it holds our company to an even higher standard. We have a compliance officer in place, and I sit on the committee. We meet once a month with our legal and compliance teams.

With every training class at Medtronic Diabetes, I review the seven principles of Medtronic-MiniMed management, one of which is integrity. The sales team is encouraged to be creative in the field to achieve success, but it is never acceptable to cross the line and violate ethical codes, codes of conduct, or business practices.

Rooney: One of the things we have learned is that FDA and the Office of Inspector General both respect a legitimate scientific exchange that salespeople can have, and there are ways to do that and ways not to do that. We focus on training reps for that legitimate scientific exchange. Our sales organization has taken time out of the field to spend a couple of days at a time on this issue to ensure everyone understands this concept.

Margolies: Our sales team has gone through ethics training, and our customer base is starting to appreciate and understand the shift that has occurred within sales organizations. Years ago, physicians would ask for certain perks, and I am not seeing those same requests now. The requests have shifted from expensive dinners and trips to getting the best products, clinical information, and education after the sale.

Reutiman: Without the luxury of having a separate compliance officer at my company, in hiring talent I feel very fortunate that a lot of the companies represented here do as much training as they do. OmniSonics is looking for individuals who have a lot of experience and have built a reputation in the field based on strong ethical performance.

Adapting to Change

Looking forward, how are sales strategies shifting to meet the changes in your customer bases?

Raetzman: Sales will always be a relationship business. That is what this business is about. It is about helping physicians and practices perform better medicine. That is not going to change. But in addition to that, companies will have to provide skills training to help representatives sell the economic value of products a little bit better.

Margolies: In the 1990s, a lot of companies went toward account-management-based sales forces. Companies gave their reps a lot of products and said, 'Manage a small territory.' A lot of these companies are realizing that that model is not working now. Companies need to get more-specialized sales forces in place. Organizations are breaking apart those account-management posi- tions and going toward specialized sales forces for multiple reasons: education, clinical benefits, regulatory issues, a lot of different things. That trend will certainly continue.

Masloski: Hospitals and physicians are diverse groups with sometimes widely divergent needs. Many companies understand this, but few are effective at being able to segment their market based on customer needs and align their value propositions and selling organizations to deliver value against these segments. Companies that can do this well can earn competitive advantages.

Copyright ©2006 MX