PDI Evista Lessons Learned: Firm Focuses On Smaller Contracts, No Baselines

PDI will focus on smaller contract sales opportunities in the 50-representative range following termination of the Evista promotion deal with Lilly, CEO Charles Saldarini said on a conference call Nov. 12.

"We have shifted our product sourcing focus to smaller products that we believe we can license and acquire, which compete in markets [in] which we feel we can be highly competitive with smaller teams," he said.

"We are decidedly less interested in strategies that would require PDI to enter into baseline arrangements and in which we cannot control all of the key commercial levers or would require us to field a sales force which was underleveraged."

"I think those are painful lessons from the last 12 months and we're applying those to our product sourcing strategy," Saldarini said. "The overall size of the pharmaceutical products group gives us a good opportunity to drive growth out of that group as we're successful with product sourcing."

PDI and Lilly will terminate the Evista (raloxifene) agreement Dec. 31. Under the agreement, PDI dedicated 500 sales reps to co-promote the osteoporosis agent; Evista was the sales force's only product (¹ (Also see "Lilly Post-Prozac Steps Include Charge Related To Ceclor Manufacturing" - Pink Sheet, 8 Oct, 2001.), p. 25).

Saldarini described the Evista experience as "terribly disappointing from a financial standpoint" for PDI. "Getting the Evista deal behind us really does dramatically improve our outlook for 2003." The deal will save $35 mil. to $40 mil. in costs next year.

The deal has yet to be profitable for PDI, given that it committed a large primary care-based sales team to promote Evista and needed to generate "literally hundreds of millions of dollars in revenue in order to achieve our target," Saldarini said.

PDI estimated it needed Evista to post a 25% year-over-year growth to "secure significant revenue" (² (Also see "PDI Seeks Deals For “Immediate Leverage”; Evista Could Contribute In 2003" - Pink Sheet, 19 Aug, 2002.), p. 9). Evista sales were up 17% to $583.5 mil. through the first nine months of 2002.

PDI sees a general market need for smaller sales forces. "Over the last six months, we've seen a return in...activity in the 50-rep range," Saldarini said. "It comes from a mix of smaller companies, for whom a 50-rep program might be their primary sales force initially."

PDI also sees opportunity at the large pharma level. "As sales forces are shifted and moved around, brand teams are looking to potentially add sales force coverage to plug gaps...in coverage," Saldarini said.

While PDI rethinks its approach to contract sales, the company is sharply reducing its number of pharmaceutical sales service reps - from about 650 to approximately 300 - in addition to a corporate restructuring program that will decrease the overall headcount by 34%.

Under a smaller business structure, "what we used to call a smaller win - now a 50-rep win - that could have a meaningful impact in terms of our numbers," Saldarini noted. PDI has already completed two to four of these smaller deals so far this year, the exec noted.

Despite its smaller size, PDI will still be able to ramp up to a 500-person sales force within eight to 12 weeks, Saldarini said. "We've maintained the scope of our capabilities," with recruitment and training functions that can be rapidly rolled out.

"We still see competitive bids and competitive situations, and what we've done, even with the downsizing, is make sure that we've sustained a new business development...and a marketing capability that ensures they can differentiate us in a pinch."

PDI estimates there are 250-350 sales reps that are being bid on at any given point in time, or about four to five companies each looking at a 50-rep team. While PDI sees the occasional 100-rep program, the company is not seeing multiple 500-rep agreements.

The company recorded $16.9 mil. in charges for the third quarter related to the Evista termination: $2.4 mil. in unused sales force capacity; $6.7 mil. in operating losses; and $7.8 mil. in estimated lost contract revenue. PDI will also incur $6.4 mil. in restructuring charges, spread between the third and fourth quarters, with a small amount carried into 2003.

PDI net revenue was down 44.2% to $64.6 mil. in the third quarter, on a loss of $14.3 mil., compared to a loss of $17.3 mil. in the prior-year period.