I, Robot: Why a Pay Raise is Bad News for Novartis Sales Reps

Last Updated Jul 6, 2010 4:22 PM EDT

"Doctor, will you prescribe this product for your patients?"Novartis (NVS) lost an appeal that found pharmaceutical sales reps must be paid overtime because their work is so heavily scripted each rep is more like "a robot or an automaton" than a salesman. It's the fourth recent ruling on overtime pay that drug companies have lost, suggesting that eventually all companies may have to calculate backpay owed to their sales reps in order to end litigation. In the long run, this is bad news for sales reps.

The reps have won their cases by arguing that their work is trivial and repetitive. The 2nd Circuit Court of Appeals ruling said:

One Rep testified that Reps were expected to act like "robots" because of the limitations on what they could say during sales calls.
As their work is neither "sales" in the traditional sense (reps don't take orders for drugs) nor managerial, reps aren't exempt from labor laws requiring they get OT pay if they work long hours, the court ruled. The judges laid it on thick about the parrot-like nature of drug reps. They must close each five-minute encounter with a doctor by saying:
Doctor, will you prescribe this product for your patients who suffer from [the appropriate medical conditions]?"

Doctor, do I have your commitment to prescribe it"?

One Rep stated that a physician might answer affirmatively just to get the Rep out the door. ...

Reps are forbidden to answer any question for which they have not been scripted

Even if the sales call is successful, Novartis has no way of knowing whether a doctor wrote a prescription based on the pitch, as the company does not have access to sales data that's linked to to prescriptions written, the ruling says. Novartis has data for only about 72 percent of all filled prescriptions. The court provided a critique of sales rep economics:
Nothwithstanding the absence of actual information as to the numbers of prescriptions for Novartis drugs written by particular physicians, the Reps ... receive up to a quarter of their compensation as bonuses based on their performance with physicians.
The average sales rep compensation in 2005 was $91,539, the ruling said; Novartis spends about $500 million every year on sales reps.

The district court previously ruled that reps' success in promoting drugs proves they are actually selling, and that their staff cannot be robots because they're skilled, highly paid labor:

They do not begin to answer why or how a robot or an automaton could or should earn an average salary of $91,500 per year.
That ruling is now overturned in sales reps' favor. Ironically, the reps' success in obtaining overtime will likely hasten the death of the drug salesman. Companies already regard them as too expensive, and have laid off tens of thousands over the recession. This ruling will likely make them more expensive still.

And finally, that OT scorecard: On the issue of backpay for reps, Novartis, Abbott Labs (ABT), Schering-Plough and Boehringer Ingelheim have all lost rulings that favored OT for reps. Johnson & Johnson (JNJ)'s Ortho McNeil unit has won a case. There are similar cases pending at Amgen (AMGN) and Serono.