Killing the Goose That Lays Golden Eggs

The pharmaceutical industry, handgun manufacturers, and tobacco companies. Question: What do these three institutions have in common? Answer: Public opinion of all three is equally low, according to several market research polls conducted in 2006 and 2007. When you try to understand the facts behind this amazing situation, you come to realize that there is more at work here than ordinary capitalism.

To the extent that a person can live without a handgun or cigarettes, these products can almost be considered luxuries, and as such they are exempt from price considerations. The complaint about guns or tobacco products is not that they are too expensive. But not so for pharmaceuticals. Since these products can often mean the difference between life and death, people tend to think that, somehow, unfettered access to the products should be as easily available as access to pure drinking water. It’s a ghastly misinterpretation of the American Constitution’s “right to life.” The capitalistic idea of supply and demand cost structure just doesn’t compute when it comes to Big Pharma, and this mind-set holds true even for pharmaceutical products that are not essential to maintaining life. Take the classic case of Viagra.

Pfizer Inc., like all big companies, has its own folklore. This is the folk tale about Viagra. Back in 1997, when the product was still in the clinical trial stage, and it was known only by its chemical name, sildenafil, Pfizer did a price-point analysis to see what the market would bear in terms of product cost. But then a curious thing happened. According to the folklore, there was a meeting of the Viagra launch team that took place about three weeks before the product’s introduction. Somebody at that meeting said something to the effect, “Gee, wouldn’t it be nice if some late night comic did a joke about Viagra, and mentioned the name. It would be like free advertising.” As they say, the rest is history. In the six months following the product launch, EVERY late night comic did a Viagra joke virtually every night, and mentioned the product name every time. A market survey in late 1998 showed that, within a year of the product launch, Viagra held the same worldwide name recognition as the Coca Cola brand. But the curious thing is this: The original price-point analysis cost target was now too high. When Viagra became world famous, and when subsequent demand exploded, potential customers for the product began to think that it was worth LESS, not more. So much for supply and demand.

There is one last thing to consider when it comes to Big Pharma and capitalism. As a purveyor of products that literally keep people alive, Big Pharma is truly the goose that lays golden eggs. And we all know the fairy tale about that scenario. Pharmaceutical research and production is one of the easiest of all industries to move offshore. The absurdly low public opinion of Big Pharma is primarily the result of constant battering from The U.S. Congress and the AARP. When companies like Pfizer and Merck decide that “enough is enough,” it doesn’t take much imagination to visualize these fine companies relocating to foreign countries. Marketing teams would then be free to adopt the mind-set that, if Americans don’t like the pricing structure, they can simply save their money and avoid the products and die. That’s capitalism in its purest form.