No Love Story for Pfizer

It was just 15 months ago that Pfizer paid $2.3 billion in the largest healthcare fraud settlement ever. It also happened to be the largest criminal fine of any kind ever paid. Moreover, this was the fourth time Pfizer had been punished for illegal marketing activities since 2002, although the previous settlements had been much smaller. Most of the Pfizer malfeasance occurred in the form of “off label recommendation,” a common practice by pharmaceutical salespeople in which doctors are encouraged (and oftentimes even bribed) to prescribe medication in cases where the drug is not approved by the FDA, and the activity is played out within the incestuous relationship that’s evolved over the years between physicians and drug reps. Unless you’ve actually worked as a drug rep or worked in a medical office, it’s almost impossible to understand how a vendor-customer relationship can become so devious and dysfunctional.

I’m happy to report that, as of this week, the average person now has a voyeuristic window into this shadow world of back-scratching drug promotion. Just when Pfizer was comfortable knowing that the general public had forgotten about the $2.3 billion fine, Pfizer now has to watch its marketing machine pictured for all the world to see on the giant screen in the nearest multiplex. “Love and Other Drugs” is the title of a surprisingly good chick flick which opened in movie theaters this week, and the love story is played within the context of the world of medicine and big pharma (Pfizer), depicting pharmaceutical industry shenanigans with such uncanny accuracy that at times it almost informs the viewer like a documentary.

In a massive irony of coincidental timing, Pfizer CEO, Jeff Kindler, “resigned” (winky winky) this week to spend time with his family. The fact is, I don’t see how he tolerated the job at the top of Pfizer as long as he did. It was only twelve years ago that Pfizer, under the brilliant stewardship of Bill Steere, was voted by Fortune Magazine as the most respected corporation in America. Not only was Pfizer the best in both science and ethical marketing, but it was the darling of Wall Street, earning legitimate billions for its investors. It’s tantalizing to speculate what might have happened if Jeff Kindler had followed Bill Steere twelve years ago when Pfizer stock was at $48 and the shares were splitting every two years. Such was not the case, however. Kindler came in after eight years of Hank McKinnell, and by then the damage had been done. If you wonder about Pfizer stock, its price— just like the age of Peggy Sue— will forever be under 21.

Understanding Pfizer’s Latest Job Cuts

If you’re afflicted with Alzheimer’s, cancer, schizophrenia, pain, inflammation, or diabetes, help may still be on the way to you from Pfizer. But if your health problem is anemia, bone loss, obesity, a gastrointestinal disorder, osteoarthritis, or cardiovascular and peripheral artery disease, you’d better not count on the world’s largest drug maker. CEO, Jeff Kindler, has been forced to make hard choices ever since he took over from Hank McKinnell at the helm of Pfizer, but none of those choices were as far reaching as this week’s decision to cut 800 research jobs, and to close down the search for therapies to treat some of mankind’s most common diseases.

I don’t have access to Pfizer’s boardroom, but this certainly seems like a departure from Pfizer’s basic business model which has proven extremely successful over the last quarter century. The drug giant’s strategy has always been to invest more than its competitors in research to develop blockbuster therapies, and then to market them more aggressively than the competition. To become a blockbuster, however, a drug needs to treat a disease which is common to a great many patients, and arguably the most common health problem in America is obesity. With new data showing that an alarming one-third of all Americans are obese, and with nearly all post menopausal women justifiably concerned about bone loss, these two maladies unquestionably afflict far more people than schizophrenia. The only explanation for Pfizer’s strange choice of what stays and what goes away seems to be that they are keeping the research intact where the near term results are most likely to bear fruit.

All of this is designed to cut costs in anticipation of the disaster that awaits the company in late 2011. That’s when Lipitor goes off patent, and if the past is any indicator of the future, then 90% of the Lipitor business will fall to the generic replacements. Lipitor accounts for more than a quarter of Pfizer’s total sales volume, so the stakes could not be higher. There might be a strategy in the works, however, to meet this challenge. The rumor on the street, there, in New York at 42nd and Lexington is that Pfizer is preparing to move aggressively into a generic business of its own.

Don't Blame Kindler

Jeff Kindler has been CEO at Pfizer since mid-2006, and I think of him whenever I think about the next President of The United States. Kindler, like the person who will follow George W. Bush, took the helm from a predecessor who spent eight years at the top before leaving his situation as a mess for someone else to deal with. Jeff Kindler has shouldered much of the Wall Street blame for Pfizer’s stagnant stock value, but to those on the inside, it’s been evident for two years that he never really had a fighting chance.

Blame the wars. For Bush, it was Iraq. For Kindler, it was an out-of-control enlargement of the sales force (the army, if you want to call it that) which came as a flawed legacy from the man who preceded Kindler as Pfizer CEO. By the time Kindler took over at Pfizer, this pharma arms-race, characterized by escalating numbers of so-called, “detail people,” was destabilizing, not just Pfizer, but the entire pharma industry. But it’s worth noting in hindsight that Pfizer started it.

There are 1.4 million men and women practicing some form of medicine in the U.S. who are lawfully allowed to prescribe human pharmaceuticals. Some of these legal prescribers are dentists, some are part-timers, and some are retired. A few are actually dead, and their family members, for whatever reason, keep their DEA number active. The actual number of human physicians who write at least one prescription annually is something in the neighborhood of 900,000. This is the pool- the reservoir- of medical people that the pharma industry seeks to court. By the end of 2006, the total industry-wide number of “detail people” was 92,500. Do the math. That computes to more than one pharma salesperson for every 10 prescribers. That may not make sense to you, but in the earliest years of the 21st century, it made sense to the head of Pfizer. And when it stopped making sense, Jeff Kindler was the man left to deal with the fallout.

I’ve talked with physicians who tell me that- at the high point of the madness- it was not uncommon to see three different Pfizer salespeople each week. Other pharma companies joined the bandwagon and beefed-up their sales ranks as well. Pfizer’s total number topped-out at about 30,000. Merck and J&J were right behind, along with GSK and others.

Taking into account a nice salary, company car, expense account, healthcare benefits, and storage rental for space to hold the astronomical quantities of drug samples, it takes about $200,000 a year to keep a “detail person” in a territory. Add to that, the cost of the management hierarchy layered over the sales reps, and the production and supply costs for all those drug samples, and soon you’re talking about some real money in the marketing budget. To be honest, at the beginning, the strategy made a certain amount of sense. The late 1990s had seen an unbroken and timely string of blockbuster drugs entering the Pfizer product roster from an R&D department that seemed charmed in its ability to deliver the goods. Lipitor, Celebrex, Viagra, and other whoppers drove the Pfizer stock price to stratospheric heights in 2000 before the price, then, fell to half its value where it has languished for the past eight years. Added to the product cascade was a series of takeovers by Pfizer of other drug companies like Warner-Lambert and Pharmacia. These new Pfizer corporate acquisitions also meant new “acquired” products to feed the sales machine. At the top floor on 42nd street, the new strategy was to have multiple sales forces detailing different therapy classes. Hence, the tales from physicians about seeing three different Pfizer salespeople each week.

Shorty before Jeff Kindler took over the corner office, the once-prolific Pfizer R&D operation hit a number of dry holes and the new product flow slowed to a trickle. Behind this was a new, and less benevolent attitude at the FDA. The real setback, however, was a new, and less benevolent attitude in physicians’ offices. Quite simply, doctors got sick and tired of seeing so many salespeople. Today, a good detail person can get, on average, only five minutes of “face time” with the doctor. Most sales calls today are nothing but sample drops, and this activity hardly justifies the $200,000 annual investment in the sample dropper.

In 2006 and 2007, public opinion polls started showing that the pharmaceutical industry was held in the same low public esteem as the gun manufacturers and the tobacco companies. This is partly the result of constant battering from the U.S. Congress and the AARP. The 2005 movie, The Constant Gardener, didn’t help either. None of the blame for any of this rests with Jeff Kindler, but he is the one who seems to be taking the heat. One of his first moves as CEO was to begin cutting the number of salespeople, and it seems like, long term, it may have some benefit. On the whole, however, Kindler faces a situation analogous to the one faced by the next U.S. Commander-in Chief. He has to clean up the mess. And as for Kindler’s predecessor, he jumped off the top floor on 42nd street floating under a 200 million dollar golden parachute.