I Never Believe the Happy Talk

A few readers of this blog know me personally, and I’ve been asked once or twice why I’m so cynical and contemptuous of institutions. My answer is— personal experience and my personal disappointment in the institutions I’ve come to know.

I grew up Catholic in a time when the public face of Catholicism was Bing Crosby in “The Bells of Saint Mary’s.” I was an altar boy, and I actually wanted to become a priest. Then, within my own lifetime, I saw the Catholic priesthood exposed as a kind of training ground for despicable pedophiles, while The Holy Mother Church worked behind the scenes to limit the PR damage and cover up the transgressions. I was disappointed and disillusioned.

I was young in America when the United States had half of the world’s GDP, and the so-called, “American Dream” was real, and was iconic throughout the world at that time. I remember an America that had just saved the world by winning World War II. Then, within my own lifetime, I’ve seen the United States fall below many of the other developed nations in the standard of living, and I watched the U.S. military transition from a supremely unbeatable fighting force to a bloated jobs program with high rates of on-the-job injuries and fatalities. I was, and am, disappointed and disillusioned.

To the extent that political parties can be considered institutions, they are so far beneath my contempt that I won’t even discuss them here. But more consistently disappointing than religions or nations are corporations. Who can forget Enron or Tyco or WorldCom or Lehman Brothers or Pfizer (did he just say Pfizer?) In the 1990s, Pfizer was named the “most admired” and “best managed” corporation in America. I owned some Pfizer stock when it seemed that everybody who didn’t own some of it wanted to own it. During the 1990s, Pfizer stock increased in price 10 fold in 10 years. Then, within the last twelve years, I’ve seen Pfizer become, arguably, the most dysfunctional company on the Fortune 500 (See Fortune Magazine, August 15, 2011), while Pfizer stock has languished dead flat for ten years at a price less than half of its value during the glory years. I’m disappointed and disillusioned.

From my personal experience, I believe that— just as surely as all living things eventually die— all big institutions inevitably crumble and fail if you watch them long enough. And you can, literally, watch them because their demise takes less than a single lifetime to unfold. Only 15 companies on the Fortune 500 were on that list 50 years ago. When you see an institution— any institution— at the peak of excellence, you can be pretty sure that the downhill slide has already inexorably started, and that’s why I never put my faith in any big institution. That’s why I never believe the happy talk.

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.

The Days of Henry Ford and Tom Edison Are Long Gone

Last week, Lehman Brothers CEO, Dick Fuld, was in the news again when an investigative commission released its report on why Lehman Brothers went bankrupt. To nobody’s surprise, the investigators concluded that Lehman Brothers, under Fuld’s stewardship, went down in flames simply because Fuld and his company richly deserved to fail for their fraudulent business practices. Fuld may have been the poster boy for the 2008 meltdown, but the seeds of that fiasco go back more than twenty years.

The real story isn’t about Dick Fuld, but about the fact that America tolerates and nourishes a veritable galaxy of creatures just like him, men like Jeff Skilling and Ken Ley of Enron, and Roger Smith and Rick Wagoner of General Motors, and Hank Mckinnell of Pfizer. The list could go on and on, for there’s no shortage of men like these who took a highly successful company and drove it into the ground just for personal wealth and lazy unimaginative expediency.

Our problem in America is partly that our quaint and naïve love affair with Capitalism is based in no small way on our nostalgic admiration for industrialists like Henry Ford and Thomas Edison and Harvey Firestone and Walter Chrysler— primarily entrepreneurs, and then subsequently tycoons who headed successful business operations that produced and sold products that they, themselves, had invented or developed. That respected American entrepreneurial tradition continues to this day with successful businessmen like Bill Gates and Steven Jobs and Warren Buffet. Admiration for all of these men is justifiable.

But the essence of the greater problem is that most Capitalism-loving Americans can’t tell you the difference between a Bill Gates and a Dick Fuld, and it would be difficult to overstate the significance of that. The difference is that corporate honchos like Fuld and the vast majority of other corporate CEOS are definitely NOT entrepreneurs. On the best day of their lives, these men could never start a legitimate business from scratch and make it successful any more than your average17th Century pirate could design and build his own sailing ship. These modern pirates are top-feeding functionaries who rise to positions of incredible wealth and power with their internal corporate political skill, and usually nothing more.

Why is this suddenly more important than it’s been in the past? Because the true unemployment rate in the richest nation on earth is now closer to 20% than to the reported 10%, and most of the people without jobs will never go back to high-paying work because the jobs— first in manufacturing, and then accounting, and then customer service, and then research and development— all were exported out of the country by the honchos to make the bottom line look good in the shortest possible time without regard to long term consequences. Of course, there are apologists aplenty in places like the U.S. Commerce Department who tell us that the exportation of jobs was just a natural consequence of globalization, but globalization didn’t come with a rule book that mandated the export of jobs just to save labor costs. Those decisions were left up to the honchos running the companies, and their own self-serving interpretation of Capitalistic ethics gave them their roadmap to follow. What we have now, massive unemployment and financial misery at the bottom, and exploitation at the top for multi-million-dollar bonus checks, all of this is simply unrestricted free-market Capitalism at work, functioning just the way it was designed to function. I’ve written it before and I’ll write it again, Capitalism only works in a positive way within an ethical framework. The days of Henry Ford and Tom Edison are long gone.

Big Pharma—Too Big To Fail?

Last month it was Pfizer who climbed into bed with Wyeth, and two weeks ago Merck got so cozy with Schering that the two became one— presumably till death do them part. Now it’s Roche who has taken over Genentech, although by all accounts this was more of a rape than a marriage. We’ve seen this scenario before in the financial setting when banking giant, Citigroup, took over Smith Barney back in those days of ancient history when both firms were actually making good money. We’re now told that Citigroup is too big to fail, so it’s natural to wonder if the newly bloated Pharma giants might not be positioning themselves to also be considered, “too big to fail.”

Following each takeover or merger, the well-orchestrated Pharma PR machines went into high gear, spinning out the usual PR-isms about achieving “synergies” and realizing “economies of scale,” but what have been the observable results? The first noticeable change came in doctor’s offices where the number of Pharma salespeople making sales calls fell off dramatically. My own personal physician would sometimes see as many as eight salespeople in a single day (most sales calls were two-minute sample drops). That was a year ago. Recently, the number has fallen off to one or two in an average day, and sometimes none at all. In the 1990s, many young people graduating college looked on Pharma sales as a worthy career aspiration, but today, many of those who realized their dream with a job selling pharmaceuticals have recently learned how fallen leaves probably feel in front of a leaf blower. The industry which once fielded over 100,000 sales people now has about one-third of that number.

None of this is particularly unsettling unless you’re making your living selling drugs. The problem for the greater society is that the research departments in companies like Pfizer are undergoing the same atrophy that’s been seen in the sales divisions. This means that potentially fewer new medications will come into the field of medicine, and even fewer existing drugs will undergo needed improvements. DTC marketing, however, remains robust and will only continue to grow, so look for Pharma advertising on TV to become even more abundant and glitzy as drug firms use this avenue to pump up sales and profits.

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.

Coming Soon To Drugstore Near You— Lower Prices, Lower Quality

IMS Health, the world’s leading pharmaceutical intelligence and data mining firm, is out with its annual report on the generic pharma industry, and the news doesn’t look good for the R&D-based Big Pharma segment where the branded pharmaceuticals are researched and produced.

Generic pharmaceuticals sold $78 billion (globally) in the last twelve months, with $34 billion of that total coming from the U.S. market where generics now account for roughly 64% of the total domestic drug market volume. Past research has shown that about 90% of sales for a given drug will convert over to generics when the branded version goes off patent, and this becomes critically important when one considers the fact that branded pharmaceuticals currently generating $139 billion annually in the top eight world markets will lose their patent protection in the next few years through 2012. Most of these patented drugs are in the “blockbuster” category. The problem is that there are few, if any, potential blockbusters in the R&D pipeline waiting to take their place. For the last decade, Big Pharma has focused on growing mediocre “lifestyle” drugs into blockbusters through gargantuan advertising and marketing efforts, and they have given much less attention to the R&D needed to keep the new blockbusters coming. If one believes the IMS statistics, the wheels are now coming off the bus. This helps explain why Pfizer, once the darling of Wall Street, saw its stock trading earlier this week at exactly one-third of its stock price eight years ago.

Viagra Turns Ten— A Decade of Hard Times

It started with a run of unbelievable luck. A month or two before the Viagra launch in late 1998, someone at Pfizer in a pre-launch meeting said out loud, “Gee, wouldn’t it be nice if one of the late night comics did a joke about Viagra? It would be like free advertising.” What followed was an unbroken string of nightly Viagra jokes from both Letterman and Leno, week after week, with the result that Viagra— in its first year on the market— achieved a brand name recognition around the world equal to the Coca Cola brand. It was the kind of branding phenomenon that could truly be understood only in a business curriculum at the graduate level.

Pfizer’s advertising firm, Cline Davis & Mann, took this global brand recognition, along with the 100% market share that comes with entry into a new therapy class, and they promptly leveraged all of this with— drum roll please— a televised testimonial from Senator Bob Dole. This was followed by three years of TV ads for Viagra in which baseball and NASCAR played a prominent role. The entire ad campaign from day one was structured to implant the term ED, for erectile dysfunction, into the medical lexicon as well as the everyday vocabulary of otherwise macho guys who might benefit from a better erection. To be fair to Pfizer, using a DTC television ad to promote a prescription drug directly to the consumer was an experiment still in its infancy during these years, and Pfizer was cautious not to push the envelope too far by talking openly about S-E-X. And so we watched handsome men and white-jacketed medical doctors pussyfoot around the term, “erectile dysfunction,” in much the same way that a solitary white guy would utter the words, “African American,” inside a seedy Bronx billiard hall.

By 2003, Viagra had competition, first from Levitra (GSK), and later from Cialis (Eli Lilly). Grey Worldwide of New York, the advertising firm used by Lilly to promote Cialis, immediately put something into their TV ads that had never been seen before— a horny woman! The clear implication was that guys who took Cialis got layed. Who knew? Over at Pfizer, Cline Davis & Mann watched the Viagra market share drop from 85% in early 2004 to 75% by late summer of that same year. So Pfizer honchos decided that, if someone was going to get screwed, it might just as well be someone on Viagra, and they transferred the Viagra TV account over to McCann Erickson. This was the start of Viagra ads that began to look like Cialis ads, and today in late 2008, Viagra sales are up 13% year to date over last year, so the new ads seem to be working. There’s a lesson to be learned here. A man with an erection is better off if there’s a woman somewhere around.

Just Another Bad Idea

Ron Suskind, Pulitzer Prize- winning writer, is out with a new book exposing disturbing details of the ramp up to the Iraq war. He asserts that the Bush White House didn’t misinterpret pre-war intelligence, they manufactured it. Let’s face it, Bush-Cheney and the Neo-Cons took us to war because they damn-well felt like it. Naïve and patriotic Americans will discount this because they ask themselves the logical question, “Why would the President do such a thing?” The easy answer is that he did it because he could, but there’s a more complicated answer that gets closer to the truth, and this is what I want to write about today.

In 2004, when I was still counting myself among the majority of Americans who favored the war at that time, I spent a morning with Charles Krauthammer in a group discussion about the Neo-Con philosophy as it related to Iraq. The Neo-Cons believed at the time (most of them still believe) that democracy could be forced on Iraq, and it would spread to neighboring Middle Eastern Arab and Shiite countries. Krauthammer cited examples of forced democracy taking hold and thriving in the post WWII countries of Germany and Japan, but he completely missed the bigger picture. The German democracy didn’t spread to the Soviet Union, and the Japanese democracy didn’t spread to North Korea and China, and—in fact—the case can be made that the new democracies imposed after WWII actually hardened the neighboring totalitarian views of China, North Korea, and the Soviet Union. So the question is this, “How did the Neo-Cons get it so wrong?”

The process is known as, “groupthink,” and the mechanism that lubricates the process is known as, “happy talk.” Basically, Bush and Cheney gathered in a room with Donald Rumsfeld and Paul Wolfowitz and Richard Pearle and Condi Rice, and they talked themselves into the notion that democracy could be spread around an entire region of the world as though it was some kind of contagious living organism. Nobody in the room acted the part of the naysayer or Devil’s advocate, and pathetic old Krauthammer just sat waiting in the wings to glow with tribute when the Neo-Con plan bore fruit. As far as I know, he’s still waiting. They felt assured of a successful outcome because they wanted it, “real bad.”

This wasn’t the first failure that came from “groupthink” and “happy talk,” and it won’t be the last. NASA managers sent the Challenger astronauts to their deaths because the managers wanted a quick launch, “real bad.” JFK’s military planners talked themselves into the Bay of Pigs invasion because they wanted a victory over Castro, “real bad.” Business managers do this every day with similar disastrous results. Sometimes it happens in failed corporations like Enron, and sometimes it happens in highly successful corporations like Pfizer, and here’s the thing that is truly amazing— every time it happens, the disaster comes as a complete surprise to the managers. Needless to say, the failure in Iraq came as a complete surprise to the Neo-Cons.

More than 4000 American servicemen are now dead, along with untold tens of thousands of innocent Iraqi civilians, all because of a bad idea. But when the tragedy is taken down to its essence, the only thing that stands out is the fact that this particular bad idea was hatched by people with immense power, resulting in chaos that is being felt around the world. Other than that, it was just another run-of-the-mill bad idea. This is the new reality in a world where people of limited intelligence who lead entire nations and who command immense military power think they can get by with just applying simple management techniques while they confront global problems with the carelessness of a PlayStation video gamer. There’s an old saying that should be the epitaph for George W. Bush, “for every complex problem there’s a simple wrong solution.”

Corruption In America's Pharmaceutical Industry

Take an educated guess. Which American institution (not counting the Government) employs the most lawyers? The insurance industry? Real estate? The automobile industry? The travel industry, which would include the air carriers as well as the plane manufacturers? All would be intelligent guesses, and all would be wrong. The answer is the "generic" pharmaceutical industry. The word, "generic," is used to differentiate this from the other pharmaceutical industry which is called, "research based." One employs lawyers, the other employs scientists and marketing people. One consists of drug makers with names that nobody recognizes, and the other is a list of companies like Pfizer and Merck and Johnson & Johnson.

Why so many lawyers? Because they have only one job, but it is gigantic. The generic drug lawyers are charged with breaking patents. Here's how the system works. A big research-based company like Pfizer might spend 30 billion (with a B) dollars each year on research. This work is aimed at discovering new compounds, of which about 1 in 100 eventually proves worthy of development. Of that development group, about 1 in 5 finally makes its way into the marketing machine, and then to doctors and patients. By that time, the original patent protection has been whittled down to something between 10 and 13 years before the patent expires. When the patent expires, the generic drug makers begin to sell their "knock offs" at a greatly reduced price, and the industry statistics show that about 90% of the drug usage switches from the research-based company to the generic company. In other words, the company that discovers and develops the new pharmaceutical has only about 10 to 13 years to recoup the research investment and show a profit from the sales.

The estimated 90% switch to generic label usage upon patent expiration has huge financial implications for the research-based company that holds the patent. Take the case of Pfizer's Lipitor, the largest selling drug in the world. When Lipitor gained FDA approval in 1996, it helped send Pfizer stock value into a stratospheric climb that culminated in 2001 with a price per share over $48, and this was after a three-for-one stock split. 2007 sales for Lipitor exceeded 6 billion dollars, but if the past switching pattern hold true, 90% of this could go to generics in 2010 when the patent expires. This is partly why Pfizer stock closed near $17 last week, nearly down to one third of its 2001 value.

If that's not complex enough, consider this. In addition to just the simple economics, part of the pressure driving patients to switch to generic drugs comes from the U.S. Congress and the AARP- two of America's most powerful institutions. So why should the average person care what happens to the big research-based companies? Because all our lives depend on fresh research, and not just for exotic disease cures. Bacteria constantly mutate, and because of this antibiotics lose their effectiveness over time. If drug companies don't keep pace by developing new antibiotics, we could find ourselves back in a time when simple pneumonia could be a deadly killer. Generic drug makers are not in the research business, and would be of little benefit in such a scenario.

So this cautionary tale has elements of big business, intense competition, huge profits within very limited time frames, lawyers working behind the scenes, monetary choices that effect virtually everyone, and life and death health choices that effect the entire human race. Add to that, an extraordinary complexity of operation and two sides to every issue. All of this makes the total pharmaceutical industry difficult to understand. And when people cannot easily understand something, they tend to suspect corruption. That's where the corruption issue comes into a discussion of America's pharmaceutical industry.

See also
Our Daily Meds
Don't Blame Kindler
Killing The Goose That Lays Golden Eggs

Our Daily Meds

In her book, "Our Daily Meds," Melody Petersen has given us a new understanding about what's behind prescription drug advertising on television. Money, that's what's behind prescription drug advertising on television. Who knew? In Big Pharma it's called direct-to-consumer marketing, and the official pharma jargon for this is DTC. Beyond that, however, nobody (including the Big Pharma companies themselves) really understands much of anything, because most of the money is only going into the pocket of the PR firms that create the drug ads. For the pharmaceutical companies, the DTC experiment has been a mixed bag.


Take the recent case of Dr. Robert Jarvik, hyping Lipitor umpteen times a day on the TV in scenes that depicted him rowing and running. Working through the New York PR firm of the Kaplan Thaler Group, Pfizer paid Jarvik $1.35 million to be the mouthpiece for Lipitor. What Kaplan Thaler failed to mention in the advertisement was that Jarvik was not a rowing devotee (they used a body double for that scene), and Jarvik was not a runner, and Jarvik was not even licensed to practice medicine. Under pressure from the U.S. Congress and the pharma blogosphere, Pfizer eventually pulled the ad from TV in February of 2008. Both Pfizer and Dr. Jarvik suffered a substantial loss of reputation. As for Kaplan Thaler, it wasn't necessarily a sure bet that they'd be working on another Pfizer DTC commercial, but now it seems that they're the firm behind the Lyrica ads.

DTC advertising is relatively new. The FDA first allowed these prescription medicine advertisements to be shown on television in early 1997, and the Big Pharma players jumped on the opportunity like Dobermans on a prime rib roast. The high point for this DTC activity was reached about three years ago. In July of 2005, Pfizer was one of the top ten advertisers on television (the U.S. military is number one). Starting in August of 2005, Pfizer began cutting back, but the recent Jarvik debacle didn't intensify that pullback. Quite the opposite. With the lion's share of the industry's 5.1 billion-dollar TV ad budget, Pfizer is now actually on track to surpass the high water mark for TV ad spending set in early 2005. Meanwhile, Merck has been virtually absent from DTC activity after being forced to pull the Dorothy Hamill ads for Vioxx.


One of the main points of contention in DTC advertising concerns the issue of "risk advisement." The warnings of adverse side effects that accompany DTC ads are not the least bit informative or understandable for the average TV viewer who might need the medicine. Meanwhile, the Big Pharma players and the PR firms like Kaplan Thaler are only concerned with "compliance," meaning that they do just enough full disclosure to keep the FDA from pulling the ad. For this reason, as well as a host of other reasons, the pharma industry is taking it on the chin from the blogosphere and the Congress and the AARP. According to several market research polls conducted in 2006 and 2007, the pharmaceutical industry, handgun manufacturers, and tobacco companies are all held in the same low esteem in the court of public opinion. Big Pharma, generally perceived as an obscenely prosperous cash-cow, actually posted a measly 3.8% increase in 2007, and is on track to an equally anemic performance in 2008. The last time that the pharmaceutical industry showed numbers like this was in 1961. One extremely well-placed pharmaceutical industry insider has gone on record saying that, in his opinion, at least one of the major Big Pharma companies will completely disavow the use of DTC advertising by the end of 2009. If advertising for prescription drugs could be summed up with two words, they would be, "unfulfilled promise."

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.

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.