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.
Showing posts with label pharmaceuticals. Show all posts
Showing posts with label pharmaceuticals. Show all posts
Tuesday, December 7, 2010
Thursday, October 23, 2008
Merck Cuts 7,500 Jobs
Yesterday, drug giant, Merck, announced that it was cutting 7,500 jobs, and it’s a sure bet that most of those job eliminations will be in the sales positions. The unfortunate sales reps who lose those jobs will feel acute loss in their income and maybe even their lifestyle, but the brutal fact is that they will not be missed by either their company (Merck) or the physicians and the greater medical community.
Imagine yourself going to four different Walgreen drugstores just to purchase toothpaste, toilet paper, aspirin, and body lotion— because no single store can sell more than one item. That’s analogous to the relationship that has evolved between the doctors and the drug companies. By duplicating and triplicating the sales presence in every medical office and clinic, the drug companies reasoned that each doctor could be bombarded with three or four sales pitches from the same company in the time that it usually took to get in one good pitch. Each sales rep would sell just one or two drugs rather than having one rep sell six or seven drugs. But, like most big ideas that get spawned in upper management, the plan totally failed to consider the needs and wants of the customer. As a result, physicians simply stopped fielding sales pitches altogether.
My personal physician told me that she limits herself to seeing no more than eight sales reps in any single day. She averages about 25 per week, or 100 per month, but nearly all of those so-called “sales visits” are nothing more than sample drops lasting two or three minutes. Drug industry internal statistics show that the average pharmaceutical sales call results in less than five minutes with the prescribing physician. I retired from a job in pharmaceutical sales ten years ago, and back in the good old days my sales visits averaged 25 minutes, and I sold every drug in the company product portfolio. But now, Big Pharma with their manager-driven big idea has managed to alienate the medical community, and has pretty much made their sales force irrelevant to the product promotion process. That’s why companies like Merck can feel comfortable with 7,500 person layoffs.
Imagine yourself going to four different Walgreen drugstores just to purchase toothpaste, toilet paper, aspirin, and body lotion— because no single store can sell more than one item. That’s analogous to the relationship that has evolved between the doctors and the drug companies. By duplicating and triplicating the sales presence in every medical office and clinic, the drug companies reasoned that each doctor could be bombarded with three or four sales pitches from the same company in the time that it usually took to get in one good pitch. Each sales rep would sell just one or two drugs rather than having one rep sell six or seven drugs. But, like most big ideas that get spawned in upper management, the plan totally failed to consider the needs and wants of the customer. As a result, physicians simply stopped fielding sales pitches altogether.
My personal physician told me that she limits herself to seeing no more than eight sales reps in any single day. She averages about 25 per week, or 100 per month, but nearly all of those so-called “sales visits” are nothing more than sample drops lasting two or three minutes. Drug industry internal statistics show that the average pharmaceutical sales call results in less than five minutes with the prescribing physician. I retired from a job in pharmaceutical sales ten years ago, and back in the good old days my sales visits averaged 25 minutes, and I sold every drug in the company product portfolio. But now, Big Pharma with their manager-driven big idea has managed to alienate the medical community, and has pretty much made their sales force irrelevant to the product promotion process. That’s why companies like Merck can feel comfortable with 7,500 person layoffs.
Saturday, July 19, 2008
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
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
Tuesday, April 15, 2008
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.
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.
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