Pfizer's Deep Trouble - Will Pharmaceutical Industry be Able to Change?
Pfizer's new CEO, Jeffrey Kindler, implicitly acknowledged last week, that Pfizer has hit the wall. "Despite the nearly $15 billion it made last year, despite the fact that it still has the best-selling drug in the world, Lipitor, which generates around $13 billion in annual revenue - its reliable business model had begun to break down", is the assessment of Joe Nocera in an article in the New York Times' business section.
"Jeffrey B. Kindler, announced that Pfizer was going to do some serious retrenching. For starters, it would lay off 7,800 people. Along with a previously announced reduction of 2,200 sales representatives, that meant Pfizer was going to cut 10,000 jobs, about 10 percent of its work force", continues the article.
Vera Hassner Sharav of the Alliance for Human Research Protection has a comment about this:"Oddly, the New York Times seems to buy industry's efforts to gain even longer patent extensions beyond its current 20 year market exclusivity. What the Times doesn't begin to address is that many of the blockbuster drugs have no proven, demonstrable therapeutic value, but rather a perceived benefit that when the adverse events are added up, the perceived benefit disappears.
By checking the initial FDA-approved label and subsequent changes in the labels of blockbuster drugs provides insight about how risky it is to consume a newly approved drug.
Take Pfizer's blockbuster antidepressant, Zoloft--whose sales in 2005 reached $3.5 billion. In scientific controlled trials, its benefit (82% of its benefit) was matched by placebo--which carries no risks and no cost.
Pfizer's Zoloft label history shows an incremental acknowledgment of previously undisclosed serious risks of harm. The labels do not reflect any commensurate findings of added benefits for those who are exposed to those increased risks of serious harm.
By the time the latest Zoloft label included a black box warning about suicidality in children and adolescents -- its patent protection had almost run out. Even today, the Zoloft label does not yet reflect the evidence that the drug poses a greater than twofold increased risk of suicidality for adults -- as the FDA's latest reported finding (December 2006) show."
This gradually emerging profile of deadly side effects is by no means unique to Pfizer's Zoloft. Other companies and indeed a number of drugs are suffering similar problems. Merck's Cox-2 inhibitor Vioxx was approved in 1999 but after some years, as thousands of deaths among patients could no longer be covered up, the company decided to remove the drug from the market. In 2001, Bayer withdrew its cholesterol-lowering Baycol after it had been linked to more than 50 deaths, later estimated to have been more than a hundred - an ominous sign for Pfizer's blockbuster Lipitor.
When 13 billion dollars out of your total yearly income of 15 billion are from the sales of one fatally flawed drug like Lipitor, you know you are in trouble, despite the size of your company. Despite its apparent success, Lipitor has an appalling side effect profile, and the philosophy behind it - the drug interferes with the liver's natural ability to produce cholesterol - renders the drug both damaging and ineffective.
A flawed business model
Commentators quoted in the New York Times article fault Pfizer's concentration on what are called blockbuster drugs, those that generate more than a billion dollars in yearly revenues:The era of the blockbuster - and the blockbuster business model - may well be coming to an end. If you get away from Wall Street, it's not hard to find people who view things that way. "I don't think the model makes sense anymore," said the Harvard economist David Cutler.
"The blockbuster model does not work as a business anymore," said Roger Longman, a managing partner at Windhover Information, a health care consulting company.
But that is a very superficial way of looking at things. Pharmaceutical companies generally rely on patentable drugs which they can sell at high prices without having to fear competition as long as the patent holds good. That means, their research - by necessity - has to go further and further away from using natural molecules, those the human body has been exposed to and has learned to live with for millennia.
Instead of searching for better ways to deliver nutrients that help our bodies cope with stress and illness, the pharmaceutical world must look for synthetics, which are patentable but which, more often than not, end up disturbing homeostasis, in an effort to suppress this or that symptom. The real causes of illness are almost never addressed.
While pharmaceutical producers have to make ends meet, there is no reason that our health should be the playground for an investment industry that is yielding insane profits to shareholders. But as long as pharmaceutical companies profit from disease, rather than from health, we will have disease as a major outcome. This puts incredible stresses on national health systems, which not only must pay for the overpriced drugs but end up having to provide hospitals and care for an increasingly sick population.
Pfizer's recent restructuring move only shows the tip of the iceberg. What is at stake is not only the pharmaceutical business model. The real question is: can we allow companies to profit from ill health rather than from good health, and can society continue to foot the bill for the outcome in terms of public health.
Something has to give - sooner or later. Whether Pfizer follows the pharmaceutical blockbuster model is not the question. We need deep reforms to bring the pharmaceutical industry out of the doldrums. And those reforms must bring better health outcomes than patentable synthetic molecules are able to deliver.
You can find the New York Times article here, but below is, for archive purposes, a copy.
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THE NEW YORK TIMES
January 27, 2007
The Dangers of Swinging for the Fences
By JOE NOCERA
There was once a pharmaceutical company that could do no wrong. It had the best-selling drug in the world. It saturated the airwaves with its ads, and swarmed doctors' offices with its army of good-looking sales representatives. It had mastered the art of turning drugs into blockbusters. It made many billions in profits. Wall Street analysts loved it. That company, for those among you with short memories, was Pfizer. And that era when it was the king of the hill wasn't some distant age - it was just maybe three or four years ago. Oh, how the mighty have fallen!
This week, during a meeting with analysts and investors, the company's new chief executive, Jeffrey B. Kindler, announced that Pfizer was going to do some serious retrenching. For starters, it would lay off 7,800 people. Along with a previously announced reduction of 2,200 sales representatives, that meant Pfizer was going to cut 10,000 jobs, about 10 percent of its work force.
He also announced that Pfizer would close some of its manufacturing and research facilities and reconfigure its research capabilities. But most important, Mr. Kindler did something his predecessor, Hank McKinnell, who was shown the door last summer well ahead of his scheduled retirement (and handed an obscene exit package), had never been able to do.
Implicitly at least, Mr. Kindler acknowledged that Pfizer had hit the wall. Despite the nearly $15 billion it made last year it; despite the fact that it still has the best-selling drug in the world, Lipitor, which generates around $13 billion in annual revenue - its reliable business model had begun to break down. Mr. Kindler's essential message to the investment community was that Pfizer was going to try to do the single hardest thing any big company can try, and that is to change.
We in the newspaper business tend to obsess about the wrenching transformation taking place in the media industry. It is easy enough to see. We look at other industries, like the domestic auto business, and we can see that its way of doing business isn't working anymore either.
It is a little harder to see that with Big Pharma, which is still rolling in profits. But the pharmaceutical business is, indeed, changing. "I think of the environment as a huge screw that is slowly turning," said Steve Scala, the health care analyst with Cowen & Company. "You can't see it turning if you are in the middle of it, but if you walk away for a while and then come back, you notice how much it's turned." For Pfizer, the very tactics that made it so successful for so long are precisely the ones that have now caused the company to stumble.
Mr. Kindler has noticed that the screw is turning. Whether he can actually do anything about it, retrenchment or not, is another question entirely. THE modern Pfizer was built on blockbusters, which is what the industry calls medicines that generate $1 billion or more in annual revenue. That isn't exactly a news flash: There was Viagra, which it brought to market in the late 1990s and turned into a $1.6 billion drug, and its high-blood-pressure medication Norvasc ($4.8 billion in sales last year). And Lipitor, which, despite competing with a handful of other cholesterol-lowering drugs, is by far the dominant drug in its class.
In the 1980s and 1990s, all the big pharmaceutical companies aimed for blockbusters, of course. But no company was better at it, and no company believed more profoundly in the supremacy of the blockbuster model. Pfizer was in the forefront of the mass marketing of drugs, and of getting its sales force in front of doctors to persuade them to use Pfizer's products instead of a competitor's. And if its research labs weren't exactly prolific - Pfizer hasn't developed a blockbuster on its own since Viagra - it still managed to produce a steady stream of blockbusters by buying up other companies and acquiring their potential blockbusters. Mr. McKinnell used to say that there were plenty of blockbusters out there - Pfizer's job was to go out and find them.
Unlike most industries, Big Pharma can't milk its best-selling "branded" drugs forever. That's because drug patents expire after 17 years. Indeed, because the testing and approval process comes after the patent is filed, a company usually has only 10 to 12 years to reap a high price from its drug once it hits the market. After that, the generic drug industry takes it over, and drains most of the profit out of it.
As a matter of public policy, that's surely a good thing, but it doesn't help companies that are trying to generate ever-increasing profits. For them, there is constant pressure to replenish expiring blockbusters with even bigger and more profitable drugs.
To a number of the analysts I spoke to who follow Pfizer, like Mr. Scala, the company's problem is really pretty simple: it has a number of drugs that have either lost their patent protection or will soon - and it doesn't have anything coming on line, at least in the short term, that will take up the slack. Norvasc, for instance, will lose its patent protection this year. Most ominous of all, Lipitor is coming off patent in 2010. How is the company ever going to make up that $13 billion in revenue?
What's more, Pfizer was banking a great deal on a cholesterol drug it had developed called torcetrapib, the first drug aimed at raising the level of good cholesterol, rather than simply lowering cholesterol levels, the way Lipitor does. It would have been huge. But in early December, the company announced that it had ended its efforts to develop the drug after a clinical trial showed a higher-than-expected number of deaths. The loss of torcetrapib was a crushing blow.
But the patent expiration issue, while very real, is to my mind the symptom of something larger. The era of the blockbuster - and the blockbuster business model - may well be coming to an end. If you get away from Wall Street, it's not hard to find people who view things that way. "I don't think the model makes sense anymore," said the Harvard economist David Cutler.
"The blockbuster model does not work as a business anymore," said Roger Longman, a managing partner at Windhover Information, a health care consulting company.
There are lots of reasons for this. For one, as Pfizer discovered with the failure of torcetrapib, when you live by the blockbuster, you die by the blockbuster - companies simply need to become less reliant on a small handful of big moneymakers that will inevitably go away. "If you go the blockbuster route," said Dr. Una S. Ryan, the chief executive of a small biotech company, Avant Immunotherapeutics, "any setback is going to be catastrophic."
For another, the larger society has become much less tolerant of Big Pharma's tactics. There is a backlash against the kind of direct-to-consumer advertising that has propelled many drugs into blockbuster status. Doctors are less willing to spend time with drug company sales representatives.
The game-playing by many companies to extend the life of their patents is under attack by Congress and the Federal Trade Commission. The Food and Drug Administration is giving tougher scrutiny to drug applications - especially for drugs that are only marginally different from those already on the market.
And as health care costs continue to rise, managed care companies are looking to drugs - and drug companies - to save money. Look, for instance, at Lipitor, which is unlikely to have much more sales growth. Why? Part of the reason is that a competing drug, Merck's Zocor, lost its patent protection and is now available in generic form. Pfizer can argue, as it does, that Lipitor is superior to generic Zocor. But it is not that much better. So a number of managed care companies have begun switching patients to the generic version, thus saving millions of dollars.
"In some ways," said Niko Canner, a consultant with Katzenbach Partners, "Big Pharma is a victim of its own success. There was a tremendous period when they were coming up with drugs for chronic diseases that affected lots of people. There is now a lot of very good generic product on the market. And while there have been significant innovations, there hasn't been a big wave like the last one."
And there's more: the science of drug discovery is changing in ways that favor small, nimble biotech companies. The new discoveries tend to be in areas like cancer, where companies can charge very high prices for small populations - and where the sales force needs to be steeped in the science of the drug. Mr. Cutler believes that drugs are eventually going to be customized for individuals - and the kind of broadly available drugs Big Pharma has been so good at producing, requiring huge clinical trials, simply won't make sense anymore.
Mr. McKinnell, Pfizer's former chief executive, was wedded to the blockbuster model; in retrospect, it seems obvious that that is part of the reason he no longer has his job. (He also had very little credibility on Wall Street, and wasn't well liked within the company.) In his announcement this week, Mr. Kindler talked about needing to make the sales force operate differently, about turning its managed care customers into partners instead of foes, and about getting as good at developing $500 million drugs as in coming up with new blockbusters.
He was speaking in code, but if you were attuned to it, the message was clear. He wants to wean Pfizer from its blockbuster culture. But even with 10,000 fewer employees, Pfizer is still a very big company, and very set in its ways. It had a great deal of success doing things one way. And however much its people may say they want to change and thrive, Mr. Kindler is about to discover the same thing executives in the newspaper and auto industries already know. It's hard to teach an old dog new tricks.
posted by Sepp Hasslberger on Sunday January 28 2007
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