Q. What does current Pfizer leadership have in common with the Bush Administration?
A. Through their ineptitude and lack of character, they, too, will ultimately kill everything they loved.
The market appears to be waking up to the stupidity of the Pfizer-Wyeth merger (as reflected in sliding stock prices), from a "shareholder value" point of view.
Over the last decade, Pfizer has, in fact, become a world historic destroyers of shareholder value, wiping out more than $150 billion in market cap through a combination of botched mergers with Warner Lambert and then Pharmacia, and - more importantly - through a breath-taking inability to manage innovation.
But what Pfizer leadership failed to realize last week is that by trying to extend their "buy the products, shaft the science" model another rung via the Wyeth merger, they have over-reached.
For a generation, Pharma companies (particularly in the US) have been able to get away with extremely aggressive pricing and the biggest profit margins of any industry. Why? Because, up to now, they have won the argument that this was the best way to ensure extensive investment into the development of new drug therapies.
Pfizer's current strategy (disingenuous lipservice from Pfizer executives aside) transparently discounts the importance of R&D, particularly innovative R&D, which is inherently riskier (i.e., doesn't deliver nice smooth earnings reliably). These executives are marketers and lawyers, by instinct and training, who - exemplifying our current crisis in corporate governance - clearly pursue their own narrow career and financial interests (classic principal-agent problem), answering only to the board they appointed, and some vague set of "investors."
What they don't realize is that, in this era of healthcare reform, these Pfizer execs are not just trying to vaporize another $70 billion below the radar screen - they are, in fact, opening the door wider and sooner to much more significant changes in how all aspects of the pharmaceutical industry are regulated, financed, and managed.
These policy debates are long overdue. To some extent they were going to happen, anyway. But Congress should seize on this opportunity to move beyond insurance reform to focus a lot harder on issues of medical innovation, ranging from intellectual property and patent protection, to regulation of clinical trial design and execution, to financing of trials, to post-marketing surveillance.
That Giant Sucking Sound
Pfizer's enormous value destruction surprises a lot of people. Reporters are used to thinking of Pfizer as an industry leader because Pfizer has the world's biggest drug by revenues, Lipitor (acquired by merger), and because Pfizer drove so many industry trends - like megamergers, for one.
It is now safe to say that after huge combinations resulting in Pfizer, GSK, and Sanofi-Aventis, the megamerger model can be labeled a consistent failure - there just do not appear to be many scale advantages in Pharma beyond a certain point - empirically, a point smaller than Pfizer - and where these advantages may exist, they are problematic: concentration of political clout, of medical-grant-giving, of program-decision clout, of clinical trial design, of financial bargaining power vis PBMs and payers like the US government, etc.
When it came to marketing, Pfizer did show a lot of innovation and leadership. For instance, they broadly led the industry toward the current model of besieging doctors with veritable blitzkriegs of pharmaceutical sales reps (imagine the skies dark with former cheerleaders wearing pant-suits and parachutes, carrying "detail aids" and "sample bags"). And they were pioneers in Direct-to-consumer advertising.
However, when it came to developing innovative new therapies for serious diseases with unmet medical needs, Pfizer has a breath-taking track record of failure.
Not surprisingly, this success in marketing and failure in science are intrinsically related - two sides of the same coin, as it were.
Pfizer claims to have the world's largest R&D budget - something like $5 or $6 billion. How could so much spending produce so little?
Well, for starters, an enormous fraction of that budget is spent on studies for products already on the market that are designed to give sales reps better talking points with doctors, to try to boost prescribing.
For example, Pfizer would have you believe that all these stupid, massive Lipitor trials they have financed are advancing medicine. But industry "Phase IV" trials are generally rigged to try to support specific talking points the "brand team leaders" are seeking for promotional purposes.
Favorite forms of rigging include carefully excluding certain types of patients, picking weak comparator drugs, and then under-dosing comparator drugs to make the drug of the sponsoring company look better. Blow some resulting trivial difference in efficacy way out of proportion and, voila, 7% sales growth!
Its also a great way to funnel large sums of money to cardiologists (in this case) participating in the trials.
Other big-time favorites for wasting R&D investments include "me-too" research programs (think "Celebrex"), which generally have a better chance of getting approved, even if they have little chance of advancing medicine, and patent-extension R&D, where the company will change a formulation a little as part of an effort to fend off generics (which cost about 90% less than their branded equivalents) for a few more years.
These efforts are not really R&D.
Instead, they starve real R&D. To free up money for marketing-oriented trials, and to try to make these excessively massive companies manageable, dozens of programs (maybe hundreds, in Pifzer's case) get killed, which ultimately crushes the scientists who worked on them (first demoralization, followed by layoffs - after a discreet period of time), and finally the communities those scientists worked in (for instance, Pfizer has single-handedly devastated the R&D capacity of the state of Michigan - where I believe Lipitor was actually discovered).
Pfizer tries to justify its latest acquisition - which will result in something like 20,000 US layoffs on the Wyeth side alone after all is said and done - as a chance to get into "biotech", a move Wyeth made long ago by teaming up with Amgen on Enbrel.
But, given Pfizer's laser-focus on marketing, is it any surprise that Pfizer missed the biotech revolution?
What are the odds they'll be leading the next scientific revolution in drug innovation?
Pfizer and Wyeth stocks continue to slide since the deal was announced, so maybe it will fall apart and the current industry model will drag on a little longer.
But even if that happens, Congress should not pass up the chance to put Pfizer on a pedestal in the context of this deal as a poster child (really architect) of everything that has gone wrong in the pharma industry - and as an opening to fundamentally rewrite the social compact and reshape how the industry should work in the 21st century.