The luck of Viagra : Pfizer has parlayed good luck, marketing savvy, astute management and an impressive development pipeline into a money-making machine
John Greenwood
01/30/99
National Post
National
Page D06
Critics argue that Viagra was an accident, a lucky break that Pfizer Inc. massaged into a media phenomenon and the most successful drug launch of all time. Which is true. It's no secret the now famous little blue tablet went into the clinic as a heart drug, one of many Pfizer was testing, and was nearly sidelined after researchers spotted a rather alarming side effect. Indeed, it might still be there today if not for some bright spark in a lab coat who twigged that erections aren't such a bad thing under the right set of circumstances.
But the critics seem to forget a couple of things. First, that there was a bright spark and he was on hand to avert disaster. For every compound that becomes a pill, thousands end up in the dust bin, so any company that can improve those odds has something going for it.
Another thing the finger-pointers should realize is that Pfizer doesn't need Viagra . Even without the $788-million (all figures in U.S. dollars) in revenue the drug provided last year, New York-based Pfizer is still the second-biggest drug company in the United States. In 1998, it had revenue of $13.5-billion, up a hefty 23% from 1997 and nearly double the 1990 figure.
What's driving that growth is one of the richest product pipelines in the pharmaceutical industry. In the past 10 years, Pfizer has introduced more than a dozen major drugs, nearly half a dozen with sales bigger than its world-famous erectile disfunction treatment.
In 1997, Pfizer's Norvasc, the world's biggest hypertension drug, had sales exceeding $2.2-billion. Sales of Zoloft, for the treatment of depression, climbed to $1.5-billion. Three other products - Zithromax, Diflucan and Procardia XL - approached blockbuster status, each racking up sales of more than $800-million. And the company just recently launched Trovan, a powerful antibiotic to combat the resistant strains of bacteria that have cropped up in recent years.
Pfizer doesn't always come up with the good stuff. But when a competitor emerges from the lab with something better, Pfizer tries to leverage the muscle of its global sales force (17,000 representatives at last count) to negotiate for marketing rights. That's what happened when Warner-Lambert Co. came out with its cholesterol-lowering agent Lipitor in 1997. Observers say Warner-Lambert knew it had a potential winner on its hands but feared it lacked the marketing clout to get the most out of the drug. In exchange for a piece of the action, Pfizer helped make Lipitor into the most successful drug launch ever, until Viagra .
Likewise, when Monsanto Co. started laying plans for the rollout of Celebrex, the first of a new class of painkillers, Pfizer employed the same strategy to negotiate a piece of the action. And although it was only launched Jan. 19, observers are already predicting another blockbuster - 1,047 prescriptions were written by the end of launch day and more than three times that number just three days later.
Part of the fallout of some of the recent advances in drug discovery is a high turnover rate. This year's winners often end up next year's also-rans. To ensure it doesn't meet that fate, Pfizer is adding more potential drugs to its development pipeline. At last count, it had 62 candidates in various stages of development.
The launch schedule for the next few years tells you what Pfizer is up to. Highlights include eletriptan, a new migraine drug; droloxifene, part of a new class of osteoporosis drugs; and an insulin treatment that patients will inhale. "It's a pretty well-balanced portfolio," says Sergio Traversa, an analyst at Mehta Partners, an independent institutional research firm in New York.
The man widely regarded as the architect of Pfizer's rise to pre-eminence is William Steere Jr., its chairman and chief executive. A 40-year Pfizer veteran, Mr. Steere joined up straight out of Stanford University. Most of his peers at other drug companies rose through the ranks on the research side. In contrast, Mr. Steere cut his teeth in sales and marketing.
More thoughtful than talkative, Mr. Steere was far from the salesman stereotype - in fact when he applied to other drug companies, he was turned down because they figured he didn't fit the mould.
Apparently they were wrong. In 1991, Mr. Steere was made chief executive at Pfizer, and set about remaking the company. First off, he focused it. The drug business, in his view, was where the money is, so he started selling off divisions that didn't fit, such as a talc mine in Montana. He also chopped a cosmetics business and an interest in a biotech seed company. In all, over a dozen businesses have disappeared since he took over.
Meanwhile, he pumped cash into research and development - 16% of total revenue last year, compared with just 10% before he took over. He also beefed up Pfizer's sales force, hiring military types, ex-soldiers. (He claims to have picked up more than 1,000 veterans of the war in the Persian Gulf, according to Forbes magazine.) If they didn't know as much about business as the MBAs hiring on at the competition, they had the discipline to learn the ropes fast. Equally important, the soldiers had a gut level appreciation of Mr. Steere's concept of centralized management.
"He has very clear ideas which he has implemented very well," says Mehta Partners' Mr. Traversa. He points out that in terms of earnings per share, Pfizer's shares are the most expensive in the pharmaceutical industry.
Observers say the single most important challenge facing the company is to keep the good news coming. Since the start of the decade, Pfizer has been growing by leaps and bounds. But each time it improves on its performance, it raises the bar. Even the company quietly agrees with that. Says David Shedlarz, Pfizer's senior vice-president and chief financial officer: "The challenge at hand continues to be striking the right balance between growth and investment." If it fails to do that, Pfizer's shares could become a lot more affordable.
Many analysts now predict the pharmaceutical industry is headed for a slowdown. They say it still has to adjust to some big changes that have taken place over the past few years. For instance, major advances in drug discovery techniques have increased the chances of bringing out blockbusters, but they also heat up competition. And as consumers become more aware of treatment options, they are also playing a greater role in the equation. But Boston Consulting Group, an international management consulting organization, points out there are risks in that trend that drug companies have yet to properly understand. The bottom line, says BCG, is that the annual industry growth rate of 13% predicted by analysts is out of whack. BCG suggests 8% is more realistic.
To get an idea of how Pfizer will fare, consider its stick-handling of the Viagra launch. According to BCG, one of the problems with the industry is the way companies draw out the global introduction of new drugs, staging sequential launches in different countries months apart. The idea behind that strategy is that the marketers can have time to apply the lessons learned from their mistakes. But the danger is that it can take years to complete a rollout, handing generic companies and competitors valuable time to come up with me-too products. Better, says BCG, is to get products out and to generate revenue as fast as possible.
Which pretty much describes the Viagra launch. Pfizer introduced Viagra to all the major markets in less than a year. The United States, the biggest drug market in the world, was first in March, 1998, then came the rest of the world (although Health Canada has yet to issue its approval).
As Viagra was one of the first so-called lifestyle drugs, Pfizer was aware it might have to face criticism that it was wasting resources that might be better spent on, say, developing a new cancer drug. Or that it might become a popular recreational drug among nightclubbers, for which Pfizer might again be forced to shoulder the blame. "There were a lot of possibilities for negative publicity," says Mr. Traversa. "They opened a new market and there is a risk in that. But at the end of the day they were right."
When Viagra was linked to deaths among some men with heart problems, Pfizer quickly agreed to amend its warning label. And it acted to discourage the practice among some young men and women of taking Viagra as a recreational drug.
But Pfizer was quick to defend its interests as well when a European company came out with a drink called Viagrene. Claiming it sounded too much like its own product, Pfizer forced the company to drop the name. And when the British government recently advised doctors not to prescribe the drug except in exceptional circumstances, Pfizer challenged the government to justify the decision.
Simply put, by applying the right mix of sensitivity and marketing savvy to its sales effort, Pfizer has turned a delicate situation to its enormous advantage. According to analysts, we haven't heard the last on Viagra . The company is now said to be working on plans to have it approved as a treatment for sexual dysfunction in women, too.
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