Good times abound in the pharmaceutical industry. Led by smart management, savvy marketing and significant strides in research and development, drug manufacturers are dancing their way toward the millenium. In 1998, wholesale drug revenues rose 13 percent over 1997 and more than 60 percent over 1994. Largely immune to economic swings, pharmaceutical company earnings increased 11 percent per year on average between 1992 and 1997, outperforming the S&P 500 index by 90 percent. In the midst of this success, one company dances faster and more gracefully than the rest. With Viagra, one of the most successful product launches in history, under its belt, Pfizer arrives at the ball as the darling of the pharmaceutical industry, with a full dance card.
Pfizer posted Viagra sales of $788 million in the drug’s first nine months, upsetting Prozac as the most successful prescription drug launch ever. But the impotence elixir, which helped boost Pfizer’s stock price by 69 percent over the year, represented only 6 percent of Pfizer’s 1998 revenues of $13.5 billion. The majority of the company’s revenue derives from a staple of successful drugs including Norvasc for hypertension and angina, Zithromax for bacterial infections, Zoloft for depression and the newly introduced antibiotic, Travan. With only one exception, no patent expirations will threaten Pfizer’s current all-star lineup for the next five years.
But even in drug categories with stringent competition, Pfizer benefits from the largest and most potent sales force in the industry. According to a 1998 survey of U.S. physicians conducted by health care consulting firm Scott-Levin, the Pfizer pharmaceutical sales division places first overall. Pfizer’s pipeline of upcoming drugs makes investors positively giddy. In naming Pfizer its 1998 Company of the Year, Forbes magazine cited the depth of the pipeline, speculating that the best may be yet to come.
In addition to its present and future product line and its large, disciplined sales force, numerous factors place the 150-year-old Pfizer at the top, including an extraordinary commitment to R&D and excellent management decisions made by the company’s chairman and CEO, William C. Steere Jr.
To get in step with Pfizer’s success, Selling Power interviewed Chairman and CEO William Steere, Pfizer sales managers and industry analysts.
Steere-ing from the sales seat
As a 40-year veteran of the pharmaceutical industry – all of those years with Pfizer – Bill Steere knows drugs. Steere parlayed a biology degree from Stanford University into his first job as a Pfizer sales representative in San Francisco. A subsequent promotion to district sales manager for California started his climb up the marketing side of the company that included roughly 12 different positions before his 1991 appointment to CEO. Milestones along the way include heading up Pfizer Labs when it launched Feldene in 1982 – Steere oversaw the arthritis drug’s growth to blockbuster status – and serving as president of Pfizer’s Pharmaceuticals division beginning in 1986.
Between juggling patent expirations with new product development, overseeing costly R&D and navigating a path through the obstacle course of health care reform, running a pharmaceutical company challenges the best managers. From the beginning Steere understood that to win in the intensely competitive drug industry one had to focus on the business.
Known for his shy demeanor but intense focus, Steere set about streamlining the company. When Steere took the lead in 1991, drug revenues comprised roughly half of Pfizer’s earnings, the remainder being generated from businesses outside of pharmaceuticals. Steere dismantled and divested, whittling the company down to mostly pharmaceutical sales. Today, drug sales account for close to 90 percent of revenue while the company’s animal health division makes up the rest.
“We’ve never been more clearly focused as a pharmaceutical company and on our goal of becoming number one in our industry,” says Steere. When Steere became chairman, Pfizer ranked 13th in worldwide prescription drug sales. Today, Pfizer ranks second.
The doctor can see you now
Pfizer’s impressive sales force factors as a critical driver toward surpassing Merck as the industry’s number one pharmaceutical company. While Merck’s sales are over $1 billion higher than Pfizer’s, Steere’s ranks are closing the gap. Armed with the largest sales force in the industry – 5,400 reps in the U.S. and over 17,000 worldwide – Pfizer’s field covers a lot of ground.
In an industry where gaining access to the customer is a challenge – sales reps often outnumber patients in physician waiting rooms and few get in – Pfizer’s salespeople appear more welcome. In 1998, for the fourth year in a row, U.S. physicians across nine core specialty groups ranked Pfizer’s pharmaceutical sales force as number one overall in Scott-Levin’s annual study, Sales Force Structures & Strategies.
As you’d expect of a former salesman, Steere believes in the power of his sales force. “Our field force is very important and is one of the most respected in the industry,” Steere says. “Our sales reps are technically trained to provide doctors information that is scientifically and medically reliable so they can confidently prescribe our products for their patients. The sales representatives are the ultimate technology transfer between our laboratories and the practicing physician. Doctors get a lot of information from our representatives, ranging from technical information on new products to new information on older drugs.”
In the early 1990s, as Pfizer’s rivals cut sales forces in response to the nation’s intense focus on health care reform, Steere augmented his field. “They (drug industry watchers) suggested managed care is coming along, and you have to shrink your field force,” he says. “They believed that, to sell to managed care, you just need a small group of specialists to go out and establish your product on their formulary and that you don’t need large numbers of reps. Well, they’re wrong. Once you get your product on the formulary, the reps still go out and educate the doctors and others in the medical community. So when I saw other companies cutting their field forces, I knew we were in a good position.”
Pfizer continues to grow its sales force. “We’re still adding field representatives,” says Steere. “We’ll add another 700 people to our sales force in the U.S. this year, primarily because of the robustness of our new-product pipeline.” In the third quarter alone last year, Pfizer added 1,100 to its U.S. sales force. Most of the 1999 new hires make up a new primary-care sales force, the Steere Division, the company’s sixth primary-care sales force and the third created since 1996.
But size alone doesn’t matter. Quality counts. And Pfizer’s intense sales culture – where public sales boards rank everyone’s performance – produces results. “You either make it or get weeded out,” senior vice president C. Louis Clemente told Forbes.
Pulling consumer demand
Smart marketing contributes to the demand for Pfizer’s products. One of the pioneers in direct-to-consumer (DTC) promotion of prescription drugs, Pfizer advertised its antidiabetic drug, Glucotrol, in the 1980s. “Pfizer has traditionally believed that informing patients about the symptoms of diseases, as well as the diseases themselves, is an important part of our health care role in society,” Steere said in 1988.
Pfizer makes use of new, more liberal guidelines from the Food and Drug Administration (FDA) for product advertising to increase patients’ awareness, encourage their involvement and get them to ask about specific drug therapies.
Filling the pipeline
R&D propels Pfizer forward. “It comes down to new products coming through the R&D pipeline,” Steere says. “In the U.S., you lose 80 percent of your sales the first year after a patent expires, so you have to have a product R&D pipeline that allows the company to reinvent itself every few years. This way, when one big blockbuster patent expires, you’ve got something to step in and take its place.”
The CEO puts his money where his mouth is. During Steere’s tenure, Pfizer’s commitment to research tripled, capping at $2.2 billion in 1998. To offset the perpetual expiration of patents, Pfizer employs 6,000 researchers on three continents to continually refill its pipeline.
As a percentage of drug sales, Pfizer contributed 18 percent to R&D in 1998 compared to 10 percent of sales for industry leader Merck. Historically, Pfizer outspends its competitors comparatively and defends the drag on earnings. “You need the horsepower of a good research establishment,” Steere said in 1997, reiterating what he said in a 1988 interview: “the groundwork for future success is laid long before its results can be measured. Pfizer certainly has not ignored this principle.”
With drugs in development to treat migraine headaches, schizophrenia, diabetes, incontinence and cancer, Pfizer’s diverse pipeline prompted one analyst to label it “almost an embarrassment of riches.”
The need for speed
Pfizer works diligently to bring down the cost and time it takes to develop a drug. According to the Pharmaceutical Research and Manufacturers of America, it takes an average of 15 years and $500 million to develop a new drug. Scientific breakthroughs including the science of mapping genes, automated chemistry procedures and the use of robots to screen drugs enable scientists to create new drugs faster and for far less.
“A product is patented when the chemist discovers it,” Steere says in a 1996 interview with Chief Executive. “That means the patent is running during the eight to 12 years it may take to get that product to market, all during the early toxicology, chemistry, pharmacology and animal work, until it goes into human beings and finally into a new drug application. To save time, we do many things in parallel rather than sequentially; for example, while we’re doing clinical testing, we’re also developing marketing approaches.”
Commercially viable research
Whereas some drug companies impose strict lines of demarcation between R&D and marketing, Pfizer encourages blending. Sales executives exercise unusual control over which drugs receive further research funds and which are dropped. “Research has to work well with the marketing people, with the business people, in terms of what products they’re developing, their utility and how they’re differentiated from current products,” Steere says.
For example, in response to the managed-care industry’s increased pressure to lower drug prices, Pfizer executives encourage more research exploration into “lifestyle drugs” like Viagra that consumers are willing to pay for from their own pockets. Pfizer also continues to probe new and existing drugs for multiple applications.
“A key strategy for continued growth in our business is to maximize the value of each approved drug,” says John F. Niblack, Ph.D., executive vice president of Pfizer and Pfizer’s head of research.
Researchers and marketers work together to probe the various applications of a drug’s effects. From the beginning of his tenure, Steere encouraged this strategy. In a 1988 interview, then-president of Pfizer Pharmaceuticals Bill Steere said, “There is a notion that, once a product is discovered and approved through the FDA, research ends. But we take a view that research never ends on a product. As a consequence, almost as much money is spent on drug development after a product is approved as before.”
Partnering for success
In addition to marketing products developed by its own labs, Pfizer partners with other pharmaceutical manufacturers to bring their drugs to market. Essentially, the partner leases the power of Pfizer’s sales force. “Pfizer has been very smart in the co-promotional game,” says Carolyn Gretton, product manager for healthcare consulting firm Scott-Levin. “They’ve chosen some great products.” In 1997, Warner-Lambert turned to Pfizer to help launch Lipitor, a cholesterol-lowering drug, and the strategy paid off. Even though it was the fifth drug in its class to treat high cholesterol, Lipitor rang up roughly $1 billion in worldwide sales in just over a year on its way to leading the $4.6 million market.
Companies with potential blockbuster drugs flock to Pfizer. Additional collaborations include Aricept, a drug to relieve symptoms of Alzheimer’s disease, with Japan-based Eisai; and Celebrex, G.D. Searle & Co.’s new drug for arthritis. “With Celebrex coming out, I imagine Pfizer will be first again this year (in Scott-Levin’s annual ranking of the best pharmaceutical sales forces),” says Gretton.
Pfizer will likely look for more partnerships, as fourth quarter alliance revenue from Lipitor and Aricept alone brought in $299 million. Meanwhile, Pfizer’s own labs keep a furious pace. “Earlier in the decade, we launched six products in six years. We are now conducting clinical development programs that could potentially lead to the launches of eight products in three years – with more to come,” Steere told analysts and reporters last November. The potential winners include Zeldox, a drug that should help schizophrenics think more clearly and an inhaled form of insulin that will prohibit the need for diabetics to self-administer shots.
Steere will continue to manage for speed, hoping to streamline the process from drug discovery to market. With his retirement at age 65 set for June, 2001, Steere will also have to focus on finding his successor. Possible candidates include John Niblack, Pfizer’s research chief; Henry McKinnell, who oversees the company’s sales and marketing operations; David Shedlarz, Pfizer’s CFO; and Karen Katen, president of Pfizer U.S. Pharmaceuticals.
Following Steere will not be easy. During his watch, Pfizer’s earnings tripled, sales doubled and the stock price increased roughly eight times its 1991 value. But Steere seems less concerned with the value he’s provided investors and more intrigued with the future. Science is what really excites the biology major: “Today, we stand on the threshold of a golden age of science,” says Steere. “Thanks to genomic mapping and our increased understanding of the way enzymes and proteins function, we’re beginning to comprehend the process of disease itself. Tremendous opportunities lie before us.”