Posted 11.2.05Senior Fortune Magazine writer, Marc Gunther interviewed Jeffrey B. Kindler, executive vice president, general counsel and corporate compliance officer at Pfizer, Inc., regarding ethics, trust and competitiveness in the pharmaceutical industry during the recent BSR conference. Pfizer, the largest pharmaceutical company in the country, earned $52 billion in revenues last year and generated 10 new products.
Senior Fortune Magazine writer, Marc Gunther, author of the popular book Faith and Fortune: How Compassionate Capitalism Is Transforming American Business, interviewed Jeffrey B. Kindler, executive vice president, general counsel and corporate compliance officer at Pfizer, Inc., regarding ethics, trust and competitiveness in the pharmaceutical industry during the recent BSR conference. Pfizer, the largest pharmaceutical company in the country, earned $52 billion in revenues last year and generated 10 new products.
“There is no doubt we love drugs in this country – legal drugs,” Gunther joked as the crowd laughed. “But we do not love our drug companies.”
Kindler joined in the laughter, pointing out that it doesn’t make sense that an industry making pharmaceuticals, whose core mission is to cure people, makes products that are not designed to help people’s lives. Their principle customers were once scientists and the average patient didn’t know the price of the drug. Patients had insurance and if they paid a co-pay, it was low. According to Kindler, things began to change in the mid-90’s when the FDA allowed direct consumer advertising for drugs. The first commercials were very informative but Kindler describes today’s commercials as ubiquitous and annoying.
“We gave up our halo as a science based industry,” he said.
Viagra is the company’s most famous product and Kindler defends it as a product that has sent 70 million Americans to the doctor who wouldn’t have done so before. Although patients may find they are not Viagra candidates, he believes other conditions, such as high cholesterol, are discovered because of this visit to the doctor.
Gunther questioned Kindler about the price of advertising in a medium like television that plays to emotion rather than intellect, asking if the increase in drug pricing is a direct result of the increase in costly TV advertising. Kindler admitted advertising does cost a lot of money, but says the percentage is small relative to other expenditures.
“Fifty percent more money is spent on research now,” he said. “The vast majority of pharmaceutical promotional spending is in the form of sample drugs to doctors.”
Gunther questioned whether that 50% amounted to a reported $7 to 8 billion in research in 2004 and Kindler balked at responding directly, stating Pfizer could suffer from being too open about how much they spend and where they are spending it, and could lose its competitive advantage. He said they did spend more on marketing than on research last year and that with 12,000 drug reps in the U.S. alone they have “a lot of drugs for sale”.
Kindler says the pharmaceutical industry has become a much more transparent industry over the last few years because consumers don’t accept its assertions at face value now. Patients/consumers now know their co-pay is higher and they are aware of alternative treatments. He claims people are more conscious of the cost of medicine, but the cost hasn’t changed. It is the cost of doctors, nurses and treatment that have changed, and Kindler asserts that every $11 spent on medication saves $7 on medical care. But, although transparency has led the public in general to have more familiarity with what Pfizer does, they are unhappy that something they need costs them so much money.
Gunther pointed out that the U.S. health care system, as a whole, doesn’t seem to be working well. It creates competitive issues for business in many industries, as seen in the troubled auto industry.
“We don’t have a health care system,” Kindler responded. “What we do have is a sick care system. It is a system that pays for medical procedures not a system that pays for health care.”
Kindler said if the U.S. had a health care system that reduced the rate of heart disease and cancer alone, we could cut costs by $10 trillion. Pfizer boasts a system that shows employees how health care should work. Employees take a private online survey and get a free consultation with a nurse or doctor. They are monitored by a case management worker to make sure they comply with the protocol. Kindler says Pfizer is betting that if the company gets employees to take good care of themselves, it will have dramatically lower health costs. He acknowledges that 43 million people in the U.S have no health insurance and says this needs to be addressed in partnership with the government and other players.
Kindler says Pfizer gives away drugs listed by World Health as essential to development nations, such as Diflucan, but says it is often difficult to get the drugs to the patients because the infrastructure in many developing countries is poor.
Linda Cronin from CARE USA questioned whether patients on ARB’s (Angiotensin Receptor Blockers) make taking drugs more difficult in the developing world, pointing out that using generic drugs can stop the sequencing in the drug cocktail. Kindler said Pfizer does not make ARB’s. He added that there is such a problem with the infrastructure of many countries Pfizer can’t get the drugs to 40% of the people and, as an example, if one glass of clean water a day would cure people they would be unable to provide this as well for the same reason.
When another audience member with an autistic grandchild stated that autism in the U.S. has increased from 1 in every 10,000 children over the last 3 years to 1 in every 166 children diagnosed prior to age of 3 and asked what research the company was doing in this area, Kindler admitted he was familiar with this problem and that some work was being done in that area, but no breakthrough medicine had been developed yet.
“Are drug companies too narrowly focused on compliance,” Gunther asked. “You are in compliance mode and you have not yet changed the mindset of the industry to larger visions of CSR.”
Kindler acknowledged that sometimes drug companies are to slow to respond. Although Pfizer was the first to develop a corporate governance response a few years ago, they have been faulted on the access issue.
“Drug companies feel very deeply that our core mission is the ultimate in CSR. What we do is develop and make life saving drugs,” he said. “That’s why it is so painful - our reputation - but we’ve been slow on access issues for people who can’t afford them.”
Gunther questioned whether the perception that drug companies spend large amounts of money on the “me too” drugs, such as Viagra, anti-depressants, and Lipitor is true. Kindler believes these allegations are unfounded, stating not all drugs are alike and pointing out that Lipitor is 5th or 6th on the market, not first. He went on to explain that drugs created to treat the same diseases have very different effects of different people.
An audience member from Environmental Resources Network asked Kindler what Pfizer had done to look at its drug representative fleet management issues, asking if they were working to replace the fleet with more fuel efficient vehicles. Kindler said they have been looking at hybrid vehicles and have a few reps testing them, but the auto industry is having trouble servicing a large fleet of hybrids right now. He says in the interim they are having reps in each territory represent more drugs eliminating the duplication in driving with only one rep, rather than several, visiting each territory.
By Janet Roberts
Weatherhead School of Management at Case Western Reserve University cultivates creativity, innovation, and purpose-driven leadership to design a better world.