Case Study 20 : PFIZER: HOME OF THE WONDER DRUGS

by Romans Garma, Victoria University, Melbourne ''The success of Viagra has made people notice Pfizer. Pfizer is a world-class act among drug companies. For the 49th vear in a row, Pfizer increased sales. Results for 1998 were $13.5 billion, up 23% from 1997 and the pharmaceutical group's revenues in particular increased 26% to $US12.2 million. It is anticipated that Pfizer will generate 25% growth in earnings over the next five years on the back of Viagra which, almost overnight, has become both a must-have lifestyle drug and a superbrand. Some experts claim that Viagra will become the world's biggest drug success story. Among the ideas that have excited analysts is the possibility that millions of men and women with no medical need for the drug would take it to enhance sex, and vastly amplify sales. Viagra is only the latest in a long line of medical miracles - antibiotics, smallpox vaccine, and anaesthesia. Pfizer dedicates itself to helping humanity and delivering exceptional financial performance by discovering, developing and providing innovative health-care products that lead to healthier and more productive lives. Its mission is to achieve and sustain its place as the world's premier research-based health care company and to provide for its major stakeholders: patients, customers, shareholders, employee families and communities in which they operate. In each of its global health care businesses, Pfizer aims to secure a leading position through excellence in research and development, marketing innovative products and financial performance. Pfizer allocates a large proportion of its budget to research and development. In 1998 the company allocated $US2.3 billion to strengthen its range of drugs. The company has also contributed to vast changes in the science of drug discovery and now has a number of new drugs in various stages of development. Over the years many pharmaceutical companies have concentrated on mergers and acquisitions to build their companies. Pfizer, instead, has intensified its spending in the laboratory. The company's aim is to develop an unmatched number of new products that are recognised worldwide as significantly enhancing health and quality of life. Research- however, is only half of what fuels Pfizer. The other half is marketing. Direct-to-consumer advertising of prescribed drugs, forbidden for decades, has fed surging demand in the past five years. Though ranked only number 118 in 'revenues' among the Forbes 55, Pfizer occupies eighth position in 'Stock market capitalisation'. Pfizer aims to be the most effective organisation in commercialising innovative healthcare products, in launching new products, in attaining rapid market penetration, and in sustaining the commercial success of its products over their entire life cycles. In marketing drugs, the company focuses on all parties involved in the decisionmaking process, namely the consumer (patient), doctors, and intermediaries such as chemists. The company uses advertising on television or public relations stories to inform consumers of the new drugs available on the market or drugs that are being developed. It uses marketing in the same way as for any other tangible goods, although selling drugs is more complicated than selling, say, soapapart from stirring the interest of potential consumers the support of the medical fraternity muse also be gained. Though it ranks only fourth in worldwide drug sales, Pfizer deploys the largest salesforce in the industry with 5400 marketers promoting its products with free samples to doctors. The company even used a celebrity endorserBob Dole, the 75year-old Republicanto promote Viagra when sales of the drug declined. It costs $US300 million or more to develop a drug. Seven out or every ten that win federal approval fail to break even. Clever marketing improves the odds.

At Pfizer, marketing infuses every aspect of drug development and delivery. Marketers, as much as researchers, dictate which drugs make it out of the laboratory. Traditionally, researchers decided which drugs would be produced; these days salespeople and marketers have a heavy hand in guiding all clinical research. Power pills Seven years ago Pfizer Corporation was the world's 13 th biggest producer of pharmaceutical drugs; today it is the fourth. Its success comes from the development and marketing of a string of highly successful therapeutics, including Norvasc for the management of high blood pressure and Zoloft, an anti depressant drug. Pfizer is believed to have more than 60 products in various stages of development. Table 1 provides a sample of Pfizer products that are currently on the market, and Table 2 some products Pfizer has in deyelopment. Pricing Growth in demand for drugs of both the medicinal and recreational/lifestyle -enhancing variety is accelerating amid greater affluence and an ageing population. The high-margin selling prices are unfettered by government controls. In North America Viagra retails for about $US10 a pill. In Australia the pill costs about $A18. However, the value of Viagra is not a dollar-and-cents issue, but rather a psychological questionhow much better the drug makes people feel. Viagra is the first pill-based anti -impotence drug. The success of Viagra in overseas markets has caused a burst of blackmarket activity; particularly in South America, where the drug has been sold illegally. In Japan, similarly, the pills were selling for up to $US100 each and wholesalers were selling massive amounts to intermediaries who were transporting them to countries where the drug was not government-approved. Viagra was initially banned in some countries until the governments obtained an assurance from Pfizer that it would not be excessively priced. In a global market, it is important that prices of a product of this nature remain equal to avoid profiteering. The British price is the same as other European countries and will stay the same. At any price, Viagra sales are surging. Many of the drugs on the market are subsidised by governments. In Australia, the drugs are listed on the Pharmaceutical Benefits Scheme, and in Britain on the NHS. However, most governments are reluctant to subsidise Viagra, as it would take the money away from maternity services, or people who are being treated for cancer or heart disease. In Australia, war veterans suffering impotence linked to military service are able to buy cut-price Viagra under a new federal government scheme. The drug can be purchased for $A3.20 for four tablets on the recommendation of a specialist physician, urologist or psychiatrist. Doctors are not looking at Viagra as a recreational drug, but as a drug that can actually help individuals and their families who have been damaged by war. The Department of Veterans Affairs estimates that 5000 veterans could be eligible for subsidised Viagra. Can the success or Viagra continue? Investors, of course, might like to hear of risks before betting on an impotence-drug fad. As the recent debacle involving diet drugs has shown, when hordes of people are prescribed portent medicines little-known side effects can appear. The heart-valve defects apparently caused by slimming pills prompted the withdrawal of the drug from the market, bringing a booming $300million-a-year business to a halt. Yet coital coronaries have received scant mention in media reports on the new erectile dysfunction drugs.
Sources: 'Retailers Launch Price War Involving Pfizer's Viagra', 31 May 1998: R. Gittins. 'Viagra? Doll/Jones News Service, It's Bad Medicine For Taxpayers', Age 23 June 1999. p.15; D. Gray, War Veterans Offered

Cut-price Viagra', Age. 12 August 1999. p, 7; J. Kirby, 'Viagra to Rise to the Occasion in Australia', Business Review Weekly, 6 July 1993. p. 27; P. Krugman, 'The Capitalist Viagra and the Wealth of Nations', New York Times, 23 August 199S, p. 24; E. Rasmusson, 1999, 'Pfizer', Sales and Marketing Management, vol. 151. IM. 7, p. 56; S. Shamoon. 'Keeping the Share Price Up". Times of London. 8 Augusy 1998, p. 50; S, Woolley. 'Science and Savvy', Forbes, 11 January 1999; www.pfizer.com

Table 1 Products currently on the market Treatment for Norvasc Hypertensio n, angina Zithromax Chlamydia, other bacterial infections $1.2 billion 2005 Possibility of preventing heart attacks Zoloft Depression, obsessivecompulsive disorder $2.1 billion 2005 Closing the gap on archrival Prozac Trovan Fourteen kinds of bacterial infections $440 million 2011 The most multifaceted antibiotic ever Viagra Erectile dysfunction

Projected 1999 sales Patent expires Buzz

$3 billion 2007 Overseas doctors are interested In the drug

$1.4 billion 2011 Approval for female sexual dysfunction would increase sales

Table 2 Products currently being developed Zeldox Treatmen t for Number of sufferers Approval likely Buzz Schizophren ia 2.7 million Replax Migraine Insulin Diabetes Tikosyn Heart rhythm disorders 8.8 million 2000 Keeps weak hearts ticking Aland Diabetesrelated disorders Up to 8.7 million 2001 Protect diabetics' eyes, nerves, kidneys, hearts Droloxifen e Osteoporos is 23 million

11.9 million 2000 The Uberaspirin of the new millennium ?

3.7 million 2001 This inhaled form of insulin could make daily needle sticks redundan t

2001 Stops the inner voices

2001 Shows promise for breast cancer too

Questions

1. What international pricing approaches are available to pharmaceutical companies such as Pfizer? What pricing approach do you think Pfizer has used in pricing Viagra? Why have they chosen this approach? 2. Which international pricing strategy would be more appropriate for a product such as Viagra; market skimming or market penetration pricing strategy? Would your strategy be different for a product such as Replax? 3. Do you think the demand for Viagra would be elastic or inelastic? Why? 4. Is Viagra a fad or here to stay? Will the price change in the future?