Henry A. McKinnell Jr. is chairman and CEO of Pfizer (PFE ), the largest drugmaker in the world. Pfizer's stock has taken a pounding in recent years due to the prospect of patent expirations on major drugs and a relatively weak new product pipeline. McKinnell recently sat down with BusinessWeek's Philadelphia Bureau Chief Amy Barrett at Pfizer's New York headquarters to discuss the company's outlook, the industry, and his concerns about the direction of health care in the U.S. Edited excerpts of their conversation follow:
Q: Indian drugmaker Ranbaxy Laboratories is challenging key patents on your $11 billion cholesterol drug Lipitor. Wall Street is very worried. Are you?
A:The expectation is we will have a [court] decision by the end of the year. Litigation is always uncertain, but we think the trial went well. The other side has to defeat [two] patents. Nothing is ever 100%, but we are very confident in the validity of both patents.
Q: What would the strategy be if you lost that challenge?
A:We don't have a strategy. It would be catastrophic. We are not expecting that.
Q: The biggest potential blockbuster in your pipeline is the torcetrapib/Lipitor pill. This combination of the cholesterol-lowering drug Lipitor with a compound for raising HDL, or good cholesterol, has created a lot of excitement. How is that project going?
A:Torcetrapib, if it works, will be the biggest blockbuster ever. It is pretty much accepted that people with naturally high HDL and normal LDL [bad cholesterol] have much less cardiovascular risk.
The question is, if you raise HDL, is that the same as having high HDL. If we show that with these studies [we are conducting], we have a very strong case.
Q: Industry experts increasingly argue that the blockbuster model is fading, and big companies like Pfizer simply aren't developing enough major new products to replace the old drugs going off patent.
A:People who advocate that don't understand our business. If you meet a large unmet medical need, if you are successful, you will sell a lot of that [product]. We have five or six [candidates] in our own pipeline that could be billion-dollar and multibillion-dollar products.
Q: A lot of the current challenges [to the industry] are linked to the weak productivity of research and development across the entire industry. Is that improving?
A:We're learning a lot. We historically have failed about 98% of the time [with new compounds in our labs]. If we could only fail 96% of the time, we would have doubled productivity. I see that happening.
We have gone back over the research histories [of many of our failures]. We can't really ask why we succeed because we don't succeed very often. But we can ask why we fail. We are going to get a lot smarter.
Q: Some people argue that direct-to-consumer advertising has played a major role in some of the big drug flameouts in recent years. Is that true?
A:I do agree that we need to rethink direct-to-consumer advertising. Advertising does enormous good. It makes people aware of treatment for an unmet medical need. We think Viagra advertising may have saved 50,000 lives. Doctors found hypertension, high lipids, a couple of pituitary cancers, and [other problems] from Viagra checkups.
But the unintended consequence is that somehow we created an image these products are totally safe. We need to make sure we communicate in the advertising that no drug is absolutely safe. These drugs do represent a mix of risks and benefits.
Q: What you are doing in light of the recent data that show a link to cardiovascular problems with Celebrex?
A:With the National Cancer Institute study [which showed a cardiovascular problem with the drug] we have the genetic information [on patients in the trial]. And we are going to go back and look at those who had heart attacks and those who didn't, and try to find a predictor.
Q: There has been such huge growth in the number of drug industry sales reps. Isn't it time for Pfizer to consider cutting its sales force?
A:You have to realize why we have a sales force in the first place. Every doctor asks the same question: What's new? If you don't have new data, new products, new dosage forms, you won't get any access, and your productivity will go down.
That has never been our problem. We launched a large number of products in the last decade. And we have 20 in the pipeline now and another 20 after that. Our view is, if you don't have much to say, you probably shouldn't have a very big sales force to say it. There are some companies in that position. We have a sales force which is the best in the industry, and there's a lot for them to do.
Q: How concerned are you about the challenges ahead for Pfizer?
A:We've been through three periods of discontinuities in our business, and they've come every decade. It was the growth of managed care in the '80s, [the pressure from] pharmacy benefits managers in the '90s, and now it's probably the [pressure from] payers. We've navigated the two previous ones very well. I think we will navigate this one equally successfully.
We are a company that is very analytical. We are willing to run experiments. Things that don't work, we stop, and things that do work, we press on. And we are exceptional in execution. We have innovated continuously in everything we do.
Q: There is a lot of noise about drug costs and the need to reduce prices. Does that worry you?
A:We are at a fork in the road. The path we are on is headed toward rationing and price controls. Because we have defined the problem as the high cost of health care. And companies and businesses, we know how to deal with high costs: We ration and we control prices. That may or may not affect me, but it certainly will affect my children and definitely my grandchildren.
Q: Pfizer's stock has performed poorly over the last several years. How much does that bother you?
A:I'd be a lot happier at 50 than at 25. We have to execute properly, and the stock will reflect that.
Edited by Patricia O'Connell