Woe, Woe Is Pfizer, Says the Journal

The paper reports that the pharmaceutical giant is in trouble. But the evidence that the Journal presents doesn't back that up.

In a page-one story months in the making, the Wall Street Journal reported (subscription required) Thursday that Pfizer, the world’s largest drug company, faces an “uncertain future” as sales of its blockbuster drugs stagnate in the face of competition from cheap generic alternatives.

It is no secret that Pfizer’s profits have decreased from last year’s record. Countless journalists and analysts have reported that. It is also no surprise to Pfizer or anyone else who watches the industry that the company’s best-selling drugs would eventually face competition from generics. Most popular drugs do.

The Journal’s story, however, is unique (and, the editors apparently believe, worthy of front-page play) because it is the first to report that, “in a new twist,” generic drugs are hurting sales of Pfizer drugs that still have patents. And, even more importantly, “licensing deals, acquisitions and the company’s own research have failed to produce enough [new] products to pick up the slack.”

This is a provocative thesis since pharmaceuticals, unlike other products, always have a limited life span in the marketplace, meaning that a drug company’s future is almost entirely dependent on what new products it has in the pipeline. It is the sort of thesis that would normally be supported with reams of convincing, firm evidence. But the Journal seems to expect us to believe its bold claims on face value, for there is nothing in this story that proves that Pfizer is in real trouble.

The paper argues that several of Pfizer’s best-selling products are losing market share because insurers and drug benefit managers are demanding that their patients use generics and “are becoming adept at overcoming Pfizer’s marketing might.” As a result, the sales of Pfizer’s cholesterol drug Lipitor, for example, rose “only” 1 percent, allegedly because consumers are moving to generic versions of its competitors’ cholesterol therapies.

This sounds logical enough, but the Journal doesn’t support the theory with facts. It mentions that at one California health-maintenance organization “fewer than 10 percent of patents on cholesterol-lowering drugs are getting Lipitor.” And Massachusetts requires state employees to try two other cholesterol drugs before it will cover Lipitor. But the Journal doesn’t say whether these two examples represent a change from the past or whether they are in any way indicative of Lipitor’s sales nationwide. Indeed, the only hard statistics the Journal provides about Lipitor aside from the 1 percent increase figure is that it is still the world’s best-selling drug, though prescriptions have recently fallen by 2.3 percent.

In any case, as the Journal’s editors should know, a sales figure in isolation says very little. As markets mature, sales always level off. An increase of 1 percent can be perfectly acceptable, depending on the structure of the market and the costs of servicing those sales. The Journal notes that 60 percent of U.S. prescriptions are now filled with generics, up from less than 50 percent in 2000, but it does not pinpoint the extent to which this has affected Pfizer, nor does it demonstrate that the company has failed to plan for this.

The fact, unmentioned by the Journal, is that Pfizer is still earning quarterly profits in excess of $1.5 billion — although that is down 52 percent from a year earlier. But to what extent is this, as Pfizer CEO Henry McKinnell claims, a normal (and hardly devastating, given the still-significant profits) downturn for a company in an inherently cyclical industry? The Journal provides no historical numbers to put this one in perspective.

It also fails to answer the most important question of all: Has Pfizer planned for this downturn, and does it have profitable drugs in the pipeline to reverse it? Instead, America’s best business newspaper notes that McKinnel believes “Pfizer’s pipeline has never looked better,” and proceeds to dispute this key point with insinuation and meaningless numbers.

Since late 2001, the Journal reports, “Pfizer has sought approval from regulators to market 17 new drugs. Two of the drugs … were rejected by the FDA last year. Of the nine drugs approved for marketing, none has become a billion-dollar-a-year seller.”

So what? Newly approved drugs often take several years just to reach the marketplace, much less earn $1 billion. Do professionals in the medical field think any of Pfizer’s new drugs have the potential to eventually become big sellers? Are those 17 new drugs more or less than average? Will they, as McKinnel asserts, make combined profits that will cover loses on Pfizer’s blockbusters? What about the drugs still in the pipeline? McKinnel seems to think some of them will be big winners. Is he wrong? Is he lying? If so, why doesn’t the Journal prove it? Given that the interview (subscription required) with McKinnel took place more than two months ago, it certainly had the time.

But, as we can see, sometimes time breeds laziness.

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Edward B. Colby was a writer at CJR Daily.