News

News

Speech by Dr Hank McKinnell, Chairman and Chief Executive Officer, Pfizer Inc

Remarks by Hank McKinnell - Chairman and Chief Executive Officer Pfizer Inc

To the British-American Business Inc. Reception, London, UK
 

Hello, and thank you for that warm introduction.

We celebrate a birthday today. It’s the 155th birthday of Thomas Alva Edison…perhaps the world’s greatest inventor… whose many visits to London symbolize my topics this evening. While everything about the concept of “invention” has changed since Edison’s time… there are strong parallels between his life, and those of scientists today.

Edison believed inventions could emerge from a research and development process executed with discipline and rigor…

He believed that he and his company should profit, financially, from their discoveries…

And he believed that opportunities could be found worldwide.

Edison’s visits to London were rooted in these beliefs. One of the first times he came to London, in 1877, it was to produce a telephone transmitter that was different… and better… than that of his competitor, Alexander Graham Bell. That way, he would earn a British patent…and earn profits from the British market.

Edison and his assistants set up shop on Queen Victoria Street. They went to work with ferocity, uttering so many swear words that Edison’s young publicist, the budding playwright George Bernard Shaw…wrote… “Their language was frightening, even to an Irishman!” Edison earned the patent, sold his interest for 30,000 pounds …and reinvested his profits into his next project.

That one turned out well too…it was the phonograph.

Edison died holding 1093 American patents, the most ever.

But who benefits most from those patents?

We do…. we all do.

As we sit here tonight, literally illuminated by Edison’s genius, you would think that the idea of rewarding innovation would no longer be in dispute. But it is, certainly in my industry. It’s under attack from organizations that mean well but cannot accept that pharmaceutical research is a high-risk, high-reward business.

It’s also under attack… in more subtle but corrosive fashion…from governments in developed nations with health care policies that erode the incentives for biomedical research.

Tonight I will speak of the overt…and the covert…when it comes to incentives for research. I will discuss what is at stake for companies on your side of the Atlantic, and mine. And I will offer some achievable solutions that serve patients today…and those of tomorrow.

As you know, I represent Pfizer…the world’s largest and most valuable pharmaceuticals company. What you may not know is that 90 percent of our value… is driven by pharmaceutical research and development. For a global company, we don’t have much in the way of bricks and mortar. What we do have are discoveries… patents and brands valued at more than $200 billion.

So it’s no surprise that we maintain the world’s largest privately funded biomedical discovery and development program. We spend about 100 million dollars…a week…on R&D. One hundred million dollars a week. We spend 14 million dollars a week just in the UK, at our Sandwich discovery center.

At Sandwich, and elsewhere in Europe, America and Japan, Pfizer has the best facilities, the best technologies…and 12,000 of the best people in drug research today.

Now…you would think that with this kind of scale and brainpower… new products would just tumble out of the laboratories. In reality, though, the odds of any research team finding a major medical breakthrough…are pretty thin. That’s true for Pfizer, and everyone else in our business.

Consider this …pharmaceutical research costs have roughly tripled in the last decade. It now costs around $800 million to bring a single new human pharmaceutical from bench to bedside. Yet, the number of drugs approved every year for patient use…has remained about the same. Three times the investment…for the same output.

This harsh reality frames the complexity… and yes, the frustration… of pharmaceutical research. Edison took his profits from his London venture and turned them into the phonograph. We must do the modern-day equivalent…take the profits from our most profitable drugs…and plow them back into research.

For Pfizer, that investment is 18 percent of our annual turnover of more than $32 billion …all focused on what has been called the most difficult industrial research process on earth.

Ninety-nine out of one hundred ideas we have for new products…fail in the research and development process. Ninety-nine out of one hundred. Yet, despite this incredible risk, a golden age of medicine is taking shape. It’s being driven by Pfizer and our competitors in the research-based pharmaceuticals business.

But how do we continue the revolution that has taken us this far?

How do we ensure that companies in our industry have enough money to provide reasonably priced cures for patients today…and to fund the enormous costs for new cures tomorrow? That’s a question clearly calling for partnership between government and industry. Government, as our main regulator… and as one of our largest customers… plays an enormous role. Ultimately, we all work for patients.

As citizens, we expect government to see health care as a priority… We expect government to exert reasonable power to help keep people well… And we expect government to manage the costs borne by taxpayers… However, there’s another side to the coin.

No one takes scientific knowledge and translates it into usable medicines the way we do in our industry. Consider AIDS as an example. The AIDS virus was first characterized in 1981, by government researchers in the United States and Europe. Here it was…a new, deadly, remarkably adaptable virus…with no treatments whatsoever.

By 1987…just six years later…the research-based pharmaceutical industry put the first medicine into the hands of doctors. Wellcome’s AZT was the first ray of hope for people infected with HIV.

Did the innovation stop? No…the first drug sparked competition to do even better. Today, there are more than 64 drugs aimed at HIV/AIDS…with over 100 more, including some vaccines, in development.

Hundreds of thousands of AIDS patients who were without hope just a few years ago…are alive, well, working and contributing to society, thanks to these drugs. And, thanks to them, perhaps millions of AIDS transmissions have been prevented. What’s the value in that achievement? Is it worth the cost of the medicine?

Or, consider cardiovascular disease…one of Pfizer’s specialties. Look at the death rate from cardiovascular disease in the United States…and you see it trending steeply downward. That trend starts about the time new generations of blood pressure medicines and lipid regulators came to the fore. Is that a coincidence? What is that achievement worth to citizens…and their governments?

More specifically, what’s it worth to the NHS to keep a person heading for heart trouble…healthy and out of the hospital. I can’t answer that question. But those who have tried to answer it tell us good medicines are well worth their cost.

That’s the other side of the coin…the value of medicines…the dimension that all too often escapes consideration by government policymakers, especially here in Europe.

Medicines provide value… to patients and to society. And, difficult as it may be, no one creates new medicines like the research-based pharmaceutical industry. Nine out of every ten new medicines are discovered in private laboratories.

There’s a reason for that… the same one that drove Edison’s genius. It’s the ability to trade the certainty of high risk…for the possibility of high reward. Unfortunately, there are many people…and their governments… who want to change our high-risk, high-reward business…into a high-risk, low-reward business. High-risk, low-reward businesses don’t last very long.

While the demands of developing nations draw the headlines, in my opinion, the greatest threat to continued innovation comes from wealthy nations in Asia and Europe. Our largest challenge comes from nations such as Japan, France and Germany …advanced countries, with large pharmaceutical markets. These are nations that have…or perhaps, more accurately stated…once had…vibrant pharmaceutical industries on their own. And they are nations with a strong commitment to global trade.

Yet a disturbing number of developed nations engage in price controls and other restrictions that we believe affect the incentives to innovate. Ostensibly their aim is to control health care costs. That’s a one-dimensional approach…and it serves patients poorly. At best, it puts an artificial lid on one aspect of health care…pharmaceuticals.

But there is increasing evidence that these approaches don’t even control overall health care costs very well. In other words, price controls and other restrictions on access to medicines offer the worst of all worlds… Reduced incentives for research, marginal cost savings for payers, damaging delays in getting the latest medicines… and intrusions into the doctor-patient relationship.

Let me contrast, for just a minute, the introduction of a new drug in the United States, and the same process in much of Europe.

I’ve already made clear the risk of the process.

So many compounds fail in the first stages of discovery that we at Pfizer don’t even call them “projects”-- until many stages later. And, even then, 99 out of 100 don’t make it. But assume the best… a compound winds its way through the ten-to-fifteen years and $800 million it takes to pass the clinical trials. It’s ready for launch…and the decisions, such as pricing that come with launch.

In America, market forces set the price. Companies determine a price that attracts buyers, accounts for competition, sustains investor confidence, and pays for future research. With free-market pricing, the drug is available to Americans very shortly after regulatory approval.

After launch in America, the inventing company gets a measure of exclusive marketing…generally, less than a decade. On the day the product patent expires… generic drug manufacturers can begin marketing their own copies of the branded pharmaceutical. Without the huge costs of research, these generic manufacturers can undercut the price of the original by as much as 80 percent. Almost invariably, the price falls dramatically, and over time, the vast majority of Americans switch to the generic.

The incentive is clear for companies such as Pfizer. We need to find enough new drugs to replenish the product portfolio as older drugs go off patent. There is intense, sustained pressure to renew and expand product lines through research. It gets us working with Edison’s legendary “ferocity”…and it results in America’s research-based pharmaceutical industry being the best in the world.

Now, compare that approach to drug approval in Japan and a number of European countries. The drug has to prove its safety and efficacy…obviously critical. Then begin long, protracted negotiations with the government over pricing and reimbursement. In those negotiations, the government’s position is driven not by what the medicine can do…but by its effects on a national pharmaceutical budget.

This budget does not account for the value of the medicine in avoiding surgery and hospitalizations… premature deaths…and disabling suffering. The medicine is viewed through a narrow prism: “What does it cost, compared to older and generally less effective therapies?” The negotiations rarely go smoothly…and are being further clouded by the hurdle of “health economics”… governments trying to evaluate the value of a medicine before it is even used in real-world settings. All of this means patients can read about the wonders of a new drug in the world press... then wait as many as four more years before it reaches their pharmacies.

On the other side of the equation…when the drug does go off patent in many economies…there is little outside pressure to drive down the price. Too often, the prices of generic drugs, including many that are truly obsolete, are propped-up by governments. So it’s hurdle after hurdle for new medical innovations… relentless jawboning on prices…volume and reimbursement restrictions…disparities in levels and time to access…and then, when the drug goes off patent, no massive savings.

Is it any surprise that, through cost controls of this type, countries like Germany and France have greatly weakened their own research-based pharmaceutical business? Is it any surprise that many European nations put clamps on informing patients about healthcare options… with ignorance being budget bliss? All of this distorts the practice of medicine. It erodes the trust of patients -- as it should.

How, for example, can Belgium tell its citizens that they won’t pay for cholesterol medicines that will bring their levels down to current medical standards? How can doctors in Germany…forced to pay budget overruns themselves… propose the best care for their patients? How can European governments ask their citizens to accept much higher levels of chronic pain…because the latest pain medicines aren’t accounted-for in the budget?

Good questions, all.

I have no real answers to them…just some predictions if change is not taken seriously. One is that the current system in many parts of Europe is not sustainable. That’s not just my learned opinion…it’s the conclusion of the Pammoli Report, issued last year, funded by the EC, and focusing on Europe’s pharmaceuticals industry.

In questioning the sustainability of the pharmaceutical industry in Europe, the Report notes that the center of gravity in pharmaceutical research has moved from Europe to America. The research base in Europe is eroding, with funding moving at the speed of light to America. I see the results every day.

On my way into work…or in visiting our locations in New Jersey…I see research center after research center for our business. Draw a tight circle around Manhattan, and what you have is the Silicon Valley of pharmaceutical research. Dozens of companies…many of them founded in Europe or Japan …have major research or management organizations in the New York City area. These organizations include Novartis… Aventis…Roche… GlaxoSmithKline…Bayer… Pharmacia… Eisai … and Schering AG.

Germany used to be called the medicine chest of the world. Now, it’s the Tri-State Region around New York. One benefit…more than 60,000 high-paying jobs in the region…all created on the strength of pharmaceutical innovation. And thousands more jobs stemming from the industries that serve our business.

You can reasonably predict more moves, by European and Japanese companies, to areas like this in the United States. Investment moves where the social, economic and political climate…allows innovation to flourish. And although the Tri-State area is a high-cost region, companies see that if their medicines don’t make it in America… it doesn’t matter where else they do make it.

America has become the world’s most attractive pharmaceutical market…and it is reaping the rewards. The market attracts capital … research investment during that past decade in the United States has grown by a factor of ten… double the rate of Europe and Japan. It also attracts people… including many scientists frustrated with the current situation in Europe and Japan.

It’s clear that the disparity in incentives between America and many nations in Europe… poses a number of medical treatment and economic issues.

There’s another issue, too…it’s called “fairness.”

Pharmaceutical research is increasingly funded by American patients and their insurers. In essence, many European governments are free-riding on medical research paid-for by Americans. That would be understandable if Europe was a poor continent. It isn’t… so let’s talk about social responsibility.

As a pharmaceutical executive, I hear those words “social responsibility” quite a bit. Corporations should be socially responsible, and “Community” is a core value at Pfizer. But I ask… shouldn’t governments be socially responsible as well? So, what to do?

We need to unshackle the creative power of the world’s best scientists, working in the world’s most productive biomedical research environment. I ask those who set policies to think of the consequences for citizens and patients… if the current system of pharmaceutical product creation…grinds to a slow stop.

Here’s what can be done in Europe.

• Remove the price supports for obsolete products.
• Stop reimbursing old products with marginal medical value.
• Stop using the prices of obsolete medicines to justify under-reimbursement of newer, vastly better drugs.
• Improve access to innovative new products.
• End the silo budgets that treat drugs solely as costs…without considering the corresponding benefits and overall value.
• Give patients more access to information about conditions and treatments.
• Keep health care the province of doctors…not economists.
• And work for a more balanced partnership with pharmaceutical companies to help patients and society.

A tall order…to be sure. But all of it possible… and all of it possible within the unique cultures and philosophies that shape healthcare systems in Europe. We’re not asking governments to hand over the checkbooks. We just want to open the dialogue.

We can no longer go on pretending that the current system is rational and fair. It is not…change is needed. Ultimately, freer markets will lead to more medicines, better medicines, and better healthcare. It will lead to more jobs…high-tech, high-quality jobs… here in Europe. And it will lead to gains in national health and productivity.

Better health…better jobs…better quality of life…isn’t that what government is all about?

I opened this speech with a story about Edison. He once had a memorable quote about his work. “Genius”…he said, “is one percent inspiration, and 99 percent perspiration.”

The 12,000 scientists at Pfizer…and the many tens of thousands of others who work in our industry…are testimony to Edison’s thinking. Drive past any drug company research lab at night…ours or any other…and you will see Edison’s lights ablaze, illuminating scientists hard at work. These scientists aren’t thinking about reimbursement policies or price controls. They are thinking about cures.

They leave the worry about how we can sustain innovation…to me.  And I am willing to work hard with governments to find a new, better system. With healthcare reform and freer markets, I believe that the pharmaceutical business in Europe, the birthplace of our industry...can rise again in greatness. It will take policies that equitably reward the work of genius…and over the years, the free market has been the best mechanism for doing just that.

Edison knew it…and you do, too.

Innovation and freer markets go hand in hand.

I ask you to do whatever is in your power to help Europe balance the cost of cures today…with the prospects of more and better cures…tomorrow.

Thank you.