Mea Culpa by a Big Pharma CEO

Pfizer’s CEO, Dr. Hank McKinnell has written an astonishing book in which he admits that he doesn’t always believe in what he’s saying [11], he admits that drugs from Canadian pharmacies are safe [69] and he admits that high US drug prices have nothing to do with past R&D expenses [46].

Dr. Hank McKinnell in his book “A Call to Action” writes that “perhaps pharmaceuticals represent too low a percentage of total healthcare spending” [45] and he calls for “price controls to be lifted” around the world [64], because “It is time for Canadians and others to pay their fair share.” [65], He also calls for a doubling of drug patent life [185] which would result in a drastic reduction of new, low-priced generic drugs.

Dr. McKinnell is very frank in his book and starts with the surprising confession that he doesn’t always believe in what he’s saying. In connection with criticism of the drug industry, he writes, “My children, some in high school and college by then, often sided with the critics. They listened to my logic, but I could tell they weren’t convinced, and to tell you the truth, I wasn’t either.” [11]

He goes so far as to say that “Consumers in the United States are rightly upset when they have to dig deeper into their pockets than consumers elsewhere who are buying the identical prescription medicines.” [37] He also states that, “Thanks to price controls, prescription medications now represent 3.6 percent of total German healthcare spending.” [44]

Dr. McKinnell doesn’t shy away from embarrassing facts in the process of making money, and writes “Branded drug prices are anywhere from 25-100 percent more expensive in the United States.” [50] He also writes, “perhaps pharmaceuticals represent too low a percentage of total healthcare spending.” [45] Then he goes on to contradict what opponents of re-importation are saying. “Drugs from Canadian pharmacies are as safe as drugs from pharmacies in the United States.” [69]

But his impressive mea culpa doesn’t stop there. He slams everyone who makes a connection between drug prices and R&D. He writes “It’s a fallacy to suggest that our industry, or any industry, prices a product to recapture the R&D budget spent in development.” [46] He says that drugs are basically priced the same way as a car or an appliance. “It is the anticipated income stream, rather than repayment of sunk costs, that is the primary determinant of price.” [47] He states plainly that while “income funds new R&D . . . if we generate more income . . . the price of our stock goes up.” [47]

Dr McKinnell also writes, “Competition is good medicine for economies . . . Name an industry in which competition is allowed to flourish”computers, telecommunications, small package shipping, retailing, entertainment”and I’ll show you lower prices, higher quality, more innovation, and better customer service. There’s nary an exception.” [73] He doesn’t include pharmaceuticals in his list of industries with good competition. In fact, he goes on to say, “So far the healthcare industry seems immune to the discipline of competition.”[73]

He uses generic drugs as an example that “Competition works,” [51] and writes “Prices of generic drugs in the Unites States are lower than anywhere else in the world.” [51] But he doesn’t seem to like that fact. What he proposes is to virtually annihilate the generic industry by doubling patent life for branded drugs: “First, I call for patent regulations to start the clock on the day pharmaceutical products are introduced to the market . . . the process of making a medicine ready for market generally takes 10-15 years . . . from the time it start to sell a medicine, the drug company that developed it might have 10 years or less before the patent expires.” [185]

And it goes downhill from there on. Why are drugs less expensive in other countries? Dr. McKinnell has the straight answer to this question as well. “As big and influential as some drug companies may be, we can’t fight sovereign nations. So we give in. We don’t like it, but as long as governments are willing to pay more than our costs of manufacturing the drug, we go ahead and sell to them fearing that the alternative is worse.” [64] According to the New York Times, Pfizer recently announced that the company plans to repatriate $28 billion in profits from Pfizer’s poverty stricken foreign affiliates.

Dr. McKinnell also concedes “We are sitting on a failed health system.” [13] But when it comes to solving this problem his cure may be worse than the problem. He reminisces about the time before 1942, when “most people got along just fine without health insurance.” [26] And he makes no bones about where he stands when he writes that “Someone is always stuck with the bill. My preference is that the bill be presented to the one who dines.” [30] That’s tough love for someone out of luck, out of money and out of good health.

Finally, in an astonishing intellectual somersault, Dr. McKinnell claims that “price controls always make prices higher in the long run.” [64] He also writes, “I wish I could lower pharmaceutical prices across the board.” [38] And since he wants to give people lower drug prices, by eliminating price controls, he writes, “Starting with pharmaceuticals, I call for price controls to be lifted in Canada and elsewhere. Let’s work to keep price controls out of the United States and to tear them down around the world.” [64] He ends, “It’s time for Canadians and others to pay their fair share.” [65]

Dr. McKinnell’s fundamental job, according to his book, is “to lead.” [31] Part of leadership is to be a visionary, to anticipate the future; which makes the following statement especially interesting. “By the time this book comes out, I believe the drugs from Canada issue will be recognized as the distraction from the real issue that it really is.” [69]

Dr. McKinnell ends his book with a wonderful quote by Gandhi, for those who desire change. “First they ignore you. Then they laugh at you. Then they fight you. Then you win.” [193] Dr. McKinnell just doesn’t realize that he has become “them.”

Dr. PETER ROST is a Vice President of Marketing at Pfizer. The views expressed here are his own and do not reflect those of his employer.

Dr. Hank McKinnell is the CEO of Pfizer. He makes the following disclaimer in his book, “Much of what I have to say is aligned with Pfizer’s policies on the issues. But the views and conclusions expressed in this book are mine.”[xv]

[ ]: Page number in “A Call to Action,” published April 21, 2005 by McGraw-Hill.