After too long an absence, The Industry Veteran is back to tell us what’s really the problem going on in big Pharma. It’s that short-term thinking has invaded its strategic marketing. I remeber being at a meeting in 1998 where then consultant and now big cheese at United Healthcare Bill Whitely warned pharma clients about becoming so keen on being consumer companies, and I think the Veteran would agree. Here’s the Veteran’s restrained tone (and I’m not kidding this time!)

A recent piece in a UK newsletter got me to thinking about some implications of last week’s Vioxx verdict. The newsletter contends that the core of Big Pharma’s problems began in the 90’s when marketing rather than research began to direct the industry’s course.  I would draw some other implications from the Vioxx scandal.  First, Merck’s malfeasance amply illustrates an argument I have made elsewhere on THCB: the Bush/Right Wing goal of an unregulated market for pharmaceuticals and most other aspects of healthcare remains delusional. Contrary to hosannas from market true believers, sick people either lack the time or the repose to make rational, profit-maximizing choices. Even if they possess such detachment, the asymmetry of information operating against them militates against rational, well informed choices. Moreover, consumers-patients have no idea of the bundled cascade of services or costs that follow from their choice of, say, a doctor or a hospital.   A second lesson of Vioxx is that many other parties must share some blame with Merck for furthering the promiscuous overuse of COX-2 inhibitors. Physicians and their professional societies now proclaim in high dudgeon that they were unduly influenced to overprescribe the COX’s by pharmaceutical sales reps, bountiful sample packs and deceitfully published articles. In fact their current wailing amounts to an admission that clinicians and their organizations failed to fulfill their professional responsibilities. For years the societies and the state licensing boards allowed physicians to complete their continuing medical education requirements by attending company-sponsored events. The manufacturers have been only too happy to relieve physicians of the need for footing the bill to keep up with advances in their  respective disciplines. Now the same physicians and their accomplices self righteously complain that they have been influenced by promotions. Do they honestly expect us to believe or empathize with their purported shock and outrage, expressed with all the sincerity and histrionic skill of WWF wrestlers?The third-party payers also contributed to Vioxx’s 150,000 hearts attacks and 50,000 deaths. These organizations failed to scrutinize the COX-2 studies and placed those drugs on their formularies, often without even the disincentive of higher co-payment requirements. Their coverage of the COX-2’s was not merely a result of deference to physicians’ preferences or consumers’ demands as much as it was an acceptance of bribery. Merck, Pfizer and the other manufacturers offer competing rebates on their products, thereby reducing pharmacy benefit costs for the payer organization. In such cases the HMOs’ formulary committees and their pharmacy benefit managers eagerly swallow the manfacturer’s claims of efficacy and safety.Contrary to Drug Researcher’s arraignment of marketing as the Vioxx culprit, I would claim that Merck and other Big Pharma companies practiced short-term gouging and exploitation that are the very opposite of smart marketing. Over the past 25 years the pharmaceutical industry has  enjoyed extraordinarily high returns on equity, assets and sales, often the highest of any global industry.  The American public has permitted the industry its enormous margins because of an implicit covenant. The pharmaceutical industry’s obligations under the agreement have included the following. (1) The industry must develop products that the public perceives as substantially improving the length and/or quality of life by advancing, each decade, the standard of care in one or another disease condition. Pharma came up short here. The number of new molecular entities that have appreciably advanced the standards of care within the last 10 years has declined considerably. The research paradigm of medicinal chemistry has already “picked the low hanging fruit” and the public correctly perceives that the industry uses a considerable portion of its research budget to develop patent-extending knockoffs.(2)  The industry must promote its products in a restrained, professional manner. This sotto voce element of the agreement went out with the trash in April of 1997 when industry lobbyists prevailed on Congress to permit direct-to-consumer advertising on a virtually unfettered basis. The restraint and scientific rigor befitting a research-driven industry conjoined to the medical establishment soon vanished. Big Pharma’s public face was no longer esoteric or dauntingly technical in a manner to command respect. Instead it began to advertise cholesterol medications with Dr. Seuss ads and southern football coaches. Pain relievers were promoted by ice skating champions and glamorous, middle-aged models doing tai chi in the park. The public can endure such fantasy and hyperbole when it comes to soft drinks or automobiles that sell good times and sex over the intrinsic features of those products. When Pharma stooped to the same lowest-common-denominator, however, its exalted image went out with the empty bottles of Pepsi.(3)  The industry must not price its products beyond the reach of its core customers: the elderly.  Pharma’s lobbying group, the PhRMA, and its lackeys in the media (e.g., the Philadelphia Inquirer) still adamantly contend that Americans must pay double and triple the prices paid by Europeans and others to fund further research. For a while that argument maintained traction but the public now knows that Pharma spends considerably more on SG&A than on research while the total compensation of top executives runs from $30 million to $50 million a year. Of course the concurrent erosion of the wider, employment-based health care system has also helped take the veil off Pharma’s unconscionable pricing. As tiered co-payments became the norm, 28-year old mothers who purchase oral antibiotics for their children must now pay $20 and $30 for the same products that used to cost them only $5 or $10.In short, Pharma has cooked its own golden goose by failing to meet expected standards for product development, by deceptively huckstering its promotions, and by using spurious rationalizations to overcharge its customers. That, ladies and gentlemen, constitutes the opposite of elementary marketing principles. Perhaps I might then differ with Drug Researcher by saying that Pharma has switched from a research-driven industry to one that is driven by bad and unethical marketing.

Every week I write a brief editorial for my FierceHealthcare newsletter (and if you haven’t signed up yet, why not? It’s free and daily). Today’s was of course about last week’s Vioxx jury verdict. I may be an optimist but here goes:

This week’s news was dominated by last Friday’s verdict in the Vioxx case that was either a decisive blow against the evils of capitalism or the end of Western civilization as we know it, depending on your point of view. The Vioxx case is perhaps a sentinel event. It could be what’s needed to spur big Pharma, the FDA, the medical profession and the public into a new compact. In this new era everything that is known about a drug, pre-and post-market approval, would be tracked, reported publicly and analyzed, and the collusion between pharma and the FDA would need to end. The risks and rewards of taking these drugs would be clearly understood. Pharma would have to change their marketing dramatically (much more so than the minor restrictions on DTC) and accept lower profits and the public would have to accept that there are risks as well as magic in pill bottle, but that for some patients they’re worth taking. Physicians and pharmacists would have to spend much more time educating the public and themselves.

This grown up view about pharmaceuticals may not fit our needs for black and white outcomes, but it is in line with the "consumer" health care system we are moving towards. And if we don’t get there, the more likely future is restrictions on drug development and supply that will overall hurt patients, an over-cautious FDA, and grumpy big Pharma continuing to play dodgeball.

In an email to the Pharma Marketing list-serv, John Mack said rather more eloquently what I was trying to say at the end of my most recent post:

Another message that this jury sent was: Don’t bury us in scientific/medical jargon. Make it easy for consumers to understand the facts.

But the science was actually beside the point as far as this jury was concerned. They felt that Merck lied or held back important information and did so to protect sales (Merck was incriminated by its own memos!). Someone has to be held accountable for that — this is the main message the jury sent.

The industry doesn’t get this message. All the analysis and talk from pharma execs is about how this is going to make pharma companies more cautious in developing drugs for general health conditions in the future. They’re changing their story that all drugs are risky and patients need to understand that to most drugs are too risky for us to develop in the first place. The execs who are saying this may be listening only to their lawyers, which is a shame.

The pharma industry needs to LISTEN TO ITS CUSTOMERS and really put patients first and be transparent and not cover up the truth or twist results from clinical trials (e.g., changing the endpoint to produce more favorable outcome results) and not dodge questions from docs to protect sales.

John has more to say over on his blog about what went wrong for Merck, in an article called Jury as Focus Group (although at $253m that’s one hell of an expensive focus group!). We both believe that greater transparency about the risks and rewards of pharmaceuticals will be good for everyone in the long run.

I know many of you don’t have WSJ access, but the article this morning on how the Vioxx trial was run is really eye-opening. I’ll re-quote liberally.  First off, how important was all the science? Pretty key given that Ernst did not die from a heart attack or maybe not even a clot but definitely had arrythmia.  What did the jury think? Apparently that didn’t matter too much.

But the Texas verdict — and the way the jurors reached it — offers a worrisome harbinger. Merck argued that Vioxx couldn’t have caused Mr. Ernst’s death because, according to his death certificate, he died of an arrhythmia or irregular heartbeat, not a heart attack. While scientific evidence suggests Vioxx can promote blood clots leading to a heart attack, no data have linked the drug with arrhythmias.

Jurors who voted against Merck said much of the science sailed right over their heads. "Whenever Merck was up there, it was like wah, wah, wah," said juror John Ostrom, imitating the sounds Charlie Brown’s teacher makes in the television cartoon. "We didn’t know what the heck they were talking about."

As they assembled around a rectangular wooden table in the jury room, the question of causality — did Vioxx kill Mr. Ernst? — caused little trouble for the jurors. The coroner who did the autopsy of Mr. Ernst testified he could have had a blood clot that caused a heart attack but disappeared by the time of the autopsy. That would explain why the death certificate only mentioned arrhythmia.

So what is it that a jury will look at?  Perhaps it’s the behavior of the company–you remember Dodgeball?

In interviews, jurors expressed anger and mistrust toward Merck. "If I could say it in one word: hiding," said Mr. Chizer, 43, who works at the Social Security Administration. "Every time a question was asked, any one of [the Merck] witnesses circumvented the questions by going somewhere else. Just give us a straight answer."

David Webb, 20, cited a letter Merck sent to doctors around the country including Mr. Ernst’s doctor. Mr. Webb felt it buried information about potential cardiovascular risks. "Who knows, what if they had put the right information and Dr. Wallace had picked up the phone and called Bob Ernst and told him?" he asks.

And was the senior leadership taking the whole thing seriously enough?

Mr. Ostrom, 49, who has a business remodeling homes, was also disturbed that former Merck Chief Executive Raymond Gilmartin and another top Merck official gave videotaped testimony but weren’t in the courtroom. "The big guys didn’t show up," said Mr. Ostrom. "That didn’t sit well with me. Most definitely an admission of guilt."

William G. Bowen, an outside director at Merck who is on the board’s executive committee, said in future trials the company will seek better ways "to make basic scientific points as simple as possible." He also said the company may put different people on the witness stand although no decision has been made about Mr. Gilmartin’s testimony. A spokesman for the Merck defense team said taped depositions are common in trials. Mr. Gilmartin’s deposition "demonstrated that Merck’s decisions with respect to Vioxx were based on the science and in the best interest of patients," the spokesman said in a statement.

And then there’s the theatrics of a great trial lawyer, and Lanier appears to be very good, and also highly highly prepared (if not quite as "prepared" as Gene Hackman in The Runaway Jury)

In the Vioxx trial, Mr. Lanier paid a group of local citizens, matched to the jury’s demographics, to sit in the courtroom as shadow jurors and give him feedback on the effectiveness of his arguments. The shadow jurors, who made $125 a day, weren’t told who they were working for. Mr. Lanier flew in a PowerPoint expert from California to help him prepare a visual presentation for his closing argument. And he retained Lisa Blue, a psychologist and highly regarded litigator with Baron & Budd, Dallas, to watch the reactions of the real jury as the case unfolded.

From the beginning, Mr. Lanier showed his theatrical flair, speaking loudly and gesturing while roaming the courtroom as if it were a stage. PowerPoint slides in his opening statement portrayed Merck as an automated-teller machine giving cash to executives. Merck’s marketing arm was depicted as a bulldozer that would push sales at any cost.

He had workers wheel 157 boxes of paper into the courtroom to show how Merck had inundated the Food and Drug Administration with documents that obscured Vioxx’s problems. He finally stopped when Merck lawyer Gerry Lowry objected that the stack obstructed her view of the jury. Mr. Lanier set two trophies Mr. Ernst won for participating in marathons on the witness stand as Mrs. Ernst recounted the day he died. A huge portrait of the couple on their wedding day faced the jury on a large screen.

Mr. Lanier’s shadow jury met each night at a McDonald’s, providing feedback to a consultant about the progress of the trial. Last Monday, two days before closing arguments, the jurors deliberated for more than four hours and provided Mr. Lanier with an early verdict: 9 to 4 in his favor — with $115 million in damages. That wasn’t good enough. The real 12-person jury would have to vote 10 to 2 for a decision to be valid.

In a strategy meeting held the same evening, Mr. Lanier got a candid assessment from Ms. Blue, the adviser who was watching the real jury. "Four or five are really strong followers" for the plaintiff, she told Mr. Lanier, while "two or three are very bad for us."

She told him that on the issue of whether Merck failed to warn the public about the risks of Vioxx, his case was "good and tight." But that wouldn’t matter if the jurors weren’t convinced that Vioxx was the culprit. "You’re weak on causation," Ms. Blue told him.

She advised him to press hard on "cause" in his closing statement and to stress that the jury only needed to be 51% sure Vioxx was a cause of Mr. Ernst’s death. The 51% figure was a way of describing the legal requirement that there be a "preponderance of evidence" in the plaintiff’s favor. "Write [51%] on the board twice: Arrhythmia is a cardiovascular event," she instructed him. "That gets you there."

She also urged him to be humble, to play up his role as a Baptist preacher and even to suggest to jurors they might get notoriety if they voted for him. One juror, Ms. Blas, had written in her questionnaire that she loves the Oprah Winfrey show and tapes it. "This jury believes they’re going to get on Oprah," Ms. Blue told Mr. Lanier. "They only get on Oprah if they vote for the plaintiff."

Two days later, facing the jury with his final argument, Mr. Lanier kept to his plan. He advised jurors that 51% confidence in Vioxx as a cause of death was good enough. He sprinkled the speech with biblical references, at one point using the tale of Esther to urge the jurors to do the right thing even if they were fearful. And he hammered home the point that they would be sending a message that would be heard widely. "I can’t promise Oprah," he said, but "there are going to be a lot of people who’ll want to know how you had the courage to do it."

The verdict came in with punitive damages of $229m apparently estimated at the amount Merck estimated that it stood to lose "if new cardiovascular risk information on Vioxx’s label were to become effective in October 2001 instead of February 2002."  Actually punitive damages aren’t really allowed in Texas, but they are in plenty of other places….and jurors tend to be pissed when they’re told to assess them and then find that they can’t be awarded. Quite why Ernst was worth $24m I don’t know and it seems to me somewhat unlikely that the Vioxx killed him, but this is clearly not over for Merck or other big pharma companies.

So here’s my suggestion to big pharma.  Be open about the science and be open about the risks as well as the benefits of the products you’re selling.  Think of the longer term.  I still believe that if you give consumers the full facts some people will choose a "risky" product for what they perceive to be a good shorter-term benefit. But if you’re perceived as bamboozling the FDA and the public, and your marketing operation is clearly trying to hide defects, you are in the long run only hurting yourselves. And worse you’re leading to a general distrust of all the science behind pharmaceuticals and medicine.  And this country already has enough people who don’t believe in science.

The jury in the first Vioxx trial has found Merck liable for the death of the patient by arrhythmia. Merck had to fight this one as it didn’t even seem to be the kind of heart disease that those people who did get heart disease in the VIGOR and other studies died from.  But they lost, and the jury awarded $253.4m.  Where they got the .4 from I’m not sure, but that’s a hell of a lot of punitive damages.  Guess that "Dodgeball" memo was pretty expensive in the end.

So if you play out the math there are an alleged 56,000 deaths from Vioxx. So if every 4 death’s costs Merck  $1 billion, then they owe some 14 trillion dollars.  That somewhat exceeds the gross national income of the country, so perhaps this amount might be reduced on appeal!

But either way the recovery that Merck stock’s had since Vioxx was pulled last year is absolutely over for now. And it’ll probably be headed lower than today’s close (as usual wish that I’d bought some put options as they were expiring today!)

Here’s today’s action. Not exactly pretty.

While you were enjoying your burgers, beer and bangs, Peter Rost was writing a book review of his boss’ new book. And he decided to put in a very obvious place called Amazon.com. Here it is:

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], that drugs from Canadian pharmacies are safe [69] and that high US drug prices have nothing to do with past R&D expenses [46]. He also 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 starts his book with the surprising confession that he doesn’t always believe in what he’s saying. "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 also doesn’t shy away from embarrassing facts, "Branded drug prices are anywhere from 25-100 percent more expensive in the United States." [50] He even admits, "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. "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] Finally, in an astonishing intellectual somersault, Dr. McKinnell claims that "price controls always make prices higher in the long run." [64] 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." [64] 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."

Here’s  a little context from Jim Edwards at Brandweek.