Pfizer Inc.

views updated May 14 2018

Pfizer Inc.

235 East 42nd Street
New York, New York 10017-5755
U.S.A.
Telephone: (212) 573-2323
Fax: (212) 573-7851
Web site: http://www.pfizer.com

Public Company
Incorporated: 1900 as Charles Pfizer & Company Inc.
Employees: 106,000
Sales: $51.29 billion (2005)
Stock Exchanges: New York London Euronext Swiss
Ticker Symbol: PFE
NAIC: 325412 Pharmaceutical Preparation Manufacturing; 325411 Medicinal and Botanical Manufacturing; 325320 Pesticide and Other Agricultural Chemical Manufacturing; 424210 Drugs and Druggists' Sundries Merchant Wholesalers; 339113 Surgical Appliance and Supplies Manufacturing; 541710 Research and Development in the Physical, Engineering, and Life Sciences

Pfizer Inc. is the largest research-based drugmaker in the world. The company operates in three business segments: healthcare, animal health, and consumer healthcare. Pfizer is the company behind well-known consumer products such as Listerine, Rolaids, Sudafed, and Visine, but the company's greatest revenue producers are its prescription drugs. Pfizer's marquee pharmaceuticals include Viagra, a treatment for erectile dysfunction, Zoloft, an antidepressant, and Lipitor, a cholesterol-lowering pharmaceutical that is the bestselling drug in the world. Pfizer's products are marketed in more than 150 countries.

PFIZER'S EARLY HISTORY

In 1849 Charles Pfizer, a chemist, and Charles Erhart, a confectioner, began a partnership in Brooklyn to manufacture bulk chemicals, Charles Pfizer & Company. While producing iodine preparation and boric and tartaric acids, Pfizer pioneered the production of citric acid, a product Pfizer continues to market to soft drink companies, using large-scale fermentation technology. By the end of the 19th century, Pfizer was producing a wide range of industrial and pharmacological products and had offices in New York and Chicago. In 1900 the company was incorporated in New Jersey as Charles Pfizer & Company Inc.

While Pfizer technicians became experts in fermentation technology, across the ocean Sir Alexander Fleming made his historic discovery of penicillin in 1928. Recognizing penicillin's potential to revolutionize healthcare, scientists struggled for years to produce both a high quality and large quantity of the drug. Experimentation with production became an imperative during the Nazi air raids of London in World War II. In a desperate attempt to solicit help from the community of American scientists, Dr. Howard Florey of Oxford University traveled to the United States to ask the U.S. government to mobilize its scientific resources.

Because of its expertise in fermentation, the government approached Pfizer. Soon afterward, Dr. Jasper Kane from the company laboratory began his own experiments. Initially using large glass flasks, Dr. Kane's experimentation then led to deep-tank fermentation. Later, the company announced its entrance into large-scale production with the purchase of an old ice plant in Brooklyn. Refusing government money, the company paid the entire $3 million for the purchase and within four months John McKeen (future chairperson and president) had converted the ancient plant into the largest facility for manufacturing penicillin in the world.

Early production, however, was not without its difficulties. The first yields of penicillin required constant supervision, and yet quality and quantity remained low and inconsistent. In one of those inexplicable quirks of history, however, a government researcher browsing in a fruit market in Peoria, Illinois, discovered a variant of the "Penicillium" mold on an overripe cantaloupe. Using this variant, production suddenly increased from ten units per millimeter to 2,000 units per millimeter. By 1942 Pfizer divided the first flask of penicillin into vials for the medical departments of the Army and Navy; this flask was valued at $150,000. Mass production began in 1944, when Pfizer penicillin arrived with the Allied forces on the beaches of Normandy on D-Day. Meantime, in June 1942, Pfizer reincorporated in Delaware and went public with an offering of 240,000 shares of common stock.

Even as the government controlled production of the drug for the sole use of the Armed Forces, the public, aroused by miraculous results of penicillin, asked Pfizer to release the drug domestically. In 1943 John L. Smith, Pfizer president, and John McKeen, against the explicit regulations of the federal government, supplied penicillin to a doctor at the Brooklyn Jewish Hospital. Dr. Leo Lowe administered what was thought of as massive dosages of penicillin to several patients and cured, among others, a child suffering from an acute bacterial infection and a paralyzed and comatose woman. Smith and McKeen, visiting the hospital on Saturdays and Sundays, were witness to penicillin's curative effects on the patients.

POSTWAR EXPANSION FOR PFIZER: TERRAMYCIN AND BEYOND

Nevertheless, it was not until the end of the war when the federal government realized its mistake in restricting production of the drug. In 1946 Pfizer purchased Groton Victory Yard, a World War II shipyard, in order to renovate it for mass production of the new publicly accessible medicine. This marked Pfizer's first official entrance into the manufacturing of pharmaceuticals. In a few years the five-story building, equipped with 10,000 gallon tanks, produced enough penicillin to supply 85 percent of the national market and 50 percent of the world market. In 1946 sales already had reached $43 million.

Competition from 20 other companies manufacturing penicillin soon resulted in severe price reductions. The price for 100,000 units dropped from $20 to less than two cents. Furthermore, although the company could boast ownership of fermentation tanks "exceeded in size only by those in the beer industry," Pfizer's bulk chemical business decreased as former customers began establishing production facilities of their own. Pfizer's instrumental role in developing antibiotics proved beneficial to society, but a poor business venture.

COMPANY PERSPECTIVES

The cycle of renewal drives everything we do at Pfizer. With several Pfizer medicines now coming to the end of their life cycles, we are doing what Pfizer people have done many times since our founding in 1849—build a new platform for extended growth. Pfizer colleagues around the world are putting into place the next-generation Pfizer, one that will meet fast-changing needs in health and healthcare. We are working hard to both transform our business and to be partners in transforming healthcare itself. Our focus remains on our core business—innovation in the medicines that are integral to good healthcare. But our strategy goes further—to help create entire new directions in health and healthcare, exploring systems that start with the simple question: "How can we best help people before disease strikes?"

All this was to change drastically under the new direction of President John McKeen. In 1949 McKeen, whose career at Pfizer began the day after he graduated from the Brooklyn Polytechnic Institute in 1926, was elevated to president and, later, chair of the company. Already responsible for increasing sales by an impressive 800 percent between 1939 and 1950, McKeen's business acumen became even more evident during the marketing campaign for Terramycin, which was launched in 1950. In the postwar years, pharmaceutical companies searched for new broad-spectrum antibiotics useful in the treatment of a wide number of bacterial infections. Penicillin and streptomycin, while helping to expand the frontier of medical knowledge, actually offered a cure for only a limited number of infections. Pfizer's breakthrough came with the discovery of oxytetracycline, a broad-range antibiotic that soon would prove effective against some 100 diseases.

The drug's remarkable capture of a sizable portion of the market was not due entirely to its inherent curative powers. Rather, it was McKeen's ability to promote the new drug that actually propelled Pfizer into the ranks of top industry competitors. McKeen's first accomplishment was the timely decision to market the antibiotic under a Pfizer trademark. Thus Terramycin, the drug's chosen name, launched Pfizer into its first ethical drug campaign. Lacking the resources other pharmaceutical companies had to promote their drugs, McKeen announced the "Pfizer blitz," whereby the company's small sales force used an unusual array of marketing strategies.

KEY DATES

1772:: Henry Nock founds the business that eventually becomes Wilkinson Sword.
1849:: Charles Pfizer and Charles Erhart found Charles Pfizer & Company.
1866:: Parke-Davis is founded in Detroit by Hervey C. Parke and George S. Davis.
Dr. Joseph Lawrence develops the original formula for Listerine.
1877:: Wilkinson Sword begins making straight razors.
1881:: Lawrence sells his formula to Jordan Wheat Lambert, who founds Lambert Pharmacal Company.
1886:: William R. Warner founds William R. Warner & Company.
1899:: Several major U.S. gum producers merge to form American Chicle.
1900:: Charles Pfizer & Company Inc. is incorporated in New Jersey.
1916:: Warner & Co. acquires Richard Hudnut Company, a cosmetics firm.
1921:: Colonel Jacob Schick invents the Magazine Repeating Razor, forerunner of the Schick Injector razor.
1942:: Pfizer goes public.
1944:: Pfizer begins mass production of penicillin, primarily for the war effort.
1950:: Pfizer launches Terramycin, an antibiotic; Warner & Co. is renamed Warner-Hudnut, Inc.
1955:: Warner-Hudnut merges with Lambert Pharmacal to form Warner-Lambert Company.
1962:: Warner-Lambert acquires American Chicle.
1970:: Charles Pfizer & Company is renamed Pfizer Inc.; Warner-Lambert acquires Schick and Parke, Davis.
1984:: Agouron Pharmaceuticals, Inc. is founded.
1989:: Pfizer launches Procardia XL.
1992:: Pfizer launches Novasc, Zoloft, and Zithromax.
1993:: Warner-Lambert acquires Wilkinson Sword.
1995:: Pfizer acquires the animal health unit of SmithKline Beecham.
1997:: Warner-Lambert launches Lipitor through a marketing alliance with Pfizer.
1998:: Pfizer divests its Medical Technology Group; Pfizer launches Viagra.
1999:: Pfizer begins comarketing Celebrex; Warner-Lambert acquires Agouron Pharmaceuticals.
2000:: Pfizer acquires Warner-Lambert.
2002:: Pfizer's Lipitor ranks as the best-selling drug in the world.
2003:: Pfizer merges with Pharmacia Corp., making it the largest drugmaker in the world.
2006:: The FDA approves Exubera, the first inhaled insulin therapy to be granted approval.

For the first time, the company circumvented traditional drug distributing companies and began selling Terramycin directly to hospitals and retailers. Pfizer's minuscule retail force (pharmaceutical salespeople) would target one small region at a time and promote their product to every accessible healthcare professional. The sales force left generous samples of the drug at every sales call, sponsored golf tournaments, and ran noisy hospitality suites at conventions. Surprised at the success of this tiny band of salespeople, which eventually would grow into a 4,000-person army, industry competitors reluctantly increased their own sales forces and, similarly, began promoting their products directly to physicians.

Taking the calculated risks of insulting the entire medical community, Pfizer ran lavish advertisements in the conservative Journal of the American Medical Association. The ad was greeted with a large degree of reservation and threatened the drug industry's abhorrence of "hard sell" marketing. In an unprecedented move, the company had paid a prohibitive $500,000 to run the multipage ad. In two years the entire Terramycin campaign cost $7.5 million, and Pfizer became the largest advertiser in the American Medical Association's journal.

After 12 months on the market, Terramycin's sales accounted for one-fourth of Pfizer's total $60 million in sales. Yet problems with the company's advertising strategy were to surface soon. In 1957, while promoting a new antibiotic called Sigmamycin, a Pfizer advertisement used the professional cards of eight physicians to endorse the drug. John Lear, science editor of the Saturday Review, denounced this advertisement in a scathing attack. Not only were the names of the eight physicians fictitious, Lear claimed, but the code of Pharmaceutical Manufacturers Association prohibited soliciting endorsements from physicians. Moreover, Lear used the Pfizer ad to underscore and criticize what he saw as a trend toward the overprescription of antibiotics, exaggerated claims on drug effects, and concealment of possible side effects.

Pfizer was quick to defend their advertisement. The company upheld the reputability of the ad agency, William Douglas McAdams Inc., a highly respected firm responsible for the Sigmamycin campaign. While defending the drug and the clinical reports supporting the drug's efficacy, Pfizer admitted that the business cards were purely symbolic and, therefore, fictitious and, as a result, may have been misleading. The company accordingly changed the campaign.

John Lear's final attack on Pfizer expressed an unspoken industry complaint. Not only was it disturbing that such "hard sell" tactics should actually prove successful, but so was Pfizer's status in the industry; as the company's recent past was in bulk chemical production, it was a relative newcomer to the industry of ethical drugs. Lear argued that the young company should have shown respect for the industry's formal and restrained method of conducting business. Pfizer, however, was not intimidated by the industry's attitude toward its advertising campaign; it was interested in claiming and maintaining a share of the market. If it meant breaking tradition, it was clear Pfizer was not going to hesitate.

Aside from its modern marketing campaigns, Pfizer was very successful at developing a diversified line of pharmaceuticals. Whereas many companies concentrated their efforts on developing innovative drugs, Pfizer generously borrowed research from its competitors and released variants of these drugs. Although all companies participated in this process of "molecular manipulation," whereby a slight variance is produced in a given molecule to develop greater potency and decreased side effects in a drug, Pfizer was particularly adept at developing these drugs and aggressively seizing a share of the market. Thus the company was able to reduce its dependence on sales of antibiotics by releasing a variety of other pharmaceuticals.

At the same time Pfizer's domestic sales increased dramatically, the company was quietly improving its presence on the foreign market. Under the methodical directive of John J. Powers, head of international operations and future president and chief executive officer, Pfizer's foreign market expanded into 100 countries and accounted for $175 million in sales by 1965. It would be years before any competitor came close to commanding a similar share of the foreign market. Pfizer's 1965 worldwide sales figures of $220 million indicated that the company might possibly be the largest pharmaceutical manufacturer in the United States. By 1980 Pfizer was one of only two U.S. companies among the top ten pharmaceutical companies in Europe, and the largest foreign healthcare and agricultural product manufacturer in Asia.

Pfizer's crowning success to its unorthodox business procedures involved McKeen's quest for diversification through acquisition. While competing companies within the industry preferred to keep $50-$70 million in savings, Pfizer not only kept a meager $25 million in cash, but was the only major pharmaceutical to use common equity to borrow capital. "Not to have your cash working is a sort of economic sin," McKeen candidly stated. Between 1961 and 1965 the company paid $130 million in stock or cash and acquired 14 companies, including manufacturers of vitamins, antibiotics for animals, chemicals, and Coty cosmetics.

McKeen defended this diversification strategy by claiming that prodigious growth had decreased overall profits while competitors, on the other hand, had neither grown nor profited from their conservative investments. Furthermore, Pfizer's largest selling drug, Terramycin, generated only $15-$20 million a year and thus freed the company from a dependence on one product for all its profits.

In 1962 Pfizer allotted $17 million for research and that same year McKeen announced plans for his "five by five" program, which included $500 million in sales by 1965. Obviously, sales would not come from new pharmaceuticals, but from the company's accelerated rate of acquisitions.

McKeen never actually saw the company reach this goal during his presidency. In 1964 sales did surpass $480 million, but the following year Powers replaced McKeen as chief executive officer and president and inherited a company with almost half its sales generated from foreign markets and wide product diversification from 38 subsidiaries.

For the next seven years Powers continued to preside over the company's comfortable profits and sizable growth. In the absence of McKeen's style of conducting business, Powers directed Pfizer toward the more conservative and methodical approach of manufacturing and marketing pharmaceuticals.

Powers also guided the company in a new direction with an increased emphasis on research and development. With increased funds allocated for research in the laboratories, Pfizer joined the ranks of other pharmaceutical companies searching for the innovative and, therefore, profitmaking, drugs. Vibramycin, an antibiotic developed in the 1960s, was very profitable; by 1981 it generated sales of $250 million.

EMPHASIZING R&D AT PFIZER

In 1970 the company changed its name to the more modern-sounding Pfizer Inc. In the early 1970s Edmund Pratt, Jr., stepped in as company chairman and Gerald Laubach took over as Pfizer president. Although company assets reached $1.5 billion and sales generated $2 billion by 1977, Pfizer's overall growth was much slower through the period of the late 1970s and early 1980s. Increased oil prices caused comparable increases in prices for raw materials; low incidents of respiratory infections slowed sales for antibiotics; and even a cool summer in Europe reduced demands for soft drinks and, consequently, the need for Pfizer citric acids. All of these factors contributed to the company's slow rate of growth.

In light of this, the two new top executives significantly changed company strategy. First, funds for research and development reached $190 million by 1981; this marked a 100 percent increase in funding from 1977. Second, Pfizer began a comprehensive licensing program with foreign pharmaceutical companies to pay royalties in exchange for marketing rights on newly developed drugs. This represented a noticeable change from the years Powers supervised international operations. Under his directive, Pfizer chose to market its own drugs on the foreign market and establish joint ventures or partnerships only if no other option was available.

The two new drugs—one called Procardia, a treatment for angina licensed from Bayer AG in Germany for its exclusive sale in the United States, and the other called Cefobid, an antibiotic licensed from a Japanese pharmaceutical company—promised to be highly profitable items. Furthermore, drugs discovered from Pfizer's own research resulted in large profits. Sales for Minipress, an antihypertensive, reached $80 million in three years, and Feldene, an anti-inflammatory, generated $314 million by 1982.

By 1983 sales reached $3.5 billion and Pfizer was spending one of the largest amounts of money in the industry on research ($197 million in 1983). Pratt, in a final move to shed Pfizer of its former idiosyncracies, began selling some of its more unprofitable acquisitions.

Interestingly, one Pfizer product acquired through a company acquisition in the 1960s experienced a market rediscovery during the 1980s. Ben Gay, a well established liniment marketed for relief of arthritis pains through the late 1970s, found new patrons in the health-conscious 1980s. Discovering that sales for Ben Gay were increasing when marketed as a fitness aid, Pfizer began an advertising campaign by employing athletic superstars to endorse the drug. This campaign cost the company $6.3 million in 1982.

By 1989, Pfizer operated businesses in more than 140 countries. Net sales that year were $5.7 billion, but net income declined. Research and development expenditures had quadrupled during the 1980s, and Pfizer planned to continue investing heavily in research and development. Procardia XL was launched in 1989, and Diflucan, an antifungal agent, received Food and Drug Administration (FDA) approval. Globally, Pfizer chalked up $150 million in sales, in 14 countries, of its Plax dental rinse.

BLOCKBUSTER INTRODUCTIONS FOR PFIZER

Pfizer headed into the 1990s with numerous drugs in development, including preparations in the areas of anti-infectives, cardiovasculars, anti-inflammatories, and central nervous system medications. Net sales in 1990 reached $6.4 billion. Procardia rapidly became the most widely prescribed cardiovascular drug in the United States. Research and development costs rose 20 percent, in keeping with Pfizer's determination to invest heavily in new drugs.

Pfizer International launched 37 new products worldwide in 1990. The company's antifungal drug, Diflucan, became the world's leading drug of its kind during this time. Sales of Pfizer's newest products accounted for 30 percent of all pharmaceutical sales, up from 13 percent in 1989.

Pfizer entered the decade facing controversy about heart valves produced by Shiley, Inc., a Pfizer subsidiary. In 1990, 38 fractures of implanted valves were reported. Pfizer instituted a policy of compensating those with fractured valves. Shiley was sold later in the decade to Sorin Biomedica S.p.A., a subsidiary of Fiat S.p.A., for $230 million.

In 1992, Pfizer received final FDA approval for Norvasc, used in treating angina and hypertension. Zithromax, an antibiotic developed to treat outpatient pneumonia, tonsillitis, and pharyngitis, also hit the market that year after FDA approval, as did the antidepressant Zoloft. By the late 1990s, all three of these drugs had reached blockbuster status, achieving annual sales of more than $1 billion. Net sales in 1992 were $7.2 billion, with a net income of $811 million, and research and development expenses hit $863 million. Pfizer's chairperson and CEO of 19 years, Ed Pratt, retired and was succeeded by William C. Steere, Jr.

Although the early 1990s were marked by a wave of mergers and acquisitions in the global pharmaceuticals industry, Pfizer declined to join in, and was instead content to build its product pipeline organically rather than through acquisition. By 1995, in fact, the R&D budget hit $1.3 billion. The one major acquisition that the company did complete during this period came not in the area of human pharmaceuticals but in the animal health realm. In 1995, Pfizer spent $1.45 billion for the animal health unit of SmithKline Beecham plc, the largest acquisition in Pfizer history. The purchase transformed the company's Animal Health Group into one of the largest providers of medicines for both livestock and pets, with remedies for more than 30 species, including anti-infectives, antiparasitics, anti-inflammatories, and vaccines.

Not content with its own rich product pipeline, Pfizer entered into a series of partnerships whereby it comarketed drugs developed by smaller pharmaceutical firms, firms that were attracted by Pfizer's powerful sales force. In 1997 Pfizer helped Warner-Lambert bring Lipitor, a cholesterol-lowering pill, to market. Lipitor soared to the top of the anticholesterol niche in the United States, achieving sales of $865 million in 1997 and $2.2 billion in 1998. Another 1997 introduction of a comarketed drug was Aricept, which was developed by Japan's Eisai and quickly became the leading drug prescribed to treat the symptoms of Alzheimer's disease.

Focusing ever further on pharmaceuticals, Pfizer in 1998 sold its Medical Technology Group in four separate transactions: Valleylab was sold to U.S. Surgical Corporation for $425 million; AMS to E.M. Warburg, Pincus & Co., LLC for $130 million; Schneider to Boston Scientific Corporation for $2.1 billion; and Howmedica to Stryker Corporation for $1.65 billion. These transactions, however, were overshadowed that year by Pfizer's introduction of Viagra, a pill for treating male impotence, or what the company called "erectile dysfunction." By far the most famous of the new "lifestyle drugs," Viagra was an instant blockbuster: more than 350,000 prescriptions were written in the first three weeks, and sales for 1998 totaled $788 million; sales exceeded $1 billion in 1999. Less than a year after the launch of Viagra, Pfizer began comarketing Celebrex, which had been developed by G.D. Searle & Co., then a unit of Monsanto Company. Celebrex, the first of a new category of pain drugs called Cox-2 inhibitors, was approved for the treatment of arthritis pain and inflammation. The new drug became the most successful pharmaceutical launched in U.S. history, with 19 million prescriptions written in the first 12 months; sales during 1999 alone exceeded $1.4 billion.

Having participated in three record-setting launches in the late 1990s, Pfizer was one of the fastest growing drug companies in the world in revenue terms. Sales increased from $11.31 billion in 1996 to $16.2 billion in 1999. The overall growth for the 1990s was even more impressive as revenues increased 284 percent from the 1989 total of $4.2 billion. During this same period, Pfizer increased its R&D budget sixfold, reaching nearly $2.8 billion by 1999, or more than 17 percent of sales, among the top levels in the industry.

The company was not without its problems, however, particularly as a series of setbacks beset its drug development efforts. Trovan, an antibiotic that Pfizer hoped would be a blockbuster, ran into trouble during clinical studies following reports that it killed some patients. Development stopped on an experimental drug for diabetic nerve damage. Zeldox, an antipsychotic drug, and Relpax, a migraine treatment, saw their development delayed. In addition, sales of Viagra suffered at least a temporary setback following reports that some users of the drug had died of heart attacks. It was with this somewhat shaky product pipeline as a backdrop that Pfizer entered into a battle for control of Warner-Lambert in late 1999, a battle that Pfizer won early the following year.

EARLY HISTORIES OF WARNER AND LAMBERT

Warner-Lambert Company was the product of the 1955 merger of Warner-Hudnut, Inc. and the Lambert Pharmacal Company. Warner was founded in the late 19th century by William R. Warner, a Philadelphia pharmacist who had earned a fortune by inventing a sugar coating for pills. In 1886 he formed William R. Warner & Company and began making drugs. In 1908, several years after Warner's death, the company was acquired by Gustavus A. Pfeiffer & Company, a patent medicine company from St. Louis. Pfeiffer retained the Warner company name, moved its headquarters to New York, and began a series of acquisitions that included Richard Hudnut Company, a cosmetics firm acquired in 1916, and the DuBarry cosmetic company. By the 1940s, some 50 companies had been acquired during the Warner company's history.

Elmer Holmes Bobst arrived at Warner in 1945, already a veteran executive of the pharmaceutical industry and a multimillionaire. As president of Hoffmann-La Roche's U.S. office, he had proved instrumental in acquiring for the Swiss company a large share of the U.S. drug market. Many observers were surprised that Bobst accepted the position at Warner; he was then 61 years old, wealthy, and could have settled into a comfortable retirement.

Nevertheless, when Gustave A. Pfeiffer, Warner's chairperson and the only surviving member of the original founding family, approached Bobst with an offer of the presidency, he accepted. Nearly 30 years earlier, Bobst had been asked to join Warner as the head of its pharmaceutical division but declined when the Pfeiffer family refused to sell Bobst any of the company stock (the family held all the common stock). By the mid-1940s, however, Bobst had proved his abilities, and Pfeiffer readily offered the job on Bobst's terms; Bobst was hired and allowed to purchase 11 percent of the common stock. By 1955, Bobst's holdings were worth more than $3 million.

What Bobst inherited with his new position was a family-operated company suffering from an aging product line and antiquated facilities. Although the Hudnut cosmetic line accounted for most of the company's $25 million in sales, that product line was barely turning a profit. In an effort to improve the image of the cosmetics production, Bobst renamed the firm Warner-Hudnut in 1950.

Bobst's managerial style was well suited to the company's policy of growth through acquisition. Moreover, his experience with high-level industry and political affairs enabled him to hire a new management team of accomplished executives and public figures. Successful investment bankers, business executives, and political officials were brought in, notably Anna Rosenberg, the company's manager of industrial and public relations, who was once the U.S. assistant secretary of defense, and Alfred Driscoll, later Warner's president, who had served as governor of New Jersey for seven years.

In 1952, Bobst made his first major acquisition, purchasing New Jersey Chilcott Laboratories, Inc. Chilcott earned its reputation as a manufacturer of ethical drugs in large part through its development of Peritrate, a long-acting "vasodilator," which enlarged constricted blood vessels. Three years later Bobst arranged a merger between his company and Lambert Pharmacal.

Lambert Pharmacal's history is tied to that of the oral antiseptic Listerine. Dr. Joseph Lawrence developed the original formula for Listerine in the 1870s. Lawrence sold his formula in 1881 to Jordan Wheat Lambert, who founded the Lambert Pharmacal Company to make and sell Listerine. The product became widely popular, particularly under the advertising strategy of Gordon Seagrove, who joined Lambert in 1926 after leaving his job as a calliope player in the circus. Seagrove made Listerine a household staple by promoting its ability to cure halitosis, sore throats, and dandruff. The advertising copy for one magazine ad depicted a man encouraging a woman to continue massaging Listerine into his head, with the tagline "Tear into it, Honey—It's Infectious Dandruff!"

Bobst had met the president of Lambert, Edward Williams, at a meeting of the American Foundation for Pharmaceutical Education, and the two decided that their operations, each producing different but reputable products, would complement one another. Bobst was particularly interested in gaining access to Lambert's well-organized distribution network, which incorporated modern marketing techniques previously unavailable at Warner-Hudnut's. Furthermore, Williams brought a strong background in the management of pharmaceutical companies, enhancing Bobst's accomplished executive team, which had little experience in the pharmaceutical industry. When Warner and Lambert merged in 1955 to form Warner-Lambert Company, former governor Alfred Driscoll was named president of the new company.

GROWING THROUGH ACQUISITION: WARNER-LAMBERT, 1960–79

The new company quickly outgrew its New York headquarters and so relocated to Morris Plains, New Jersey, a suburb of New York City, in 1956. Acquisitions were soon to follow. Warner-Lambert acquired Emerson Drug, maker of Bromo-Seltzer, in 1956. Six years later, the company acquired American Chicle, maker of Chiclets and other chewing gums, for about $200 million in stock. American Chicle had been formed in 1899 through the merger of several major U.S. gum producers. Many industry analysts criticized the high price paid for American Chicle; in 1962, the company's net income for the year was less than $10 million. By 1983, however, after expanding into foreign markets, Chiclet sales were reaching the $1 billion mark. Ward S. Hagan, chairperson of American Chicle, called its gum and mint business "the largest in the world."

Meanwhile, the success of Peritrate, the drug that had come to Warner-Hudnut through that company's purchase of Chilcott Laboratories, was the cause of some controversy. Peritrate proved useful in a wider application of treatments than originally allowed, and the FDA approved of Peritrate's "new drug" usages in 1959. Over the next several years, however, Warner embarked on a controversial Peritrate advertising campaign. Appearing in several medical journals, including the Journal of the American Medical Association, ten-page ads advocated the use of Peritrate not only for the treatment of angina, but as a "life-prolonging" prophylactic for all cardiac patients. The advertisement, based on the results of one study, was released at a time when the FDA had initiated an increasingly aggressive policy of evaluating claims for drug effectiveness. Even as the director of the study refuted the advertisement claims, Warner-Lambert executives stood by the claims for the effectiveness of their drug. By 1966, however, when an estimated 56 percent of the 3.1 million people afflicted by heart disease used Peritrate, the government, under the directive of the FDA, seized a shipment of the drug, bringing charges against the company's unapproved advocacy of an even wider usage for the drug.

Concurrently, Listerine continued to increase in popularity under its new ownership; by 1975, the oral antiseptic held a sizable portion of the $300 million market. Warner-Lambert continued to invest heavily in advertising for Listerine. For years, Listerine had been advertised as a preventive measure against colds and sore throats, and, during the Asian flu epidemic of 1957, Bobst personally placed an ad in Life magazine promoting Listerine's ability to resist the sickness. The company's advertising agency had rejected the ad earlier, since its claims were unsubstantiated, but the promotion resulted in sales increases of $26 million for the year.

By 1975, the Federal Trade Commission (FTC) had begun to investigate the Listerine advertisements. The FTC disputed the cold prevention claims of Listerine as insupportable and ordered the company to embark on a disclaimer ad campaign amounting to $10 million, a figure equal to the company's average annual advertising expenditure between 1962 and 1972. The FTC argued that only corrective disclaimers could educate the consumer, and, in 1978, the Supreme Court upheld the FTC's order.

During the 1970s and 1980s, Warner-Lambert made several acquisitions, including cough drop manufacturer Smith Brothers, American Optical, and Schick Shaving. The latter, which was acquired in 1970, traced its origins to the 1920s when Colonel Jacob Schick, inspired by the repeating rifle, invented the Magazine Repeating Razor, which eventually was redubbed the Schick Injector razor.

Warner-Lambert also acquired Parke, Davis & Co. in 1970. The company was founded in Detroit in 1866 as Parke-Davis by Hervey C. Parke and George S. Davis. Among the numerous medical innovations marking the history of Parke, Davis were the 1938 development of Dilantin, which became the drug of choice for the treatment of epilepsy; the 1946 introduction of the first antihistamine, Benadryl; and the 1949 discovery of chloromycetin, a broad-spectrum antibiotic.

The acquisition of Parke, Davis met with some resistance. The Antitrust Division of the Justice Department launched an investigation of the proposed merger. According to the chair of the House Judiciary Committee, the merger would raise "serious problems" because it had the potential to limit competition and create a monopoly. Upon approval, the merger would result in combined revenue of $1.7 billion and would rank the new company among the 100 largest industrial companies in the United States.

On November 12, 1970, the Justice Department announced that it would not challenge the merger despite the Antitrust Division's recommendation to the contrary. The department referred the matter to the FTC, which held concurrent authority to enforce the Clayton Act. A day later, the merger was completed. By 1976, however, the FTC ordered the company to sell several units of its Parke, Davis subsidiary that produced specified drugs. Those units producing thyroid preparations, cough remedies, cough drops and lozenges, normal albumin serum, and tetanus immunoglobulin would have to be sold to restore competition in those product lines.

Satisfied with the FTC's actions, S. Burke Giblin, chair and CEO of Warner-Lambert at the time of the ruling, nevertheless faced several other challenges in the ensuing years. In 1976, Warner-Lambert disclosed figures to the Securities and Exchange Commission (SEC) concerning illegal payments abroad, announcing that more than $2.2 million "in questionable payments" had been uncovered in 14 of the 140 countries in which Warner-Lambert conducted business. Only months later an explosion at an American Chicle plant in Queens, New York, killed six people and injured 55. After a year of investigation, a grand jury indicted the company and four of its officials on charges of reckless manslaughter and criminally negligent homicide. The charges were based on reports that the fire department had warned the company about the explosive potential of magnesium stearate dust used as a gum-machine lubricant. Contending that the charges were "outrageous" and unwarranted, company executives appealed the case. In 1978, a state judge dismissed the charges, citing "crystal clear and voluminous evidence" that the company had tried to eliminate the danger of an explosion. The following year, however, the New York State court's appellate division voted to restore the indictments. Finally, in 1980, the state's highest court once again dismissed all charges in connection with the explosion.

Another controversy involved Warner-Lambert's Benylin cough syrup product, which was made available without a prescription in 1975. In response to questions regarding the cough syrup's effectiveness, the FDA ordered the drug back on a prescription-only status, and, after seven years of deliberation, a settlement finally was reached in which the FDA approved the reinstated over-the-counter sale of the drug.

In 1978, Warner-Lambert purchased Entenmann's Bakery for $243 million in cash. By 1982, Entenmann's had become Warner-Lambert's most profitable consumer division, with sales reaching $333 million and an annual growth rate of 19 percent. During this time, however, a rumor was started that Entenmann's profits were supporting the Reverend Sun Myung Moon's Unification Church. Since the source of the rumor was said to have come from Westchester County in New York, Warner-Lambert took out an ad in the county newspaper denying the alleged connection. Nevertheless, the rumor continued to circulate and actually received a large amount of publicity in the Boston, Massachusetts area. It was reported in some places that Entenmann's delivery and sales staff were being harassed, and one Rhode Island church urged a boycott of the baked goods. When sales growth began to slip, Warner-Lambert mailed a letter to 1,600 churches in New England describing Entenmann's history as a family-owned business for 80 years before it was purchased. As Entenmann's profits continued to slip, Warner-Lambert sold the bakery to General Foods for $315 million in 1982.

The late 1970s had proved financially unstable for Warner-Lambert. Profit margins were off by 40 percent in 1979, the majority of revenues came from the sale of consumer goods, and the company was considered a potential takeover candidate. One critic characterized it as a "floundering giant." That year, Ward S. Hagan replaced Bobst as chairperson, while Joseph D. Williams assumed the chief executive office. Hagan and Williams then embarked on a restructuring program with the goal of revitalizing the pharmaceutical operations and trimming unprofitable and noncore businesses.

RESTRUCTURING AND REFOCUSING ON CORE AREAS: 1980–99

Five unprofitable subsidiaries, including American Optical and Entenmann's, were divested between 1982 and 1986, providing Warner-Lambert with capital of nearly $600 million. At the same time, such company programs as the "Total Production System" aimed to increase productivity by cutting downtime, reducing paperwork, and creating a more flexible work environment. Hagan and Williams closed or consolidated 24 plants in foreign and domestic locations, while reducing the company labor force by almost half, from 61,000 to 32,000. Research for new drugs at the Parke, Davis division was supported by a 20 percent increase in budgetary funds during 1983 to $180 million.

Despite its improved financial condition, Warner-Lambert came under criticism, particularly for its 1982 purchase of IMED Corp., a small hospital supply manufacturer. Many found Warner-Lambert's $468 million purchase, 23 times IMED's earnings, exorbitant. IMED was the market leader, with 35 percent of sales in the hospital supply field and continued annual sales growth of 50 percent. The company, however, was beset with problems. IMED's executives apparently concentrated on short-term sales goals, at the expense of new product development. In fact, a management conflict between IMED's manufacturing and research and development executives caused many important employees to resign in frustration. In 1986, Warner-Lambert sold IMED and some of its affiliates to the Henley Group, Inc. for $163.5 million.

Williams, who was given the additional duties of chairperson during Warner-Lambert's turnaround period, was able to report that return on equity had increased from 9 to 32 percent from 1979 to 1986, as sales diminished through divestments and profits held fairly steady. Investing in research and development and luring industry talent from competing companies, Williams hoped to develop and increase sales of high-margin prescription drugs, such as Lopid, a cholesterol-reducing drug that received positive publicity in the late 1980s. A trend among consumers toward treatment without medication, however, as well as swelling support for reform of the healthcare industry, and the attendant possibility of price controls, caused uncertainty among ethical drug producers. Business also was threatened by a late 1980s recession and discounting in the consumer goods segment.

In anticipation of these potentially adverse market forces, a new chairperson and CEO, Melvin R. Goodes, announced yet another reorganization of Warner-Lambert late in 1991. The plan called for a 2,700-person layoff, reorganization of the global management scheme, and consolidation of operations into two groups: pharmaceuticals and consumer products. Goodes also began to concentrate the company's marketing efforts on three primary geographic markets: North America, Europe, and Japan. The company invested $1.3 billion in advertising and promotion and $473 million in research and development, apparently banking on its consumer goods, which still constituted 60 percent of annual sales in 1992.

That year, Warner-Lambert became the fourth company to enter the competitive and controversial market for transdermal nicotine patches. Its prescription smoking cessation device, branded Nicotrol, was strongly promoted through direct consumer advertising, and the product enjoyed early success. Sales, however, quickly declined in 1993; Warner-Lambert's late entry into the segment, chronic product shortages, a lower than expected success rate, side effects, and, especially, reports that some users had suffered heart attacks, all led to declines in sales.

In 1993, the company became the first to win approval from the FDA for a drug (Cognex) that retarded the progression of Alzheimer's disease. Warner-Lambert also formed joint ventures with Glaxo Holdings plc and Wellcome plc to orchestrate the movement of the companies' drugs from prescription to over-the-counter and generic markets. Another development in 1993 was the acquisition of Wilkinson Sword, a maker of shaving products and toiletries and a business that fit well alongside Schick. Wilkinson Sword traced its origins back to 18th-century London, where in 1772 Henry Nock began making guns and bayonets. James Wilkinson, a son-in-law of Nock, soon became a partner in the enterprise and then inherited the company in 1805. Wilkinson's son Henry joined the firm and expanded the business into sword making. The manufacturing of straight razors began in 1877.

The critical drug development front showed only mixed results for Warner-Lambert in the early 1990s. Lopid, whose sales had peaked at $556 million in 1992, went off patent in January 1993, resulting in significant and immediate generic competition and plummeting sales. Meantime, sales of Cognex were disappointing. Neurontin, which had been approved for the treatment of epilepsy, also got off to a slow start, although by 1998 sales had hit a solid $514 million. Sales of Accupril, a cardiovascular drug, were $175 million in 1994; by 1998 sales had increased to $454 million. In the OTC realm, Warner-Lambert helped the newly merged Glaxo Wellcome plc bring Zantec 75 heartburn treatment to market in 1996. The alliance ended in 1998, however, when Warner-Lambert bought the U.S. and Canadian rights to the product, which that year achieved sales of $168 million.

Two key pharmaceutical introductions marked 1997. Following its approval by the FDA in December 1996, Lipitor was launched in February of the following year. This drug was used to reduce cholesterol levels and proved to work faster and more effectively than other available remedies. As a result, Lipitor became the blockbuster pharmaceutical long sought by Warner-Lambert and was in fact the first prescription drug to achieve $1 billion in worldwide sales in its first year on the market. Sales in 1998 reached $2.19 billion.

The other 1997 launch, Rezulin, also got off to a fast start, posting $750 million in 1998 sales, but then ran aground. Launched in March 1997 as a breakthrough treatment for the most common kind of diabetes, type 2 diabetes, Rezulin was by March 1999 the subject of an FDA investigation into its safety, after 30 people in the United States who were taking the drug died after developing liver problems. The FDA at first allowed the drug to continue to be sold with a change in the labeling requiring strict monitoring of liver function. In 2000, however, Rezulin was pulled from the market.

The Rezulin setback and the lack of any blockbusters in the pipeline that were close to market provided the impetus for Warner-Lambert's acquisition of Agouron Pharmaceuticals, Inc. for about $2.1 billion in stock in May 1999. Agouron had been founded in 1984 by several University of California at San Diego scientists who pioneered in computer-aided drug design. The method employed by Agouron involved first understanding the structure of disease-causing proteins in the body and then using computers to design pharmaceuticals that can inhibit the proteins' activity. Agouron had been focusing its development efforts in the areas of oncology and virology, and its first product was Viracept, one of the so-called protease inhibitors being used to treat HIV/AIDS. Viracept was soon considered the top drug in its class because it was more convenient to use and had slightly fewer side effects; sales thereupon totaled $530 million in 1998. Agouron's product pipeline was filled with promising new drugs, including treatments for cancer, macular degeneration (which affects the eyesight), and the common cold, in addition to more AIDS therapies.

PFIZER'S TAKEOVER OF WARNER-LAMBERT IN 2000

Goodes retired from his position as CEO and chairman of Warner-Lambert in May 1999, with the company's president, Lodewijk J. R. de Vink, taking on Goodes's titles as well. In early November of that year, as drug industry consolidation was continuing, Warner-Lambert agreed to a nearly $70 billion merger with American Home Products Corporation (AHP). Pfizer, not wanting to lose its 50 percent of the revenues from the sale of the blockbuster Lipitor, with sales nearing $4 billion per year, and seeking to bolster its product pipeline through the addition of Agouron, stepped in within hours with a hostile bid exceeding AHP's offer. Warner-Lambert attempted to fend Pfizer off, even bringing in a third party, the Procter & Gamble Company (P&G), to discuss a three-way deal with P&G and AHP. P&G soon dropped out of the picture when its stock price plummeted on news of the talks. Finally, in early February 2000, Pfizer and Warner-Lambert reached agreement on what was initially an $84 billion merger, ending the largest hostile takeover action in U.S. history. AHP received a breakup fee of $1.8 billion, which was believed to be the largest such payment ever made.

The merger was completed in June 2000 in what ended up being a $116 billion stock swap. The combined company retained the Pfizer Inc. name, with the consumer product lines of the two firms combined within a unit called Warner-Lambert Consumer Group. The FTC forced the firms to complete a number of relatively minor divestitures. The new Pfizer boasted pro forma 1999 revenues of $27.3 billion, making it the world's number two drug company, trailing only Aventis. The company had the industry's largest R&D budget, totaling $4.7 billion in 2000, as well as what was generally considered to be the industry's top sales and marketing operation. In terms of prescription drugs, Pfizer marketed eight products with annual sales in excess of $1 billion. The Warner-Lambert Consumer Group was a leading marketer of OTC healthcare, confectionery, and shaving brands, with 1999 pro forma revenues of $5.5 billion. The Pfizer Animal Health Group was the world leader in medicines for pets and livestock, with 1999 sales of $1.3 billion. William C. Steere continued at the helm of Pfizer in the initial months following the merger, but was slated to retire in early 2001 and be replaced by the company's president and COO, Henry McKinnell. The company veteran, who joined Pfizer in 1971, was faced with the challenges of integrating the staffs and cultures of Pfizer and Warner-Lambert, healing whatever wounds might be left over from the bruising takeover battle, and restoring investor confidence in the company's product pipeline. McKinnell was aiming to achieve annual cost savings of $1.6 billion by 2002 through the elimination of redundant activities and the centralizing of such operations as the two companies' distribution systems. Two major product launches were anticipated to occur in 2001: Zeldox, an antipsychotic drug, and Relpax, a migraine treatment.

PFIZER AND PHARMACIA MERGER: 2003

Pfizer's appetite for massive mergers was not sated by the Warner-Lambert deal, making for an eventful start to the 21st century. In the months after the merger, the company quickly integrated Warner-Lambert's consumer products lines into its own and, symbolically, removed the Warner-Lambert name in 2001 from its consumer health division to create "Pfizer Consumer Healthcare," one of seven divisions focused on three broad business segments: healthcare, animal health, and consumer healthcare. The assimilation of Warner-Lambert's assets barely was completed before the company announced another major transaction. In June 2002, exactly two year after the Warner-Lambert merger was completed, Pfizer announced it was merging with Pharmacia Corp. in a $60 billion deal. Approved by shareholders in December 2002 and completed in April 2003, the merger gave Pfizer a new strength in oncology and ophthalmology, expanded its consumer healthcare offerings, and made its animal health business the largest in the world. The merger also made Pfizer the largest drug maker in the world, with annual revenues nearing $50 billion.

In the wake of the momentous merger with Pharmacia, Pfizer applied its energies to its all-important prescription drug business. Lipitor ranked as the company's greatest moneymaker at the time of the Pharmacia merger and as the best-selling drug in the world, generating $8.6 billion in revenue. In the years to follow, demand for the cholesterol-lowering drug only increased, pushing sales past $12 billion by 2005. The drug was expected to generate $13 billion in revenue in 2006. Lipitor was the consummate blockbuster drug, and Pfizer needed to find others of its breed. One potential candidate was inherited through the Pharmacia merger, a painkiller, classified as a Cox-2 inhibitor, known as Celebrex. The drug generated $3.3 billion in revenue in 2004, but hopes for increased sales were dashed when the FDA pulled Merck's drug Vioxx, also a Cox-2 drug, from the market in October 2004. Studies revealed that Vioxx caused cardiovascular problems, which led to a government-run study of Celebrex. The FDA decided against pulling Celebrex from the market—the study found a less definite link to cardiovascular damage and a much lower risk—but concerns about Cox-2 drugs delivered a decisive blow to Celebrex's stature. "Pfizer is now feeling Merck's pain," Business Week noted in its December 20, 2004 issue. Sales of Celebrex fell to $1.7 billion in 2005, severely hampering the drug's chances of becoming the company's next blockbuster.

As Pfizer worked to rehabilitate Celebrex's image, there were several promising products that pointed to a profitable future. In January 2006, the FDA approved the Exubera, the first inhaled insulin therapy to reach the market. Worldwide sales of inhaled insulin products were expected to achieve sales of $4.8 billion by 2010, and Pfizer hoped Exubera would lead the way. Among a host of drugs in the company's development pipeline was Torcetrapib, a drug developed to raise high-density lipoprotein, or HDL, more commonly referred to as "good cholesterol." Pfizer was expected to release data concerning the drug in late 2006. Other candidates slated to be money earners were Aricept, a treatment for Alzheimer's disease, Indiplon, a treatment for insomnia, and Fragmin, a therapy developed for cancer patients.

Marinell Landa; April Dougal Gasbarre

Updated, David E. Salamie; Jeffrey L. Covell

PRINCIPAL SUBSIDIARIES

Pfizer (China) Research and Development Co. Ltd.; Pfizer (Malaysia) Sdn Bhd; Pfizer (Perth) Pty Limited (Australia); Pfizer (S.A.S.) (France); Pfizer (Thailand) Limited; Pfizer A.G. (Switzerland); Pfizer A/S (Norway); Pfizer AB (Sweden); Pfizer Afrique de L'Ouest (Senegal); Pfizer Asia Pacific Pte Ltd. (Singapore); Pfizer B.V. (Netherlands); Pfizer Beteiligungs-G.m.b.H. (Germany); Pfizer Canada Inc.; Pfizer Chile S.A.; Pfizer Corporation (Panama); Pfizer Corporation Austria Gesellschaft m.b.H. (Austria); Pfizer Deutschland GmbH; Pfizer Egypt S.A.E.; Pfizer Export Company (Ireland); Pfizer Group Limited (U.K.).

PRINCIPAL DIVISIONS

Pfizer Consumer Health Care; Pfizer Global Research and Development; Pfizer Animal Health Group; Pfizer Corporate and Divisional Functions; Pfizer Global Manufacturing; Pfizer Global Pharmaceuticals; Pfizer Pharmaceutical Sales.

PRINCIPAL COMPETITORS

Bayer AG; Merck & Co., Inc.; Novartis AG.

Pfizer Inc.

views updated Jun 11 2018

Pfizer Inc.

THE POWER OF ZYRTEC CAMPAIGN
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235 E 42nd St.
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Telephone: (212) 573-2323
Web site: www.pfizer.com

THE POWER OF ZYRTEC CAMPAIGN

OVERVIEW

Pfizer Inc. emphasized the strength of Zyrtec, a prescription antihistamine, with surreal advertisements that showed people fleeing from allergy-inducing animals and flowers, then taking Zyrtec and resuming their normal routines. "When allergies are a nightmare, remember Zyrtec for fast relief," said one print ad. Since its U.S. launch in 1996, Zyrtec had experienced dynamic growth. This was due in large part to changes in the way that prescription drugs were marketed. After the U.S. Food and Drug Administration began allowing pharmaceutical companies to advertise prescription medications directly to consumers, demand for allergy drugs increased dramatically. Early promotions for Zyrtec and its rivals had mystified consumers, because marketers were not allowed to name a drug and specify what ailment it was designed to treat in the same ad. In August 1997 the guidelines for television commercials were revised, and drug companies began airing spots that described their products, their purposes, and possible side effects in more detail. "The Power of Zyrtec" campaign was developed by the Lyons Lavey Nickel Swift advertising agency and the New York office of Health Medical Consumer Advertising & Marketing. The campaign ran in print and broadcast media throughout 1998 and into 1999.

HISTORICAL CONTEXT

Pfizer was founded in Brooklyn, New York, in 1849 when Charles Pfizer began producing chemicals such as citric acid to add flavor to food. Because the company had difficulty obtaining limes and lemons from Italy during World War I, a way was invented to extract citric acid from molasses. The spacious vats used in that process were perfect for making large quantities of penicillin to treat the ill and wounded during World War II. By 1998 Pfizer was manufacturing dozens of drugs, which accounted for 85 percent of its sales. Its prescription medications included Norvasc for hypertension, Zoloft for depression, Zithromax for infection, Viagra for erectile dysfunction, Lipitor for elevated blood cholesterol, and Aricept for Alzheimer's disease. Pfizer also made nonprescription products such as Visine and OcuHist eyedrops, Unisom sleep aids, BenGay muscle rub, Plax mouthwash, Bain de Soleil sunscreens, and medicines for animals.

Zyrtec, first marketed in the United States in 1996, had been sold in other countries since 1987. Available in tablet form and as a fruity syrup, it was designed to be taken only once a day to provide relief from allergies for 24 hours. Ads for Zyrtec emphasized that the product was easy to use and caused only "mild to moderate" side effects, but because of restrictions imposed by the Food and Drug Administration, the brand's first television commercials did not state that Zyrtec was an allergy medication. One spot that aired early in 1997 featured a businessman scaling a rock wall. The camera rose to provide a bird's-eye view, revealing that the wall spelled out the brand name. A three-page print advertisement published in the spring of 1997 was equally surreal but less mystifying. It showed a man in a business suit using a rope to climb a giant sunflower. A headline on the second page said, "Big Allergies. Big Relief." The text promised "BIG relief" and "BIG value—lowest cost/day of widely prescribed branded antihistamines." The third page listed the drug's potential side effects in smaller print. "The Power of Zyrtec" campaign continued to emphasize the product's strength, but it focused on the word "power" instead of using size to convey that message.

TARGET MARKET

Demand for pharmaceuticals in general increased dramatically after drug manufacturers were allowed to advertise their prescription products directly to consumers. The advertisements were part of a larger marketing effort in which sales representatives visited doctors and pharmacists to deliver free samples and discuss the results of clinical trials that measured the performance of each drug. Although doctors and pharmacists were targets of the advertisements, another primary audience was patients who would see the ads, realize that medication appropriate for their health problems might be available, and ask their health care professionals about the drugs. Of 40 million to 50 million U.S. consumers who suffered from seasonal allergies, an estimated 12 percent consulted doctors to alleviate their misery. About 18 percent endured the symptoms without taking any medication, while others relied on over-the-counter remedies available without a prescription.

Seasonal allergy attacks were the body's response to outdoor irritants such as mold spores and pollen from trees and weeds, which caused problems only during certain times of the year. Perennial allergy attacks were typically caused by dust mites, house pets, and other indoor irritants. The body produced a chemical called histamine to counteract the irritants, which caused sneezing, itching, watery eyes, swelling, and other unpleasant symptoms. Market research indicated that people with allergies were most interested in a strong product that would quickly relieve their symptoms. Zyrtec and other remedies known as antihistamines worked by blocking the release of histamine, but the drugs sometimes led to side effects such as rapid heartbeat, headache, or fatigue. Most advertisements for antihistamines explained briefly how the drugs worked, then mentioned the possible side effects as required by law. Ads for Zyrtec and its two major competitors emphasized that they were less likely than many other antihistamines to cause drowsiness. Zyrtec was effective against both indoor and outdoor allergens and could also be used to treat chronic itching and hives. In May 1998 Zyrtec became the first leading prescription antihistamine approved by the U.S. Food and Drug Administration for use by children two to six years old.

COMPETITION

In 1998 the leading brand in the $2 billion U.S. market for allergy drugs was Claritin, made by Schering-Plough Corporation, with U.S. sales of $1.1 billion. Claritin's sales of $908 million in 1997 were more than twice its 1995 revenues. Zyrtec was second with U.S. sales of $355 million in 1998 and $250 million in 1997. Allegra (made by a German company, Hoescht AG) was third in 1998 with U.S. sales of $324 million, up from $201 million in 1997 and $22 million in 1996. Flonase (an antiallergy nasal spray manufactured by a British company, Glaxo Wellcome PLC) had U.S. sales of $207 million in 1997. As sales skyrocketed, companies significantly increased their advertising budgets. The industry's direct-to-consumer advertising totaled $595.5 million in 1996, $843.9 million in 1997, and more than $1 billion in 1998, according to Competitive Media Reporting.

PRODUCT DEVELOPMENT

Pharmaceutical companies often spent hundreds of millions of dollars to bring a drug to market, but only 30 percent of drugs approved by the federal government generated sufficient sales to make a profit. To increase the probability that a product would be successful, Pfizer's marketing team had an unusual amount of influence over which drugs the company would develop. When a new product was under consideration, the marketing staff ran complex cash flow models to predict how factors such as the drug's side effects might increase or decrease sales. If the analysis indicated that the company was unlikely to recoup its development costs, the drug was seldom placed on the market. Pfizer also employed more than 5,000 sales representatives to distribute free samples of its products and to discuss a drug's efficacy with doctors.

Schering-Plough spent $69 million to advertise Claritin in 1997, up 21 percent since 1996, with $31.2 million going for network television commercials. Launched in the United States in 1993, Claritin had worldwide sales of $1.73 billion in 1997 and was the most popular antihistamine in the world by 1998. At that time it controlled more than 50 percent of the U.S. market. Schering-Plough was one of the first pharmaceutical companies to run advertising campaigns aimed at consumers, and Claritin was the first prescription product advertised on prime-time television after the Food and Drug Administration revised its direct-to-consumer advertising guidelines in 1997. Some of the brand's advertising in 1998 included appearances by Joan Lunden, host of the television program Good Morning America. These were the first direct-to-consumer advertisements in which a celebrity was allowed to endorse a prescription product.

Claritin's extensive promotional program included the "Blue Skies" campaign of print advertisements and television commercials, introduced in August 1997. An advertisement in Money magazine in March 1998 showed a profile of a woman's face gazing serenely at a powder-blue sky where a Claritin tablet hovered like the sun, complete with a pink and blue halo and white rays radiating outward. The headline read, "Escape the limitations of seasonal allergies." The ad urged consumers to ask their doctors about Claritin, a drug that would not make them drowsy and could be taken just once a day. The text emphasized that Claritin was the leading prescription antihistamine, that it caused few side effects, and that it was available only by prescription. The ad included the company's Internet address, a toll-free number to call for more information, and the tag line, "Nothing but blue skies from now on."

The third most popular prescription antihistamine, Allegra, was promoted with television commercials in which people exclaimed, "Ah, Allegra!" Ads for Allegra emphasized that the medication could enable allergy sufferers to experience outdoor adventures even during allergy season. Whimsical television commercials showed people wind surfing through a wheat field, snorkeling through a field of flowers, and skiing through a meadow in the summertime. Like Zyrtec, Allegra was introduced to the United States in 1996, three years after Claritin's launch. In 1997 Hoechst spent $64 million to advertise Allegra, a 220 percent increase since 1996, with $17.2 million going for network television commercials. Allegra had worldwide sales of $215.1 million in 1997, up from $17.3 million in 1996.

Hoechst also made Seldane but voluntarily discontinued that popular allergy medication early in 1998 because it caused serious heart problems if consumers took it with certain other drugs. Seldane had been launched in 1985 and was one of the first major prescription drugs promoted with direct-to-consumer advertising. After the Food and Drug Administration proposed in 1997 to remove Seldane from the market, Hoechst spent more than $20 million on advertisements that invited consumers to try its other antihistamine, Allegra, "a seasonal allergy medicine with the relief of Seldane but with more freedom." Meanwhile, the makers of Claritin ran two-page newspaper advertisements that said, "Seldane may no longer be an option. Claritin is a clear choice."

Zyrtec also competed with numerous nonprescription allergy drugs such as Nasalcrom, made by Pharmacia & Upjohn, Inc. A headline in a 1998 magazine advertisement said, "The best way to stop suffering is don't start!" The ad explained in detail that Nasalcrom could "flat-out prevent allergies" within a week of continual use, and the product caused no drowsiness or other unpleasant side effects. The text added, "It's so safe you can buy it without a prescription, at full prescription strength, and use it through the whole allergy season." The tag line was "Allergy prevention pure and simple."

MARKETING STRATEGY

In August 1997, when the Food and Drug Administration revised the guidelines that governed television commercials for prescription drugs, pharmaceutical companies were allowed to expand the content of their advertisements. Pfizer could move beyond its vague references to Zyrtec's "big relief " and discuss in some detail the product's effectiveness as an antihistamine. The Food and Drug Administration dictated that television commercials for prescription drugs had to explain some of the major risks that could result from taking the drugs. In addition, the commercials had to inform consumers where they could obtain more information regarding who should take the medication, how it would affect them, and what side effects it might cause. Because of the complexity of the regulations and the brevity of television commercials, most spots promoting prescription drugs were so-called "reminder" ads that did not go into much detail. Instead, they were designed to familiarize the public with the brand and encourage consumers to ask for it by name when they visited their health-care providers. Print advertisements were required to describe the uses, benefits, and risks of each drug in much more detail. They often included a second page of small type that provided much of the same information typically inserted into the drug's package for use by doctors and pharmacists.

Like earlier ads for the brand, "The Power of Zyrtec" campaign featured intriguing, surreal images. One television commercial used special effects and computer graphics to show a man opening his front door and facing the "nightmare of allergies." Pollen-producing vines and flowers grew in seconds from the cracks in his brick walkway. Dogs and cats joined the looming, threatening plants as they chased the man through his house. He ran into his bathroom and found a package of Zyrtec. The nightmarish plants and animals ran back outside, and the man went on with his day, protected by "the power of Zyrtec." The campaign included extensive print advertisements. One magazine ad featured a photograph of a man fleeing through his house, pursued by a dog, cat, flowers, and a vacuum cleaner. The headline read, "When allergies are a nightmare, once-a-day Zyrtec starts working fast." A smaller photograph showed the man hugging the same dog after taking Zyrtec. Another television commercial showed a woman encountering a poodle and then sneezing. A mob of animals came running from numerous doorways as she fled down a corridor. She rushed into a room, slammed the door behind her, and swallowed a Zyrtec tablet. In great relief, she went outside and met a woman carrying a poodle. The poodle sneezed, and the allergy sufferer smiled.

Direct-to-consumer advertising and other promotions for Zyrtec were handled jointly by Lyons Lavey Nickel Swift (a unit of Omnicom Group) and the New York office of Health Medical Consumer Advertising & Marketing. In 1997 Pfizer spent $103 million to advertise its prescription drugs directly to consumers, according to Competitive Media Reporting. Its advertising budget for Zyrtec was $53.5 million that year, with $4.5 million going for network television commercials. During the first five months of 1998, Pfizer spent more than $12.3 million to advertise Zyrtec, Schering-Plough spent $11.1 million to advertise Claritin, and Glaxo Wellcome spent $7.3 million to advertise Flonase, according to Scott-Levin's Direct-to-Consumer Advertising Audit.

OUTCOME

In February 1999 "The Power of Zyrtec" campaign won Health Medical Consumer Advertising & Marketing first place in the International Mobius Competition's pharmaceutical category. In September 1998 a nationwide survey of 2,000 physicians found that when patients asked for a drug by its brand name, they most often requested an allergy medication. Zyrtec, Claritin, and Allegra were among the four brand-name drugs requested most often. Three years after its introduction to the United States, Zyrtec was the second most popular prescription antihistamine in the United States. It had worldwide revenues of $416 million in 1998, up from $265 million in 1997 and $146 million in 1996. Forbes magazine reported that the wholesale drug market in the United States generated record revenues of $81 billion in 1998, an increase of more than 60 percent since 1994. Pfizer's pharmaceutical sales increased three times faster than the industry average. In 1998 the company had overall revenues of $13.5 billion, including $12 billion in drug sales, an increase of 26 percent since 1997. For the second consecutive year Fortune magazine included Pfizer on its list of the world's most admired companies. Forbes magazine named Pfizer the "Company of the Year" in January 1999. Chief Executive magazine listed the board of directors at Pfizer among the top five in the nation. At the end of 1998 Pfizer was the third largest pharmaceutical enterprise in the world, up from thirteenth in 1990.

SCHICK TRACER FX ADS CAMPAIGN

OVERVIEW

NOTE: Since the initial appearance of this essay in the 1999 edition of Major Marketing Campaigns Annual, Warner-Lambert was acquired by Pfizer Inc. The essay continues to refer to the company's former name, as that was the official name of the organization when the campaign was launched.

In 1995 Schick, a unit of the Warner-Lambert Company since 1970, introduced the Tracer FX, a permanent razor that was designed to alleviate shaving irritation. The product was targeted at young men with sensitive skin and was positioned against the Gillette Company's Sensor Excel, which incorporated a number of high-tech safety and comfort features. To launch the Tracer FX, the J. Walter Thompson advertising agency created a campaign that showed the model Magali shaving her face and flirting with male viewers. The ads were a hit, but the Tracer FX itself did not live up to consumers' expectations, and once the launch campaign had run its course, Schick shifted its marketing focus to other products.

By mid-1997, however, the Tracer FX was back in the spotlight as Warner-Lambert launched a $100 million global campaign to burnish the overall Schick image among younger consumers. J. Walter Thompson developed the new campaign, highlighted by slick television spots relaunching the Tracer FX with the tag line "The Feel of Smart Design." The spots featured hard-hitting sound tracks and male athletes using high-performance equipment—a pitch to the consumer who it was hoped would choose the Tracer FX. Schick also continued its ongoing association with the National Basketball Association (NBA), focusing particularly on rookie players. By 1998, in an intensely competitive and growing shaving market, the Tracer FX was enjoying a significant increase in sales worldwide.

HISTORICAL CONTEXT

From 1923 on, the Gillette Company was the leading manufacturer of razors, holding steady at about 65 percent of the wet-shaving market throughout the twentieth century. Schick was consistently a distant second to Gillette in razor sales, historically with about 15 percent of the overall market. And while Gillette was a product innovator, Schick was a follower, albeit a fast one.

In the mid-1970s the Bic Corporation shook up the shaving market with its introduction of the disposable razor. Gillette quickly developed its own disposable razor, a move that Schick followed. By the late 1980s disposables represented 60 percent of all razors sold, and because the profit margin on these units was low, shaving product companies began looking to create alternative sales with permanent razors. In 1990 Gillette introduced the Sensor, a high-tech, premium-priced razor with two independently suspended blades that were designed to give a "contoured" shave. The company took a risk by spending large sums to develop the product. It then increased its marketing budget by more than 40 over the previous year, throwing nearly all of its advertising behind the Sensor and abandoning its advertising for disposable razors. The strategy worked as men picked a closer shave and a higher price over cheaper convenience. As Lawrence Ingrassia reported in the Wall Street Journal in 1990, "Gillette says it sold 20 million Sensor razors in its first eight months on the market, which was its original goal for the entire year." The shaving wars of the 1990s had begun.

Schick saw the wisdom of selling an appealing, premium permanent razor, and in 1991 the company came out with the Tracer, a variation on the Sensor and an attempt to capture some of Gillette's market. The Tracer was described as a razor with blades that adjusted "to follow the unique contours of your face"—terms that essentially paraphrased the description of the Sensor—and it was aimed at what Schick called "young, active, risk-takers." Schick put a reported $12 million toward advertising for the Tracer and an additional $17 million into waves of hard-hitting promotions that included product samples, coupons, and rebates. Bruce Cleverly, a marketing vice president for Gillette, told the Wall Street Journal that his company was "delighted" that Schick was introducing a new permanent razor system, as it "reinforces the success of our business strategy." Meanwhile, Gillette countered Schick's move with coupons of its own and stepped up its ad campaign with the tag line "Gillette: the best a man can get."

By late 1993 Chain Drug Review was stating that "retailers say that in general men are demonstrating heightened interest in their appearance and a greater willingness to broaden the range of grooming products they buy. Manufacturers have responded with line extensions and a slew of value-added promotions." Manufacturers did indeed respond. In 1994 Gillette introduced the Sensor Excel, which had a rubber strip and other innovations that promised a closer, safer shave. The item was a tremendous success and was often credited with driving an overall boost in sales of shaving products during the 1990s. Schick's Tracer FX followed in 1995. Like the Sensor Excel, the Tracer FX also represented a product upgrade with advanced technology. But rather than focus on technological superiority and safety as the Sensor advertising did, Schick chose to pursue the niche of men with sensitive skin. Mediaweek quoted a Schick senior product manager as saying that the improvements on the Tracer answered "an important consumer need."

The razors themselves featured flexible blades, a skin-conditioning strip with aloe and vitamin E, a rubber skin guard, and an ergonomically designed handle. These attributes, while similar to the Sensor's, were used to distinguish the Tracer FX as the only razor designed specifically for sensitive skin. At the same time the brand's high-tech name and special packaging put it in direct competition with the design advancements of the Sensor Excel. In addition to capitalizing on a niche market and competing with the Sensor Excel, the Tracer FX also afforded Schick more shelf space in retail outlets. Too, the Tracer FX's packaging and marketing were used to distinguish the brand from other, less expensive Schick products.

For the Tracer FX launch in 1995, Schick ran the Magali ads. After an initial surge, sales dropped off, however, and Schick discontinued the campaign. Then, in 1997 the Tracer FX was relaunched (with a slightly revised design) as part of an overall master branding effort, this time carrying the tag line "The Feel of Smart Design." The $100 million Schick put toward its overall campaign in 1997 and 1998 represented a tremendous increase in spending on advertising, which in the previous year had been estimated at approximately $70 million.

TARGET MARKET

The same brand of razors was typically not marketed to both men and women, and the initial target for the Tracer FX was men with sensitive skin. Men in general accounted for about 70 percent of razor sales in the United States, and Schick's research found that more than 50 percent of men felt that they had sensitive skin. Those identifying themselves as having sensitive skin skewed slightly younger than average—18 to 34.

For its branding campaign Schick used the relaunch of the Tracer FX to position itself as hipper and trendier than the broad-based Gillette and to draw in younger men. In 1997 a Warner-Lambert vice president explained to Stuart Elliott of the New York Times, "Our target has been more of a general audience of males 18 to 54. Now we are focusing on a younger target audience, 18 to 24."

COMPETITION

In the world of razors Gillette was the name marketers had to contend with. In fact, Gillette's preeminence in the market was so complete that in some countries the very name had become synonymous with "razor." Gillette built its dominance by aggressively anticipating trends and constantly developing high-quality products in all niches of the shaving market. The company's research and development of products was a model for the industry, and Gillette often spent many years and millions of dollars before introducing a new item. In the 1970s Gillette shrewdly began protecting its ideas by designing products that required complicated machinery for their production and thus were difficult for competitors to copy.

When the Sensor—with its independently suspended blades—was introduced in 1990, it had gone through a decade of development and had cost Gillette $200 million, including the equipment needed to manufacture it. Schick later won rights to the Sensor patent but was unable to replicate the product because the company did not have the laser-welding machinery needed to reproduce the Sensor technology. Although Schick captured some market share with the Tracer and Tracer FX, its premium-priced products never caught up with Gillette's Sensor and Sensor Excel.

MARKETING STRATEGY

Following the Magali campaign, Schick conducted extensive research and found that younger men were dissatisfied with the shaving products available to them. These men were more than willing to try alternatives and were even seeking new products. With the opportunity open to build brand loyalty among a group still forming its shaving habits—men 18 to 24—Schick relaunched the Tracer FX with an image campaign. "The Feel of Smart Design" was reflected in the ads, which dispensed with the traditional man-at-the-sink shaving spots. Instead, a high-performance sports image was employed to appeal to the target audience and to draw a link to the improved control offered by the new product.

BETTER ADVERTISING THAN TECHNOLOGY

When the Tracer FX was originally launched in 1995, it was positioned to appeal to shavers on the basis of skin sensitivity rather than on the technological advancements around which the rival Gillette Company touted its Sensor products. The television spots showed 19-year-old French fashion model Magali lathering up her face and shaving it as she teased male viewers about their shaving woes. Magali purred lines like "You guys are so sensitive." Or, as she shaved under her chin, she asked, "Is this the sensitive part, right here?" The voice-over interspersed bits of information about the razor's design "for a smooth shave with less irritation." Magali finished the ads by wiping water from her upper lip and saying, "Are you the sensitive type? I like that."

The Magali campaign was considered a success in launching the Tracer FX. The ads generated media attention, and trial sales of the handle and initial blade were good. Manufacturers realized their greatest profits in repeat sales of blades, however, and because the product did not perform especially well, the Tracer FX failed to win over long-term customers. A J. Walter Thompson executive said, "The advertising worked, but the technology didn't."

Sports popular with younger men formed the motif for the campaign. The artistic, stylized television ads, which showed athletes windsurfing, skateboarding, skiing, golfing, and performing other feats, were fast paced. They had techno-rhythm music in the background and a dark contemporary look. J.J. Jordan, a J. Walter Thompson vice president, told the New York Times, "There are hallmarks of great, functional design, especially for men, in the world of sports," and the Schick ads "clearly communicate" that spirit. For instance, a diver bouncing off a board into a pool paralleled the "flexing action" of the Tracer FX. Jordan also explained that the ads conveyed the idea that the product was "distinctive, [looked] cool and [had] a smart reason for being that way." Since good design was a central concept of the campaign, it was thought that older customers would not be put off by the spots and might even find them appealing.

In tandem with the advertisements, Schick continued its ongoing sponsorship of the NBA Rookie Game and recruited spokesmen from among the players. The company also became the premier sponsor of the NBA's website and launched a website for Schick separate from the Warner-Lambert site. Special promotions, such as a package of Tracer FX razors and a free can of another company's shaving gel, helped sales in 1998 as well.

OUTCOME

Schick's overall branding campaign was considered to be a success, with the Tracer FX in particular catching consumers' attention. In a review of shaving products, a writer for the Los Angeles Times said that the "smooth Tracer FX handles like a Porsche on the Grande Corniche." Throughout 1998 sales of Schick's Tracer FX system and refills grew. In addition, the introduction of the Schick Protector bolstered the brand's market share. The Protector, with a new technology of wire-wrapped razors and a striking, curvy red handle, was touted as a product for sensitive skin and was intended to compete with Gillette's forthcoming MACH3. By 1999 Drug Store News was reporting that "though Gillette dominated the refill razor category, Warner-Lambert's Schick showed strong increases for 1998, a performance attributed to relaunches and strong ad support." Shaving systems generally were Warner-Lambert's best-performing category for 1998.

Despite these successes, however, Gillette's 1998 introduction of the MACH3 overshadowed all other developments in the shaving category. Gillette spent a reported $750 million to develop the MACH3's ultra-thin, diamond-carbon-coated blades. The investment paid off. Launched in mid-1998, the MACH3, which was more expensive than the Sensor or Tracer lines, ranked third in sales for the year.

SEE YOU LATER, ALLIGATOR CAMPAIGN

OVERVIEW

NOTE: Since the initial appearance of this essay in the 1998 edition of Major Marketing Campaigns Annual, Warner-Lambert was acquired by Pfizer Inc. The essay continues to refer to the company's former name, as that was the official name of the organization when the campaign was launched.

In 1990 the Warner-Lambert Company began an advertising campaign that starred eye-catching alligators to illustrate the beneficial properties of its product, Lubriderm Hand and Body Lotion. The campaign, which continued throughout the 1990s, featured the reptiles walking or swimming near beautiful women who had soft, moisturized skin. To emphasize that the alligators were metaphors, the J. Walter Thompson ad agency used stark settings with white backgrounds that symbolized the clean feeling of Lubriderm lotion. Because most other advertisements for hand and body lotion centered on women applying the product to their skin, the unusual alligator campaign set Lubriderm apart from its many competitors. The ads emphasized the therapeutic and cosmetic properties of the brand by contrasting the scaly skin of alligators with the smooth skin of the women using Lubriderm, and they created an icon that would make consumers think of

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Lubriderm when they needed a moisturizer. The company credited the ad campaign with helping to heighten customer awareness of the brand and increase sales.

HISTORICAL CONTEXT

Lambert Pharmaceutical Company had been established in 1881, and Warner Drug Company had been founded in 1886. The two companies merged in 1955. Warner-Lambert became one of the world's largest marketers of prescription drugs, consumer health products, and confectionery. In 1997 the company's products included Listerine mouthwash, Trident and Dentyne gum, Certs breath mints, Benadryl antihistamine, Sudafed nasal decongestant, and Schick shavers. The original Lubriderm hand and body lotion had been developed in 1946 as a compounding base for dermatologists, and in 1950 Warner-Lambert began marketing the product to pharmacists in the United States. Lubriderm was first marketed to the general public in 1980. During the next two decades, the company introduced several line extensions including a body bar, a loofah bar, a bath and shower oil, a moisturizing gel cream, and a lotion for sensitive skin. Some of those products were subsequently discontinued.

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Because the first ads for Lubriderm had been aimed at dermatologists, they had focused on its therapeutic value as a remedy for dry skin. Later, when the product was sold directly to consumers, advertisements mentioned its cosmetic value as a lotion that could improve the appearance of skin, but the fact that it was recommended by dermatologists was still an important element in the marketing strategy. Advertising campaigns helped publicize each line extension as it was introduced. The basic Lubriderm formula was upgraded in 1996, new graphics were designed for the product's packaging, and new advertisements were developed in 1997 to promote the reformulated base lotion.

TARGET MARKET

Lubriderm was sold primarily to women 18 to 49 years old, but a line extension was being developed for launch in 1998 for women slightly older who were concerned about the aging effects of the sun's ultraviolet rays. A large percentage of the general population suffered from some degree of dry skin, and more than 80 percent of women in the United States used hand and body lotion once or twice daily. Consumers wanted a long-lasting product that would soothe and moisturize without leaving a greasy residue that would rub off on their clothing.

By emphasizing that Lubriderm was the brand of skin and body lotion most often recommended by dermatologists, Warner-Lambert called attention to the product's therapeutic, healing qualities. The ads also pointed out Lubriderm's cosmetic benefits by showcasing beautiful models with smooth, radiant skin. The campaign assured women that the lotion would feel clean, not greasy or clammy, and many of the ads mentioned water or showed photographs of it to emphasize Lubriderm's ability to hydrate the skin.

COMPETITION

Traditionally, mass-marketed lotions had been advertised with an emphasis on their cosmetic benefits—such as making skin soft and attractive-while premium lotions that sold for a somewhat higher price had stressed their therapeutic, healing properties. Lubriderm products had 5.6 percent of the premium market in the United States, putting the brand in third place in the hand and body lotion category. The top-selling lotion was Vaseline Intensive Care, made by Chesebrough-Pond, a division of Unilever. In second place was Jergens, made by Andrew Jergens Company, a subsidiary of Kao Corporation. Other major competitors included Suave Skin Therapy Lotion, made by Helene Curtis, Inc., another division of Unilever; Curel, made by Bausch & Lomb, Inc.; and Nivea, made by the Beiersdorf Company. Annual revenues in the hand and body lotion category totaled $808 million.

The Procter & Gamble Company's Oil of Olay brand led a related category, facial skin care, with a market share of 24.5 percent. L'Oreal's Plenitude brand had 17.1 percent, and Unilever's Pond's brand had 14.7 percent, according to Information Resources, Inc. The world's best-selling brand of skin care products was Nivea, but in the United States the brand's top line extension, Nivea Visage, was ranked sixth with only 4.5 percent of the facial skin care market. In 1997 Beiersdorf ran a $20 million campaign on television and in print media with the tag line "Nivea Brings Your Face to Life. Nivea Brings Your Skin to Life." Samples of the product were distributed in conjunction with the ad campaign. After the ads ran, Nivea's annual sales were $21.5 million, an increase of 5.2 percent.

Another facial skin care brand, Revitalift, was promoted in 1997 by a $25 million ad campaign. The antiaging cream, which was part of L'Oreal's Plenitude line, had led the category in 1996. The corrective, anti-wrinkle cream category had been pioneered during the early 1990s and was the most rapidly expanding segment of the skin care market. It served primarily women who were at least 40 years old. Also in 1997 L'Oreal Plenitude FUTUR.e, a moisturizer that contained vitamin E, was launched with a $20 million advertising campaign on television and in print media.

The top-selling hand and body lotion, Vaseline Intensive Care, was publicized in March 1997 with Chesebrough-Pond's sixth annual "Skin Awareness Month." The $6 million promotion featured advertisements in the magazines Better Homes & Gardens, Woman's Day, Family Circle, Good Housekeeping, Reader's Digest, and TV Guide. A toll-free consumer hotline, referrals to dermatologists, and displays at retail outlets were also included. Other advertisements for the brand used sandpaper to represent the feeling of dry skin. Products in the Vaseline Intensive Care line had been reformulated in 1995, the brand's packaging had been redesigned, and its advertising budget had been increased to $25 million, up from about $8 million previously. In addition to hand and body lotion, Chesebrough-Pond offered a line extension called Vaseline Intensive Care Moisturizing Body Wash.

Commercials for the second-place brand in the hand and body lotion market, Jergens, focused on the touch-ably soft skin of a mother and her daughter. The company also offered line extensions in closely related market categories. The company had invigorated the $158 million liquid body cleanser market with the introduction of Jergens Refreshing Body Shampoo in 1994. The next year it launched Jergens Naturals with Baking Soda Deodorant Skin Care Bar. For consumers who preferred products that cleansed and moisturized at the same time, Jergens had introduced a water-activated gel called Shower-Active Moisturizer. The company had also restaged Jergens Aloe & Lanolin and Vitamin E body wash bars.

PHARMACEUTICAL INNOVATION

During the 1800s William R. Warner, one of the founders of Warner-Lambert Company, invented sugar-coated pills to mask the bitter taste of medicines. In 1879 the company's other founder, Jordan Lambert, developed the first surgical antiseptic, which saved the lives of many patients undergoing medical operations. By 1997 the product had become the world's most popular mouthwash, Listerine Antiseptic.

Another competitor, Procter & Gamble, led the body wash category in 1996 with a market share of nearly 30 percent, thanks largely to its Oil of Olay 2-in-1 Moisturizing Body Wash. Its $50 million marketing plan revolved around the tag lines "You May Never Need a Body Lotion Again" and "Moisturized Skin No Bath Bar Can Touch." During 1997 Procter & Gamble continued its Marketing Breakthrough 2000 program, which had been launched in 1995 in an attempt to lower marketing costs from 25 percent to 20 percent of net sales. For the fiscal year ended June 1997, the company's marketing costs were 24.3 percent, up from 24.1 percent in the previous year. By the end of 1997 Procter & Gamble had abandoned the program, but it was still cutting costs, including its advertising budget.

MARKETING STRATEGY

Like many of its competitors, Warner-Lambert had developed line extensions of its original hand and body moisturizer over the years. But in 1997 the Lubriderm bath and shower oil, body bar, and loofah bar were discontinued, and marketing efforts concentrated on the basic skin therapy lotion, which had been upgraded in the previous year. A campaign budget of $16 million was allocated for television and print advertisements in the United States. "Big Drop," the only television spot that aired during 1997, began with a woman's face reflected in a drop of water while she asked, "What exactly is clean moisture? Well, it's what you'll find in a new, even better Lubriderm." The drop of water reflected the words "New, Clean Moisture Formula" and the Lubriderm logo on a bottle of lotion. The camera panned across the woman running her hands over her arms, legs, and shoulders while she continued, "And it's best defined by a feeling. A feeling that's almost invisible on your skin. One that feels distinctly less greasy, even though it's working every bit as hard as always. So it's recommended by dermatologists even more than before. New cleaner-feeling Lubriderm." The drop of water reflected more words from the Lubriderm bottle and the woman's face, and finally the drop fell into an alligator's eye. As the reptile strolled away, the woman's voice concluded, "See you later, alligator. Hello, clean moisture." The commercial aired primarily on network television during the day and during prime time, but it also ran on cable and syndicated television.

During 1997 several print ads also ran in magazines with large female readerships, such as Better Homes & Gardens and Cosmopolitan. One ad featured a model in a pose that emphasized her bare arms and legs as she lounged beneath the words, "Moisturizers and dieting. Live by the same rules. If it's greasy, stay away." Another ad read, "Your moisturizer shouldn't make you feel clammy all over. That's what first dates are for." A third said, "Some moisturizers act like your ex-boyfriend. A little too clingy." In each ad smaller type at the bottom read, "Lubriderm's clean moisture formula is a hardworking, fast-absorbing lotion that helps get rid of dry, ashy skin without feeling greasy or clingy. That must be why it's the #1 leading moisturizer recommended by dermatologists." Each print ad featured a picture of a bottle of Lubriderm lotion next to the tag line "See you later, alligator," but none actually showed the alligator.

The company developed at least one new spot each year in the "See You Later, Alligator" campaign, and there had been variations on the central theme since the advertisements were introduced in 1990. One of the first television commercials had featured attractive women swimming underwater with live alligators. Another showed models and alligators in surroundings that looked like glamorous bedrooms. All the spots referred to the alligator in some way, but by 1997 the creature had become a signature at the end of some television spots instead of the central figure it had played in earlier commercials. In some spots the alligator made only a brief appearance, walking away as the tag line "See You Later, Alligator" was spoken. Other spots featured the alligator throughout.

ROFESSIONAL RECOGNITION

In 1997 the advertising industry bestowed an ADDY Award for excellence on "Smart Woman," a print advertisement in the "See You Later, Alligator" campaign for Lubriderm hand and body lotion.

The idea of using alligators as an eye-catching visualization for rough, scaly skin had originally been suggested by a copywriter at J. Walter Thompson. Alligators are frequently thought of as being dry, rough, and scaly. In addition, "See you later, alligator" is a familiar phrase, an informal way of saying good-bye. Therefore, the tag line invited the consumer to say good-bye to dry skin by using Lubriderm. In developing the advertisements, the challenge was to achieve a highly stylized tone yet deliver a message to which consumers could relate. The simple white backgrounds of the ads helped emphasize the clean, nongreasy nature of Lubriderm lotion, and the campaign emphasized that Lubriderm was the brand most often recommended by dermatologists. "Lubriderm always tries to stand for the highest standard of therapeutic moisturization. We're not the housewife in the kitchen talking about dry elbows," said Wendy Trees, an account executive with J. Walter Thompson. Because the ads were strikingly different from those of Lubriderm's numerous competitors, they helped the brand stand out and created a memorable image that would make consumers think of Lubriderm when they thought of relieving dry skin.

OUTCOME

It took time for consumers to become accustomed to the alligator ads and to associate them with Lubriderm after the campaign was launched in 1990. But the company stayed with the same advertising theme, and eventually the alligator became Lubriderm's signature. "Consumers love the alligator. Our sales have increased since we've been using it. It's highly effective," said Trees. In a 1997 survey by USA Today's Ad Track, 22 percent of respondents said the ads were effective, although only 11 percent said they "liked the ads a lot." Respondents 18 to 24 years old gave the campaign higher scores; 36 percent said it was effective, and 26 percent said they liked the ads. Only 8 percent of men liked the ads, compared to 13 percent of women. Nearly half of the 1,002 respondents recalled seeing the ads at least three times.

Warner-Lambert reported record income in 1997, including a 1 percent increase in its $1.4-billion U.S. consumer health care operations. That segment of the company had grown 3 percent in 1996. The company's worldwide sales were $8.2 billion.

SUPER FANS CAMPAIGN

OVERVIEW

With a budget estimated at $20 million and a campaign overseen by J. Walter Thompson USA of New York, the Warner-Lambert Company in mid-1998 launched a series of television spots for its Rolaids brand antacid tablets. The campaign, Rolaids' first since 1996, focused entirely on television as opposed to print, and it represented a return to traditional themes for the brand, including an emphasis on sports. Hence the title "Super Fans."

Recent years had seen a number of changes in the highly segmented category of digestives, including an increased emphasis on the calcium content of antacids. Much more portentous for antacids, however, had been the introduction of histamine 2, or H2, acid blockers. Whereas antacids neutralized acids in the stomach, H2 blockers actually stopped the production of stomach acid. According to Advertising Age in 1996, industry experts believed that sales of H2 blockers alone would reach nearly $2 billion by 1998.

With the advent of this innovative over-the-counter treatment for heartburn, Rolaids and its traditional competitors had struggled to keep up with a changing market. "Rolaids is such a classic brand," Christina Villante of J. Walter Thompson told Michael Wilke in Advertising Age at the outset of the 1998 campaign, "but got lost in the last couple of years with the H2 blockers, which really changed the game. Everyone in the category was re-evaluating their advertising, and that cost them equities. But if you ask consumers about Rolaids, they remember the spelling and the sports, so it's a natural to go back to that."

HISTORICAL CONTEXT

The word "spelling" was a reference to Rolaids' classic advertising campaign from the 1970s, "How do you spell relief?" As millions of TV viewers during that decade learned, the proper spelling was "R-o-l-a-i-d-s." Spots dramatized this in numerous ways, for instance with a waitress scrawling the seven-letter name on an order pad or a coach in a locker room spelling it out on a chalkboard. Indeed, the themes of food, sports, and tension repeatedly came together in the heyday of Rolaids advertising, as they would again with the 1998 "Super Fans" campaign.

Warner-Lambert introduced Rolaids in 1954 with a single flavor, peppermint. In 1988 it extended its line to include assorted fruit flavors, but from the beginning its emphasis was on scientific claims rather than on taste. Hence the much-touted promise that "Rolaids consumes 47 times its weight in stomach acid," illustrated in television ads with a dramatization using a simulated Rolaids tablet and a bucket of colored water. The company backed up the claim with detailed information regarding clinical testing and research.

In the mid-1980s, as competitors touted the calcium content in their products, Warner-Lambert let it be known that Rolaids had always contained limestone, which included calcium. The company also touted other health factors in its product, including the fact that Rolaids was aspirin-, cholesterol-, and fat-free.

TARGET MARKET

Assessing the market for H2 blockers and antacids in 1997, Al Heller of Drug Store News could as easily have been citing the potential for the resurgence of antacids when he noted "the ongoing high-stress lifestyle of Americans, which makes stomach remedies as essential a personal accessory as a pen, pager, or credit card. Digestive diseases impair more than 2 million Americans and result in 200,000 absences from work each day, according to the Glaxo Institute for Digestive Health, Digestive Disease National Coalition. As a nation, we experience 32 million new cases of frequent heartburn each year, another 20 million of irritable bowel syndrome and gallstones, and 4 million ulcers."

Warner-Lambert itself conducted a study, the results of which it reported in October 1998. In line with its use of sports imagery in the "Super Fans" campaign, the company undertook what it called the "Rolaids Fanatical Fan Sports Ritual" survey, which found that one of every six sports fans had at some time experienced acid indigestion, heartburn, or sour stomach. The survey found that, of some 100 million sports fans in the United States, one in five described themselves as "fanatical fans" who would "do practically anything to support their favorite teams."

To an extent the survey was tongue-in-cheek, but it also presented a number of realities that served to indicate the target market for Rolaids. A press release announcing the survey results indicated that "fanatical fans" typically experienced the worst indigestion when their teams lost, of course, but win or lose, "the foods that baseball fans traditionally enjoy in large quantities—such as hot dogs and other fatty foods—are also associated with heartburn. During the 1998 baseball season, it was predicted that a record 26 million hot dogs would be eaten in the nation's 30 stadiums."

The somewhat humorous portrayal of sports fans called to mind a popular Saturday Night Live skit from the early 1990s in which comedian Chris Farley and others conducted a talk show devoted exclusively to the Chicago Bears football team and the Chicago Bulls basketball team. In the midst of talking about "Da Bearce" and "Da Bullce," as they called them, Farley and company consumed vast amounts of fatty foods and alcohol, which led to regular "heart attacks" in the middle of the talk show. Ironically, the 33-year-old Farley's own unhealthy lifestyle caught up with him in December 1997, when he was found dead in his Chicago apartment.

HOW DO YOU SPELL ACCOUNT?

In October 1998 former advertising sales representatives of Turner Broadcasting held a 20-year reunion. Among them were Larry Diveny of Comedy Central, Lou LaTorre of Fox Sports Net, and Harvey Ganot and John Popkowski of MTV. Because of another commitment, Ted Turner himself could not attend the reunion, which was held at Denim & Diamonds in New York City, but as Bradley Johnson speculated in Advertising Age, "Ted stories no doubt will abound." Johnson relayed a particularly popular anecdote concerning Turner and Warner-Lambert, makers of Rolaids.

At the time the many sales alums had gone to work for Turner Broadcasting in the late 1970s, Turner was already a well-known millionaire man-about-town in Atlanta, but he was far from the billionaire he would become. There was no Jane Fonda, no CNN, no Turner Classic Movies; indeed, there were few of the fixtures that would come to characterize the Turner legend. Turner's broadcast "empire" consisted of little more than flagship station WTCG (later WTBS) in Atlanta, and cable TV itself was struggling at the fringes. Nor could the industry count on Turner's magnetism to increase its exposure, since Turner himself was not the national celebrity he would later become. But he was well on his way.

WTCG desperately needed the advertising dollars of consumer products giant Warner-Lambert, and Turner managed to get a meeting with the top brass at the company. On the date of the appointment, however, he showed up looking ill, holding his stomach and moaning. He did this until one of the Warner-Lambert executives asked him what was wrong, whereupon Turner—no doubt with a sly smile—said, "I need a Rolaids." He got the account.

The participants in the putative talk show looked like a portrait of Rolaids' target market: middle-aged men who lived a high-tension lifestyle. Of course, Rolaids was also marketed to women, but the greater presence of male figures in commercials suggested a heightened focus on men. Age was also a factor, for as Heller noted, future increases in the digestives market would "be fueled by the continued aging of baby boomers, who have greater needs for the products as they cross the 50-year threshold."

COMPETITION

Perhaps it was fitting that in a market in which sales were motivated in part by physical and mental tension among users, competition itself was tense. Among Rolaids' many competitors were the liquid antacids Maalox, produced by Ciba-Geigy, and Procter & Gamble's Pepto-Bismol. Even more direct competition came from SmithKline Beecham's Tums, like Rolaids a chewable antacid.

When the calcium craze hit during the 1980s, Tums took advantage of the new trend not by changing its product—which already contained calcium—but by touting that fact aggressively in its marketing efforts. This led to a staggering 50 percent increase in sales during 1985, knocking Rolaids out of first place among antacids. Warner-Lambert responded by producing a sodium-free version of Rolaids and by introducing calcium supplements, but its marketing placed much less emphasis on calcium content than did the advertising for Tums.

A decade later, not only Rolaids but all traditional antacids were reeling from the introduction of entirely new competitors: H2 blockers, led by SmithKline Beecham's Tagamet HB. As Leon Jaroff of Time wrote in 1995 in describing Tagamet's forceful marketing, "Suddenly a roar issues from the TV set. On the screen, a giant tongue of flaming gases erupts from the sun, and one bold statement after another is superimposed on the solar surface: 'The idea behind it led to the Nobel Prize in Medicine,' reads the first, followed by, 'It's the most prescribed medication of its kind.' … Then, against the glowing corona of a totally eclipsed sun, 'And now it's available without a prescription.' "

Introduced in 1977, Tagamet enjoyed patent protection for 17 years, and during the 1980s it became the first drug ever to earn $1 billion in a single year. But as the end of the patent approached in the early 1990s, SmithKline Beecham applied for and received federal approval for an over-the-counter version. Around the same time Johnson & Johnson/Merck presented Pepcid AC, and British pharmaceutical company Glaxo Wellcome introduced Zantac 75. Warner-Lambert held U.S. marketing rights for the latter, but at the same time it also began to market Rolaids more aggressively.

By 1996, when Warner-Lambert launched a new advertising campaign for Rolaids, the fortunes of the once-powerful brand had fallen greatly. Having fallen from first place a decade before, it now held just 4.6 percent of the $1.45 billion digestives market, placing it 10th after Pepcid AC, Tums, Mylanta (McNeil Pharmaceuticals), Tagamet, Imodium (McNeil), Pepto-Bismol, Zantac 75, Maalox, and Alka-Seltzer (Bayer). Of the growth in H2 blockers, a Warner-Lambert executive told Chain Drug Review, "I can't think of any one category that has grown like this."

MARKETING STRATEGY

During the late 1990s still more H2 brands entered the market, and antacid manufacturers in 1996 spent a total of $55 million in advertising to shore up their brands by "setting them apart from the many acid blockers," as Wilke wrote in Advertising Age. A brand manager for Maalox told him, "It's self-preservation from the OTCs [over-the-counters] against the H2s." Of that $55 million, Warner-Lambert devoted a hefty portion—$14 million—to a new Rolaids campaign orchestrated by J. Walter Thompson.

Rolaids, which had recently added magnesium to its product, used advertising to highlight quick relief and acid absorption. Still sales declined, and by early 1997 Rolaids had less than a 4.4 percent market share. Worse news appeared on the horizon in early 1998 when Pepcid introduced chewable H2 tablets, thus "targeting loyalists of roll antacids such as Tums and Rolaids," according to Tan Sheet.

Hence the change of advertising strategy by Warner-Lambert in mid-1998. The company increased media spending for Rolaids by $6 million, to $20 million, and as Wilke reported, "look[ed] to the brand's past for its first new campaign since 1996." Once again, Rolaids advertising would contain the tag line "R-o-l-a-i-d-s spells relief" and would emphasize sports. The thrust of the advertising would be different, however. The 1970s spots for Rolaids had included sports figures such as then Los Angeles Dodgers manager Tommy Lasorda, whereas the 1998 campaign would poke gentle fun at sports fans themselves. As always, the focus would be on television, with no print ads planned.

Thus in October 1998, when Warner-Lambert reported the results of its "Rolaids Fanatical Fan Sports Ritual" survey, the company noted that "'fanatical [sports] fans' seem to already be fans of Rolaids, as represented in the current Rolaids ad campaign that personifies the fan in action—body painted, cheering, and finding relief from acid indigestion in Rolaids."

OUTCOME

At the time of Rolaids' return to the roots of its classic campaign, Paul Kelly of Silvermine Consulting told Wilke in Advertising Age, "I'm surprised they're abandoning the quick relief message already, since from a marketing standpoint that's how everyone is dividing out." The last phrase presumably referred to the fact that, just as the growth in H2 blockers had tapered off, the decline in antacid sales had leveled off as well. In spite of this settling in the market, however, Rolaids sales had dropped still further by the middle of 1998, when the company adopted its new campaign.

The results of the campaign had not materialized by mid-1999, and the lack of reporting on the subject made it difficult to discern the future direction of Rolaids. As early as mid-1997, when the market was still decidedly bullish on H2 blockers, one industry analyst had suggested to Heller that Rolaids still had a well-defined and assured niche: "There is still a place for conventional antacids in the convenience part of the [digestives] market. It's easier to carry with you a roll of Tums or Rolaids in that form than it is to carry individual doses of Tagamet, which are tablets but not chewables. This is still an important aspect."

Although the advent of chewable Pepcid AC had placed even that aspect of Rolaids' appeal in jeopardy, the time-honored brand enjoyed the support of a company with a long history of marketing consumer products and substantial resources to devote to that marketing. The $20 million Warner-Lambert put into Rolaids in 1998 said volumes concerning how the company felt about its 42-year-old chewable antacid brand.

VIAGRA LAUNCH CAMPAIGN

OVERVIEW

In March 1998 Pfizer Inc., the world's largest research-based pharmaceutical company, won FDA approval of its anti-impotency drug, Viagra. Because of the nature of the condition it was meant to treat, Viagra came to market that April amid a frenzy of publicity, much of which mocked impotency and its treatment. Though the publicity helped Viagra to reach record-setting sales figures before any advertising appeared on behalf of the drug, Pfizer wanted to exert control over the Viagra image. After waiting for the media buzz to wane, the company, along with health-care advertising agency Cline, Davis & Mann of New York, broke its first ads supporting the drug's launch in late June 1998.

The first series of ads, having an estimated price tag of $25 million, were branded print spots featuring older dancing couples and the tagline "Let the Dance Begin." These were followed, in the spring of 1999, by a television commercial featuring former senator and presidential candidate Bob Dole speaking frankly about his experience with erectile dysfunction, as impotence came to be known. The Dole spot, which did not mention Viagra, was complemented by TV versions of the "Let the Dance Begin" ads, which, though they used the Viagra name, included no dialogue or explanation of the product's use. By sidestepping a full explanation and identification of Viagra in these two different ways, Pfizer was able to avoid an FDA-ordered listing of the drug's side effects. The cost of the 1999 television campaign was estimated at $35 million, and the TV spots were supported by the ongoing print segment of the campaign.

Viagra sold extremely well both before and after the advertising campaign's debut, and its introduction, along with the initial advertising behind it, was credited with helping to destigmatize impotency. The focus on elderly people in both the dancing spots and the Dole spots, however, risked alienating younger men. In following years Pfizer attempted to appeal to a broader age range of men by enlisting younger sports celebrities as Viagra spokesmen.

HISTORICAL CONTEXT

Started by immigrant cousins Charles Pfizer and Charles Erhart in 1849, Pfizer helped usher in the age of modern medicine by answering the U.S. government's call, during World War II, to devise a process for mass-producing penicillin. During the early 1960s Pfizer was the primary North American manufacturer of the Salk polio vaccine, and during the 1970s and 1980s an increased commitment to research and development led to the discovery of major medicines and fueled the company's global expansion. During the 1990s the pharmaceutical giant launched blockbuster drugs Zoloft, Lipitor, and Norvasc, among others.

In 1997 the U.S. Food and Drug Administration relaxed its policies regarding the television and radio advertising of prescription drugs, and drug company advertising expenditures increased dramatically as a consequence. Long reliant on marketing drugs primarily to physicians and other medical professionals, pharmaceutical manufacturers now began to advertise their products directly to consumers, much as other consumer goods had always been advertised. Though restrictions remained regarding the disclosure of side effects, and though most companies continued to submit their advertisements for FDA approval before airing them, direct-to-consumer pharmaceutical advertising quickly became ubiquitous in America, putting patients, rather than their doctors, increasingly in the position of deciding which drugs might best satisfy their needs.

In March 1998 the FDA approved Pfizer's anti-impotency drug Viagra, the first easily administered treatment for an affliction widely assumed, until then, to be essentially untreatable. Viagra's groundbreaking and controversial nature, unaided by any consumer advertising, made it an immediate pop-culture phenomenon upon its April launch.

TARGET MARKET

Pfizer allowed the initial media buzz to abate somewhat before launching its first advertisements on behalf of Viagra in late June 1998, a delay which likewise allowed for FDA approval of the ads. Some questioned the necessity of advertising a drug that seemed fully able to sell itself, but Pfizer, enlisting agency Cline, Davis & Mann, wanted to exert control over the Viagra image in the face of widespread, often uncomplimentary commentary about the drug. The primary audience in the campaign's early stages was older males. Among males over 65, the incidence of impotence ranged from 15 to 25 percent.

Pfizer's use of focus groups to prepare for the first Viagra campaign led to the conclusion that, as company executive David Brinkley told Advertising Age, "people want a positive message, they don't want to be reminded of their dysfunction and already know how devastated they are by it." Individuals in the focus group likewise "responded to the 'connectedness' the drug helped them feel with their partners." The first branded print ads, using the tagline "Let the Dance Begin," conveyed this positive, dignified message of connectedness, positioning Viagra as the answer to the romantic problems impotence can cause, through photos of mature couples dancing cheek to cheek alongside an image of the distinctive diamond-shaped blue pill.

The campaign's television launch, in the spring of 1999, brought to center stage, through the figure of former senator Dole, the message that erectile dysfunction was a condition to be taken seriously rather than dismissed or stigmatized. The unbranded Dole spot, which had a print counterpart, took the form of a public-service announcement and did not even mention Viagra, with the elderly senator speaking frankly about his own erectile-dysfunction experience and urging afflicted men to seek treatment. Branded 15-second TV spots, again featuring the dancing couples and using no dialogue or voice-over, broke soon after, reinforcing the image of Viagra as a path back toward romantic union.

COMPETITION

Viagra was preceded to the anti-impotency treatment market by a variety of less effective therapies and drugs that could be delivered only via injection. The first treatment not requiring injection—a urethral suppository named Muse, manufactured by VIVUS, Inc.—debuted in January 1997 and generated 17,000 prescriptions a week as well as a rapid increase in the price of VIVUS stock in its first year. The 1998 Viagra launch, however, proved devastating for VIVUS. Muse prescriptions dropped to 3,000 a week, the company lost $80 million, and VIVUS stock fell from its peak price of $40 per share to $2.

DOLE'S OTHER "LITTLE BLUE FRIEND"

For the 2001 Super Bowl, Pepsi and BBDO New York used Bob Dole in an ad that directly parodied Dole's work for Viagra. The spot showed Dole on a beach with a golden retriever, mimicking imagery associated with pharmaceutical ads. Dole said, "I'm eager to tell you about a product that put real joy back into my life … What is this amazing product?" The product was Dole's "faithful little blue friend" Pepsi, of course. After cutting to a store interior in which a man told viewers to "ask your local convenience-store clerk" if Pepsi was right for them, the camera returned to Dole, who was shown doing backflips on the beach and saying, "I feel like a kid again."

For five years Viagra remained the only impotence treatment available in pill form. As such it established a virtual sales monopoly in its category beginning at the time of its launch, but in late 2003 two new rivals touting advantages over Viagra entered the market behind high-profile launch campaigns.

Bayer AG and GlaxoSmithKline plc teamed up to market Levitra, which was touted as a faster-acting alternative to Viagra and which could be, unlike Viagra, taken with food. The partner drug companies anted up $6 million a year for a three-year Levitra sponsorship of NFL football, as well as an additional $10 to $15 million in media buys, and enlisted former Chicago Bears and then-current New Orleans Saints coach Mike Ditka as Levitra's spokesman. The resulting TV, print, outdoor, and promotional campaign, dubbed "Tackling Men's Health," broke in time for the fall 2004 football season. Within four months of its launch, Levitra had amassed a 14.4 percent market share.

After winning FDA approval for Cialis in late 2003, Eli Lilly and Company partnered with ICOS Corp. to comarket the drug. The Cialis launch campaign cost an estimated $100 million and broke during the broadcasts of the two NFL conference championships on January 18, 2004, before Cialis joined Levitra as an advertiser on that year's Super Bowl broadcast. Cialis distinguished itself from competitors by touting its 36hour window of effectiveness, compared with the four or five hours promised by Viagra and Levitra. In order to make this claim in its "Bathtubs" television ads, Cialis broke with Viagra and Levitra to run spots featuring not only the product name but also an explicit explanation of its use. This was seen as a risky move because of FDA requirements calling for a corresponding focus on a long list of side effects, which could negatively affect viewers' perceptions of the drug. Cialis likewise targeted a key portion of its target market with a 2004 sponsorship of the PGA Tour. By October of 2004, Cialis was the number two anti-impotency drug, with an estimated 17.8 percent market share, compared with Viagra's 68.9 percent and Levitra's 10 percent.

MARKETING STRATEGY

The unprecedented media attention generated by Viagra's April 1998 launch was both a help and a hindrance to Pfizer as it set out to define the brand on its own terms in July of that year. On the one hand, as Pfizer executive Brinkley said, "It became OK overnight to talk about erectile dysfunction." Moreover, as consultant Al Ries of Ries & Ries told Advertising Age, "Publicity created the credentials for the brand before the advertising ran, so when you saw the ad you were already convinced that if you took one of the pills, you'd see a bodily reaction." On the other hand, much of the publicity was negative. Viagra and impotency became prime material for late-night monologue jokes, making Pfizer worry that many men, seeing that the condition had been dismissed as trivial, might yet remain unwilling to seek treatment.

A month after Viagra's launch, while Pfizer and Cline, Davis were still planning the drug's first advertisements, former senator Dole, as a guest on CNN's Larry King Live, revealed that he had participated in clinical trials for Viagra after prostate surgery and that he considered it "a great drug." Pfizer and Cline, Davis were surprised by the conservative icon's readiness to speak about such a sensitive matter, and they approached the former senator about doing an awareness campaign to supplement the ads then in production. He agreed to the proposal.

The consumer campaign broke in late June 1998 with the reserved, relationship-centered "Let the Dance Begin" print ads as well as educational spots, which appeared in magazines including Newsweek, Time, Life, and U.S. News & World Report. Then in March 1999 the Dole spot marked Viagra's television launch. It was supported by branded 15-second Viagra advertisements as well as the ongoing print portion of the campaign. The branded TV spots used the concept of dancing couples from the initial print campaign and included no dialogue, voice-over, or text explaining Viagra's function. Because of the early publicity Pfizer could count on consumers knowing the Viagra name and its intended use, so the branded spots needed no explanation and therefore could forego any FDA-mandated listing of side effects.

The Dole commercial likewise was informed by the early publicity and was, in a different way, able to steer consumers toward Viagra without having to mention any side effects. Though Dole directly addressed the condition of erectile dysfunction, there was no mention of the Viagra brand. The spot was framed, instead, as a public-service announcement in which Dole, against a stately senatorial-looking office backdrop, urged men suffering from erectile dysfunction to learn about all available treatment options. Viagra was, however, the only treatment then available in pill form, and its universal brand recognition made it the logical beneficiary of the pitch.

Dole opened with the word "courage" and then explained, "When I was diagnosed with prostate cancer, I was primarily concerned with ridding myself of the cancer. But secondly, I was concerned about postoperative side effects." Dole acknowledged, after introducing the previously little-known term "erectile dysfunction" in place of the less palatable "impotence," that "it's a little embarrassing to talk about E.D., but so important to millions of men and their partners … and there are many treatments available." Dole also referred viewers to an 800 number for the American Federation of Urological Disorders hotline.

OUTCOME

Before the advertising campaign broke, Viagra had already set a prescription-drug launch record by amassing $182.2 million in sales in its first two months on the market. In its nine months on the market in 1998, Viagra's total sales reached $788 million, and in following years its sales topped $1.5 billion. It became one of the most well-known brand names in the world, changing "pharmaceuticals as a business by virtue of the rapidity and degree to which it was absorbed into popular culture," according to Pfizer marketing executive Pat Kelly.

The advertising that supported Viagra's launch, particularly the Dole commercial, was credited with helping to destigmatize the condition of impotence, but both the branded spots and the Dole spot were blamed for attaching an "elderly" image to the medical condition and brand, thereby threatening to alienate younger men. In 2000 Pfizer began to phase out the Dole work as well as the branded spots, in favor of a "Faces of ED" theme, which featured men from a range of age groups. In 2001 Pfizer enlisted NASCAR driver Mark Martin, then in his early 40s, as a Viagra spokesman. A TV spot showing Martin's Viagra-sponsored car making laps around a track ended with Martin, on-screen, taking off his helmet and asking, "Who'd you expect? Bob Dole?" In 2002 Pfizer continued to run advertising that appealed to a broader range of men than the initial campaign had, using then-38-year-old baseball player Rafael Palmeiro in TV spots for the drug.

Pfizer Inc.

views updated May 09 2018

Pfizer Inc.

235 East 42nd Street
New York, New York 10017-5755
U.S.A.
Telephone: (212) 573-2323
Fax: (212) 573-7851
Web site: http://www.pfizer.com

Public Company
Incorporated: 1900 as Charles Pfizer & Company Inc.
Employees: 50,900
Sales: $27.3 billion (1999 pro forma)
Stock Exchanges: New York Boston Cincinnati Midwest Pacific Philadelphia London Paris Brussels Zurich Swiss
Ticker Symbol: PFE
NAIC: 325412 Pharmaceutical Preparation Manufacturing; 325411 Medicinal and Botanical Manufacturing; 325413 In-Vitro Diagnostic Substance Manufacturing; 325414 Biological Product (Except Diagnostic) Manufacturing; 325611 Soap and Other Detergent Manufacturing; 325620 Toilet Preparation Manufacturing; 541710 Research and Development in the Physical, Engineering, and Life Sciences

Pfizer Inc. is one of the leading research-based healthcare companies in the world. Following its June 2000 takeover of Warner-Lambert Company, Pfizer was organized into four groups: Pfizer Pharmaceuticals Group, Warner-Lambert Consumer Group, Pfizer Animal Health Group, and Pfizer Global Research and Development. Among the prescription drugs marketed by Pfizer Pharmaceuticals with annual revenues exceeding $1 billion are Norvasc, for the treatment of hypertension and angina; Lipitor, a cholesterol reducer; Zoloft, an antidepressant; Zithromax, an oral antibiotic; Diflucan, an antifungal product; and Viagra, the famous treatment for erectile dysfunction. Warner-Lambert Consumer markets a number of leading consumer brands, including such over-the-counter healthcare mainstays as Benadryl, Sudafed, Listerine, Visine, Rolaids, and Ben Gay; in the confectionery area, Trident, Dentyne, Certs, and Halls; Schick and Wilkinson Sword shaving products; and Tetra fish food. Pfizer Animal Health is a world leader in medicines for pets and livestock. On the development side, Pfizer Global R&D spends $4.5 billion a year shepherding candidates through the product pipeline, which at any one time can include more than 130 possible new products. R&D efforts also are aided by the 250 alliances that Pfizer has formed with academia and industry.

Pfizer’s Early History

While Pfizer technicians became experts in fermentation technology, across the ocean Sir Alexander Fleming made his historic discovery of penicillin in 1928. Recognizing penicillin’s potential to revolutionize healthcare, scientists struggled for years to produce both a high quality and large quantity of the drug. Experimentation with production became an imperative during the Nazi air raids of London during World War II. In a desperate attempt to solicit help from the community of American scientists, Dr. Howard Florey of Oxford University traveled to the United States to ask the U.S. government to mobilize its scientific resources.

Because of its expertise in fermentation, the government approached Pfizer. Soon afterward, Dr. Jasper Kane from the company laboratory began his own experiments. Initially using large glass flasks, Dr. Kane’s experimentation then led to deep-tank fermentation. Later, the company announced its entrance into large-scale production with the purchase of an old ice plant in Brooklyn. Refusing government money, the company paid the entire $3 million for the purchase and within four months John McKeen (future chairperson and president) had converted the ancient plant into the largest facility for manufacturing penicillin in the world.

Early production, however, was not without its difficulties. The first yields of penicillin required constant supervision, and yet quality and quantity remained low and inconsistent. In one of those inexplicable quirks of history, however, a government researcher browsing in a fruit market in Peoria, Illinois, discovered a variant of the “Penicillium” mold on an overripe cantaloupe. Using this variant, production suddenly increased from ten units per millimeter to 2,000 units per millimeter. By 1942 Pfizer divided the first flask of penicillin into vials for the medical departments of the Army and Navy; this flask was valued at $150,000. Mass production began in 1944, when Pfizer penicillin arrived with the Allied forces on the beaches of Normandy on D-Day. Meantime, in June 1942, Pfizer reincorporated in Delaware and went public with an offering of 240,000 shares of common stock.

Postwar Expansion for Pfizer: Terramycin and Beyond

Nevertheless, it was not until the end of the war when the federal government realized its mistake in restricting production of the drug. In 1946 Pfizer purchased Groton Victory Yard, a World War II shipyard, in order to renovate it for mass production of the new publicly accessible medicine. This marked Pfizer’s first official entrance into the manufacturing of pharmaceuticals. In a few years the five-story building, equipped with 10,000 gallon tanks, produced enough penicillin to supply 85 percent of the national market and 50 percent of the world market. In 1946 sales already had reached $43 million.

Competition from 20 other companies manufacturing penicillin soon resulted in severe price reductions. The price for 100,000 units dropped from $20 to less than two cents. Furthermore, although the company could boast ownership of fermentation tanks “exceeded in size only by those in the beer industry,” Pfizer’s bulk chemical business decreased as former customers began establishing production facilities of their own. Pfizer’s instrumental role in developing antibiotics proved beneficial to society, but a poor business venture.

All this was to change drastically under the new direction of President John McKeen. In 1949 McKeen, whose career at Pfizer began the day after he graduated from the Brooklyn Polytechnic Institute in 1926, was elevated to president and, later, chair of the company. Already responsible for increasing sales by an impressive 800 percent between 1939 and 1950, McKeen’s business acumen became even more evident during the marketing campaign for Terramycin, which was launched in 1950. In the postwar years, pharmaceutical companies searched for new broad-spectrum antibiotics useful in the treatment of a wide number of bacterial infections. Penicillin and streptomycin, while helping to expand the frontier of medical knowledge, actually offered a cure for only a limited number of infections. Pfizer’s breakthrough came with the discovery of oxytetracy-cline, a broad-range antibiotic that soon would prove effective against some 100 diseases.

The drug’s remarkable capture of a sizable portion of the market was not due entirely to its inherent curative powers. Rather, it was McKeen’s ability to promote the new drug that actually propelled Pfizer into the ranks of top industry competitors. McKeen’s first accomplishment was the timely decision to market the antibiotic under a Pfizer trademark. Thus Terramycin, the drug’s chosen name, launched Pfizer into its first ethical drug campaign. Lacking the resources other pharmaceutical companies had to promote their drugs, McKeen announced the “Pfizer blitz,” whereby the company’s small sales force used an unusual array of marketing strategies.

For the first time, the company circumvented traditional drug distributing companies and began selling Terramycin directly to hospitals and retailers. Pfizer’s minuscule detail force (pharmaceutical salespeople) would target one small region at a time and promote their product to every accessible healthcare professional. The sales force left generous samples of the drug at every sales call, sponsored golf tournaments, and ran noisy hospitality suites at conventions. Surprised at the success of this tiny band of salespeople, which eventually would grow into a 4,000-person army, industry competitors reluctantly increased their own sales forces and, similarly, began promoting their products directly to physicians.

Taking the calculated risks of insulting the entire medical community, Pfizer ran lavish advertisements in the conservative Journal of the American Medical Association. The ad was greeted with a large degree of reservation and threatened the drug industry’s abhorrence of “hard sell” marketing. In an unprecedented move, the company had paid a prohibitive $500,000 to run the multipage ad. In two years the entire Terramycin campaign cost $7.5 million, and Pfizer became the largest advertiser in the American Medical Association’s journal.

Company Perspectives:

Our Mission: We will achieve and sustain our place as the world’s premier research-based health care company. Our continuing success as a business will benefit patients and our customers, our shareholders, our families, and the communities in which we operate around the world.

After 12 months on the market, Terramycin’s sales accounted for one-fourth of Pfizer’s total $60 million in sales. Yet problems with the company’s advertising strategy were to surface soon. In 1957, while promoting a new antibiotic called Sigmamycin, a Pfizer advertisement used the professional cards of eight physicians to endorse the drug. John Lear, science editor of the Saturday Review, denounced this advertisement in a scathing attack. Not only were the names of the eight physicians fictitious, Lear claimed, but the code of Pharmaceutical Manufacturers Association prohibited soliciting endorsements from physicians. Moreover, Lear used the Pfizer ad to underscore and criticize what he saw as a trend toward the overprescription of antibiotics, exaggerated claims on drug effects, and concealment of possible side effects.

Pfizer was quick to defend their advertisement. The company upheld the reputability of the ad agency, William Douglas McAdams Inc., a highly respected firm responsible for the Sigmamycin campaign. While defending the drug and the clinical reports supporting the drug’s efficacy, Pfizer admitted that the business cards were purely symbolic and, therefore, fictitious and, as a result, may have been misleading. The company accordingly changed the campaign.

John Lear’s final attack on Pfizer expressed an unspoken industry complaint. Not only was it disturbing that such “hard sell” tactics should actually prove successful, but so was Pfizer’s status in the industry; as the company’s recent past was in bulk chemical production, it was a relative newcomer to the industry of ethical drugs. Lear argued that the young company should have shown respect for the industry’s formal and restrained method of conducting business. Pfizer, however, was not intimidated by the industry’s attitude toward its advertising campaign; it was interested in claiming and maintaining a share of the market. If it meant breaking tradition, it was clear Pfizer was not going to hesitate.

Aside from its modern marketing campaigns, Pfizer was very successful at developing a diversified line of pharmaceuticals. Whereas many companies concentrated their efforts on developing innovative drugs, Pfizer generously borrowed research from its competitors and released variants of these drugs. Although all companies participated in this process of “molecular manipulation,” whereby a slight variance is produced in a given molecule to develop greater potency and decreased side effects in a drug, Pfizer was particularly adept at developing these drugs and aggressively seizing a share of the market. Thus the company was able to reduce its dependence on sales of antibiotics by releasing a variety of other pharmaceuticals.

At the same time Pfizer’s domestic sales increased dramatically, the company was quietly improving its presence on the foreign market. Under the methodical directive of John J. Powers, head of international operations and future president and chief executive officer, Pfizer’s foreign market expanded into 100 countries and accounted for $175 million in sales by 1965. It would be years before any competitor came close to commanding a similar share of the foreign market. Pfizer’s 1965 worldwide sales figures of $220 million indicated that the company might possibly be the largest pharmaceutical manufacturer in the United States. By 1980 Pfizer was one of only two U.S. companies among the top ten pharmaceutical companies in Europe, and the largest foreign healthcare and agricultural product manufacturer in Asia.

Pfizer’s crowning success to its unorthodox business procedures involved McKeen’s quest for diversification through acquisition. While competing companies within the industry preferred to keep $50-$70 million in savings, Pfizer not only kept a meager $25 million in cash, but was the only major pharmaceutical to use common equity to borrow capital. “Not to have your cash working is a sort of economic sin,” McKeen candidly stated. Between 1961 and 1965 the company paid $130 million in stock or cash and acquired 14 companies, including manufacturers of vitamins, antibiotics for animals, chemicals, and Coty cosmetics.

Key Dates:

1772:: Henry Nock founds the business that eventually becomes Wilkinson Sword.
1849:: Charles Pfizer and Charles Erhart found Charles Pfizer & Company.
1866:: Parke-Davis is founded in Detroit by Hervey C. Parke and George S. Davis.
1870s:: Dr. Joseph Lawrence develops the original formula for Listerine.
1877:: Wilkinson Sword begins making straight razors.
1881:: Lawrence sells his formula to Jordan Wheat Lambert, who founds Lambert Pharmacal Company.
1886:: William R. Warner founds William R. Warner & Company.
1899:: Several major U.S. gum producers merge to form American Chicle.
1900:: Charles Pfizer & Company Inc. is incorporated in New Jersey.
1916:: Warner & Co. acquires Richard Hudnut Company, a cosmetics firm.
1921:: Colonel Jacob Schick invents the Magazine Repeating Razor, forerunner of the Schick Injector razor.
1942:: Pfizer goes public.
1944:: Pfizer begins mass production of penicillin, primarily for the war effort.
1950:: Pfizer launches Terramycin, an antibiotic; Warner & Co. is renamed Warner-Hudnut, Inc.
1955:: Warner-Hudnut merges with Lambert Pharmacal to form Warner-Lambert Company.
1962:: Warner-Lambert acquires American Chicle.
1970:: Charles Pfizer & Company is renamed Pfizer Inc.; Warner-Lambert acquires Schick and Parke, Davis.
1984:: Agouron Pharmaceuticals, Inc. is founded.
1989:: Pfizer launches Procardia XL.
1992:: Pfizer launches Novasc, Zoloft, and Zithromax.
1993:: Warner-Lambert acquires Wilkinson Sword.
1995:: Pfizer acquires the animal health unit of SmithKline Beecham.
1997:: Warner-Lambert launches Lipitor through a marketing alliance with Pfizer.
1998:: Pfizer divests its Medical Technology Group; Pfizer launches Viagra.
1999:: Pfizer begins comarketing Celebrex; Warner-Lambert acquires Agouron Pharmaceuticals.
2000:: Pfizer acquires Warner-Lambert.

McKeen defended this diversification strategy by claiming that prodigious growth had decreased overall profits while competitors, on the other hand, had neither grown nor profited from their conservative investments. Furthermore, Pfizer’s largest selling drug, Terramycin, generated only $15-$20 million a year and thus freed the company from a dependence on one product for all its profits.

In 1962 Pfizer allotted $17 million for research and that same year McKeen announced plans for his “five by five” program, which included $500 million in sales by 1965. Obviously, sales would not come from new pharmaceuticals, but from the company’s accelerated rate of acquisitions.

For the next seven years Powers continued to preside over the company’s comfortable profits and sizable growth. In the absence of McKeen’s style of conducting business, Powers directed Pfizer toward the more conservative and methodical approach of manufacturing and marketing pharmaceuticals.

Powers also guided the company in a new direction with an increased emphasis on research and development. With increased funds allocated for research in the laboratories, Pfizer joined the ranks of other pharmaceutical companies searching for the innovative and, therefore, profit making, drugs. Vibramycin, an antibiotic developed in the 1960s, was very profitable; by 1981 it generated sales of $250 million.

Emphasizing R&D at Pfizer in the 1970s and 1980s

In 1970 the company changed its name to the more modern-sounding Pfizer Inc. In the early 1970s Edmund Pratt, Jr., stepped in as company chairman and Gerald Laubach took over as Pfizer president. Although company assets reached $1.5 billion and sales generated $2 billion by 1977, Pfizer’s overall growth was much slower through the period of the late 1970s and early 1980s. Increased oil prices caused comparable increases in prices for raw materials; low incidents of respiratory infections slowed sales for antibiotics; and even a cool summer in Europe reduced demands for soft drinks and, consequently, the need for Pfizer citric acids. All of these factors contributed to the company’s slow rate of growth.

The two new drugs—one called Procardia, a treatment for angina licensed from Bayer AG in Germany for its exclusive sale in the United States, and the other called Cefobid, an antibiotic licensed from a Japanese pharmaceutical company—promised to be highly profitable items. Furthermore, drugs discovered from Pfizer’s own research resulted in large profits. Sales for Minipress, an antihypertensive, reached $80 million in three years, and Feldene, an anti-inflammatory, generated $314 million by 1982.

Blockbuster Introductions Marking the 1990s for Pfizer

Pfizer International launched 37 new products worldwide in 1990. The company’s antifungal drug, Diflucan, became the world’s leading drug of its kind during this time. Sales of Pfizer’s newest products accounted for 30 percent of all pharmaceutical sales, up from 13 percent in 1989.

In 1992, Pfizer received final FDA approval for Norvasc, used in treating angina and hypertension. Zithromax, an antibiotic developed to treat outpatient pneumonia, tonsillitis, and pharyngitis, also hit the market that year after FDA approval, as did the antidepressant Zoloft. By the late 1990s, all three of these drugs had reached blockbuster status—achieving annual sales of more than $1 billion. Net sales in 1992 were $7.2 billion, with a net income of $811 million, and research and development expenses hit $863 million. Pfizer’s chairperson and CEO of 19 years, Ed Pratt, retired and was succeeded by William C. Steere, Jr.

Although the early 1990s were marked by a wave of mergers and acquisitions in the global pharmaceuticals industry, Pfizer declined to join in, and was instead content to build its product pipeline organically rather than through acquisition. By 1995, in fact, the R&D budget hit $1.3 billion. The one major acquisition that the company did complete during this period came not in the area of human pharmaceuticals but in the animal health realm. In 1995, Pfizer spent $1.45 billion for the animal health unit of SmithKline Beecham plc, the largest acquisition in Pfizer history. The purchase transformed the company’s Animal Health Group into one of the largest providers of medicines for both livestock and pets, with remedies for more than 30 species, including anti-infectives, antiparasitics, anti-inflammatories, and vaccines.

Not content with its own rich product pipeline, Pfizer entered into a series of partnerships whereby it comarketed drugs developed by smaller pharmaceutical firms, firms that were attracted by Pfizer’s powerful sales force. In 1997 Pfizer helped Warner-Lambert bring Lipitor, a cholesterol-lowering pill, to market. Lipitor soared to the top of the anticholesterol niche in the United States, achieving sales of $865 million in 1997 and $2.2 billion in 1998. Another 1997 introduction of a comarketed drug was Aricept, which was developed by Japan’s Eisai and quickly became the leading drug prescribed to treat the symptoms of Alzheimer’s disease.

Focusing ever further on pharmaceuticals, Pfizer in 1998 sold its Medical Technology Group in four separate transactions: Valleylab was sold to U.S. Surgical Corporation for $425 million; AMS to E.M. Warburg, Pincus & Co., LLC for $130 million; Schneider to Boston Scientific Corporation for $2.1 billion; and Howmedica to Stryker Corporation for $1.65 billion. These transactions, however, were overshadowed that year by Pfizer’s introduction of Viagra, a pill for treating male impotence, or what the company called “erectile dysfunction.” By far the most famous of the new “lifestyle drugs,” Viagra was an instant blockbuster: more than 350,000 prescriptions were written in the first three weeks, and sales for 1998 totaled $788 million; sales exceeded $1 billion in 1999. Less than a year after the launch of Viagra, Pfizer began comarketing Celebrex, which had been developed by G.D. Searle & Co., then a unit of Monsanto Company. Celebrex, the first of a new category of pain drugs called Cox-2 inhibitors, was approved for the treatment of arthritis pain and inflammation. The new drug became the most successful pharmaceutical launched in U.S. history, with 19 million prescriptions written in the first 12 months; sales during 1999 alone exceeded $1.4 billion.

Early Histories of Warner and Lambert

Warner-Lambert Company was the product of the 1955 merger of Warner-Hudnut, Inc. and the Lambert Pharmacal Company. Warner was founded in the late 19th century by William R. Warner, a Philadelphia pharmacist who had earned a fortune by inventing a sugar coating for pills. In 1886 he formed William R. Warner & Company and began making drugs. In 1908, several years after Warner’s death, the company was acquired by Gustavus A. Pfeiffer & Company, a patent medicine company from St. Louis. Pfeiffer retained the Warner company name, moved its headquarters to New York, and began a series of acquisitions that included Richard Hudnut Company, a cosmetics firm acquired in 1916, and the DuBarry cosmetic company. By the 1940s, some 50 companies had been acquired during the Warner company’s history.

Elmer Holmes Bobst arrived at Warner in 1945, already a veteran executive of the pharmaceutical industry and a multimillionaire. As president of Hoffmann-La Roche’s U.S. office, he had proved instrumental in acquiring for the Swiss company a large share of the U.S. drug market. Many observers were surprised that Bobst accepted the position at Warner; he was then 61 years old, wealthy, and could have settled into a comfortable retirement.

Nevertheless, when Gustave A. Pfeiffer, Warner’s chairperson and the only surviving member of the original founding family, approached Bobst with an offer of the presidency, he accepted. Nearly 30 years earlier, Bobst had been asked to join Warner as the head of its pharmaceutical division but declined when the Pfeiffer family refused to sell Bobst any of the company stock (the family held all the common stock). By the mid-1940s, however, Bobst had proved his abilities, and Pfeiffer readily offered the job on Bobst’s terms; Bobst was hired and allowed to purchase 11 percent of the common stock. By 1955, Bobst’s holdings were worth more than $3 million.

What Bobst inherited with his new position was a family-operated company suffering from an aging product line and antiquated facilities. Although the Hudnut cosmetic line accounted for most of the company’s $25 million in sales, that product line was barely turning a profit. In an effort to improve the image of the cosmetics production, Bobst renamed the firm Warner-Hudnut in 1950.

Bobst’s managerial style was well suited to the company’s policy of growth through acquisition. Moreover, his experience with high-level industry and political affairs enabled him to hire a new management team of accomplished executives and public figures. Successful investment bankers, business executives, and political officials were brought in, notably Anna Rosenberg, the company’s manager of industrial and public relations, who was once the U.S. assistant secretary of defense, and Alfred Driscoll, later Warner’s president, who had served as governor of New Jersey for seven years.

In 1952, Bobst made his first major acquisition, purchasing New Jersey Chilcott Laboratories, Inc. Chilcott earned its reputation as a manufacturer of ethical drugs in large part through its development of Peritrate, a long-acting “vasodilator,” which enlarged constricted blood vessels. Three years later Bobst arranged a merger between his company and Lambert Pharmacal.

Lambert Pharmacal’s history is tied to that of the oral antiseptic Listerine. Dr. Joseph Lawrence developed the original formula for Listerine in the 1870s. Lawrence sold his formula in 1881 to Jordan Wheat Lambert, who founded the Lambert Pharmacal Company to make and sell Listerine. The product became widely popular, particularly under the advertising strategy of Gordon Seagrove, who joined Lambert in 1926 after leaving his job as a calliope player in the circus. Seagrove made Listerine a household staple by promoting its ability to cure halitosis, sore throats, and dandruff. The advertising copy for one magazine ad depicted a man encouraging a woman to continue massaging Listerine into his head, with the tagline “Tear into it, Honey—It’s Infectious Dandruff!”

Bobst had met the president of Lambert, Edward Williams, at a meeting of the American Foundation for Pharmaceutical Education, and the two decided that their operations, each producing different but reputable products, would complement one another. Bobst was particularly interested in gaining access to Lambert’s well-organized distribution network, which incorporated modern marketing techniques previously unavailable at Warner-Hudnut’s. Furthermore, Williams brought a strong background in the management of pharmaceutical companies, enhancing Bobst’s accomplished executive team, which had little experience in the pharmaceutical industry. When Warner and Lambert merged in 1955 to form Warner-Lambert Company, former governor Alfred Driscoll was named president of the new company.

Growing Through Acquisition: Warner-Lambert in the 1960s and 1970s

The new company quickly outgrew its New York headquarters and so relocated to Morris Plains, New Jersey, a suburb of New York City, in 1956. Acquisitions were soon to follow. Warner-Lambert acquired Emerson Drug, maker of Bromo-Seltzer, in 1956. Six years later, the company acquired American Chicle, maker of Chiclets and other chewing gums, for about $200 million in stock. American Chicle had been formed in 1899 through the merger of several major U.S. gum producers. Many industry analysts criticized the high price paid for American Chicle; in 1962, the company’s net income for the year was less than $10 million. By 1983, however, after expanding into foreign markets, Chiclet sales were reaching the $1 billion mark. Ward S. Hagan, chairperson of American Chicle, called its gum and mint business “the largest in the world.”

Meanwhile, the success of Peritrate, the drug that had come to Warner-Hudnut through that company’s purchase of Chilcott Laboratories, was the cause of some controversy. Peritrate proved useful in a wider application of treatments than originally allowed, and the FDA approved of Peritrate’s “new drug” usages in 1959. Over the next several years, however, Warner embarked on a controversial Peritrate advertising campaign. Appearing in several medical journals, including the Journal of the American Medical Association, ten-page ads advocated the use of Peritrate not only for the treatment of angina, but as a “life-prolonging” prophylactic for all cardiac patients. The advertisement, based on the results of one study, was released at a time when the FDA had initiated an increasingly aggressive policy of evaluating claims for drug effectiveness. Even as the director of the study refuted the advertisement claims, Warner-Lambert executives stood by the claims for the effectiveness of their drug. By 1966, however, when an estimated 56 percent of the 3.1 million people afflicted by heart disease used Peritrate, the government, under the directive of the FDA, seized a shipment of the drug, bringing charges against the company’s unapproved advocacy of an even wider usage for the drug.

Concurrently, Listerine continued to increase in popularity under its new ownership; by 1975, the oral antiseptic held a sizable portion of the $300 million market. Warner-Lambert continued to invest heavily in advertising for Listerine. For years, Listerine had been advertised as a preventive measure against colds and sore throats, and, during the Asian flu epidemic of 1957, Bobst personally placed an ad in Life magazine promoting Listerine’s ability to resist the sickness. The company’s advertising agency had rejected the ad earlier, since its claims were unsubstantiated, but the promotion resulted in sales increases of $26 million for the year.

By 1975, the Federal Trade Commission (FTC) had begun to investigate the Listerine advertisements. The FTC disputed the cold prevention claims of Listerine as insupportable and ordered the company to embark on a disclaimer ad campaign amounting to $10 million, a figure equal to the company’s average annual advertising expenditure between 1962 and 1972. The FTC argued that only corrective disclaimers could educate the consumer, and, in 1978, the Supreme Court upheld the FTC’s order.

The acquisition of Parke, Davis met with some resistance. The Antitrust Division of the Justice Department launched an investigation of the proposed merger. According to the chair of the House Judiciary Committee, the merger would raise “serious problems” because it had the potential to limit competition and create a monopoly. Upon approval, the merger would result in combined revenue of $1.7 billion and would rank the new company among the 100 largest industrial companies in the United States.

On November 12, 1970, the Justice Department announced that it would not challenge the merger despite the Antitrust Division’s recommendation to the contrary. The department referred the matter to the FTC, which held concurrent authority to enforce the Clayton Act. A day later, the merger was completed. By 1976, however, the FTC ordered the company to sell several units of its Parke, Davis subsidiary that produced specified drugs. Those units producing thyroid preparations, cough remedies, cough drops and lozenges, normal albumin serum, and tetanus immunoglobulin would have to be sold to restore competition in those product lines.

Satisfied with the FTC’s actions, S. Burke Giblin, chair and CEO of Warner-Lambert at the time of the ruling, nevertheless faced several other challenges in the ensuing years. In 1976, Warner-Lambert disclosed figures to the Securities and Exchange Commission (SEC) concerning illegal payments abroad, announcing that more than $2.2 million “in questionable payments” had been uncovered in 14 of the 140 countries in which Warner-Lambert conducted business.

Only months later an explosion at an American Chicle plant in Queens, New York, killed six people and injured 55. After a year of investigation, a grand jury indicted the company and four of its officials on charges of reckless manslaughter and criminally negligent homicide. The charges were based on reports that the fire department had warned the company about the explosive potential of magnesium stearate dust used as a gum-machine lubricant. Contending that the charges were “outrageous” and unwarranted, company executives appealed the case. In 1978, a state judge dismissed the charges, citing “crystal clear and voluminous evidence” that the company had tried to eliminate the danger of an explosion. The following year, however, the New York State court’s appellate division voted to restore the indictments. Finally, in 1980, the state’s highest court once again dismissed all charges in connection with the explosion.

Another controversy involved Warner-Lambert’s Benylin cough syrup product, which was made available without a prescription in 1975. In response to questions regarding the cough syrup’s effectiveness, the FDA ordered the drug back on a prescription-only status, and, after seven years of deliberation, a settlement finally was reached in which the FDA approved the reinstated over-the-counter sale of the drug.

In 1978, Warner-Lambert purchased Entenmann’s Bakery for $243 million in cash. By 1982, Entenmann’s had become Warner-Lambert’s most profitable consumer division, with sales reaching $333 million and an annual growth rate of 19 percent. During this time, however, a rumor was started that Entenmann’s profits were supporting the Reverend Sun Myung Moon’s Unification Church. Since the source of the rumor was said to have come from Westchester County in New York, Warner-Lambert took out an ad in the county newspaper denying the alleged connection. Nevertheless, the rumor continued to circulate and actually received a large amount of publicity in the Boston, Massachusetts area. It was reported in some places that Entenmann’s delivery and sales staff were being harassed, and one Rhode Island church urged a boycott of the baked goods. When sales growth began to slip, Warner-Lambert mailed a letter to 1,600 churches in New England describing Entenmann’s history as a family-owned business for 80 years before it was purchased. As Entenmann’s profits continued to slip, Warner-Lambert sold the bakery to General Foods for $315 million in 1982.

The late 1970s had proved financially unstable for Warner-Lambert. Profit margins were off by 40 percent in 1979, the majority of revenues came from the sale of consumer goods, and the company was considered a potential takeover candidate. One critic characterized it a “floundering giant.” That year, Ward S. Hagan replaced Bobst as chairperson, while Joseph D. Williams assumed the chief executive office. Hagan and Williams then embarked on a restructuring program with the goal of revitalizing the pharmaceutical operations and trimming unprofitable and noncore businesses.

Restructuring and Refocusing on Core Areas in the 1980s and 1990s

Five unprofitable subsidiaries, including American Optical and Entenmann’s, were divested between 1982 and 1986, providing Warner-Lambert with capital of nearly $600 million. At the same time, such company programs as the “Total Production System” aimed to increase productivity by cutting downtime, reducing paperwork, and creating a more flexible work environment. Hagan and Williams closed or consolidated 24 plants in foreign and domestic locations, while reducing the company labor force by almost half, from 61,000 to 32,000. Research for new drugs at the Parke, Davis division was supported by a 20 percent increase in budgetary funds during 1983 to $180 million.

Despite its improved financial condition, Warner-Lambert came under criticism, particularly for its 1982 purchase of IMED Corp., a small hospital supply manufacturer. Many found Warner-Lambert’s $468 million purchase, 23 times IMED’s earnings, exorbitant. IMED was the market leader, with 35 percent of sales in the hospital supply field and continued annual sales growth of 50 percent. The company, however, was beset with problems. IMED’s executives apparently concentrated on short-term sales goals, at the expense of new product development. In fact, a management conflict between IMED’s manufacturing and research and development executives caused many important employees to resign in frustration. In 1986, Warner-Lambert sold IMED and some of its affiliates to the Henley Group, Inc. for $163.5 million.

Williams, who was given the additional duties of chairperson during Warner-Lambert’s turnaround period, was able to report that return on equity had increased from 9 to 32 percent from 1979 to 1986, as sales diminished through divestments and profits held fairly steady. Investing in research and development and luring industry talent from competing companies, Williams hoped to develop and increase sales of high-margin prescription drugs, such as Lopid, a cholesterol-reducing drug that received positive publicity in the late 1980s. A trend among consumers toward treatment without medication, however, as well as swelling support for reform of the healthcare industry—and the attendant possibility of price controls—caused uncertainty among ethical drug producers. Business also was threatened by a late 1980s recession and discounting in the consumer goods segment.

In anticipation of these potentially adverse market forces, a new chairperson and CEO, Melvin R. Goodes, announced yet another reorganization of Warner-Lambert late in 1991. The plan called for a 2,700-person layoff, reorganization of the global management scheme, and consolidation of operations into two groups: pharmaceuticals and consumer products. Goodes also began to concentrate the company’s marketing efforts on three primary geographic markets: North America, Europe, and Japan. The company invested $1.3 billion in advertising and promotion and $473 million in research and development, apparently banking on its consumer goods, which still constituted 60 percent of annual sales in 1992.

That year, Warner-Lambert became the fourth company to enter the competitive and controversial market for transdermal nicotine patches. Its prescription smoking cessation device, branded Nicotrol, was strongly promoted through direct consumer advertising, and the product enjoyed early success. Sales, however, quickly declined in 1993; Warner-Lambert’s late entry into the segment, chronic product shortages, a lower than expected success rate, side effects, and, especially, reports that some users had suffered heart attacks, all led to declines in sales.

In 1993, the company became the first to win approval from the FDA for a drug (Cognex) that retarded the progression of Alzheimer’s disease. Warner-Lambert also formed joint ventures with Glaxo Holdings plc and Wellcome plc to orchestrate the movement of the companies’ drugs from prescription to over-the-counter and generic markets. Another development in 1993 was the acquisition of Wilkinson Sword, a maker of shaving products and toiletries and a business that fit well alongside Schick. Wilkinson Sword traced its origins back to 18th-century London, where in 1772 Henry Nock began making guns and bayonets. James Wilkinson, a son-in-law of Nock, soon became a partner in the enterprise and then inherited the company in 1805. Wilkinson’s son Henry joined the firm and expanded the business into sword making. The manufacturing of straight razors began in 1877.

The other 1997 launch, Rezulin, also got off to a fast start—posting $750 million in 1998 sales—but then ran aground. Launched in March 1997 as a breakthrough treatment for the most common kind of diabetes, type 2 diabetes, Rezulin was by March 1999 the subject of an FDA investigation into its safety, after 30 people in the United States who were taking the drug died after developing liver problems. The FDA at first allowed the drug to continue to be sold with a change in the labeling requiring strict monitoring of liver function. In 2000, however, Rezulin was pulled from the market.

The Rezulin setback and the lack of any blockbusters in the pipeline that were close to market provided the impetus for Warner-Lambert’s acquisition of Agouron Pharmaceuticals, Inc. for about $2.1 billion in stock in May 1999. Agouron had been founded in 1984 by several University of California at San Diego scientists who pioneered in computer-aided drug design. The method employed by Agouron involved first understanding the structure of disease-causing proteins in the body and then using computers to design pharmaceuticals that can inhibit the proteins’ activity. Agouron had been focusing its development efforts in the areas of oncology and virology, and its first product was Viracept, one of the so-called protease inhibitors being used to treat HIV/AIDS. Viracept was soon considered the top drug in its class because it was more convenient to use and had slightly fewer side effects; sales thereupon totaled $530 million in 1998. Agouron’s product pipeline was filled with promising new drugs, including treatments for cancer, macular degeneration (which affects the eyesight), and the common cold, in addition to more AIDS therapies.

Pfizer’s Takeover of Warner-Lambert in 2000

Goodes retired from his position as CEO and chairman of Warner-Lambert in May 1999, with the company’s president, Lodewijk J.R. de Vink, taking on Goodes’s titles as well. In early November of that year, as drug industry consolidation was continuing, Warner-Lambert agreed to a nearly $70 billion merger with American Home Products Corporation (AHP). Pfizer, not wanting to lose its 50 percent of the revenues from the sale of the blockbuster Lipitor—with sales nearing $4 billion per year—and seeking to bolster its product pipeline through the addition of Agouron, stepped in within hours with a hostile bid exceeding AHP’s offer. Warner-Lambert attempted to fend Pfizer off, even bringing in a third party, the Procter & Gamble Company (P&G), to discuss a three-way deal with P&G and AHP. P&G soon dropped out of the picture when its stock price plummeted on news of the talks. Finally, in early February 2000, Pfizer and Warner-Lambert reached agreement on what was initially an $84 billion merger, ending the largest hostile takeover action in U.S. history. AHP received a breakup fee of $1.8 billion, which was believed to be the largest such payment ever made.

The merger was completed in June 2000 in what ended up being a $116 billion stock swap. The combined company retained the Pfizer Inc. name, with the consumer product lines of the two firms combined within a unit called Warner-Lambert Consumer Group. The FTC forced the firms to complete a number of relatively minor divestitures. The new Pfizer boasted pro forma 1999 revenues of $27.3 billion, making it the world’s number two drug company, trailing only Aventis. The company had the industry’s largest R&D budget, totaling $4.7 billion in 2000, as well as what was generally considered to be the industry’s top sales and marketing operation. In terms of prescription drugs, Pfizer now marketed eight products with annual sales in excess of $1 billion. The Warner-Lambert Consumer Group was a leading marketer of OTC healthcare, confectionery, and shaving brands, with 1999 pro forma revenues of $5.5 billion. The Pfizer Animal Health Group was the world leader in medicines for pets and livestock, with 1999 sales of $1.3 billion. William C. Steere continued at the helm of Pfizer in the initial months following the merger, but was slated to retire in early 2001 and be replaced by the company’s president and COO, Henry McKinnell. The company veteran, who joined Pfizer in 1971, was faced with the challenges of integrating the staffs and cultures of Pfizer and Warner-Lambert, healing whatever wounds might be left over from the bruising takeover battle, and restoring investor confidence in the company’s product pipeline. McKinnell was aiming to achieve annual cost savings of $1.6 billion by 2002 through the elimination of redundant activities and the centralizing of such operations as the two companies’ distribution systems. Two major product launches were anticipated to occur in 2001: Zeldox, an antipsychotic drug, and Relpax, a migraine treatment.

Principal Operating Units

Pfizer Pharmaceuticals Group; Pfizer Global Research and Development; Animal Health Group; Warner-Lambert Consumer Group.

Principal Competitors

Abbott Laboratories; American Home Products Corporation; Aventis; Bayer AG; Bristol-Myers Squibb Company; Colgate-Palmolive Company; Eli Lilly and Company; Glaxo Wellcome plc; Johnson & Johnson; Merck & Co., Inc.; Novartis AG; Roche Holding Ltd.; Schering-Plough Corporation; SmithKline Beecham plc.

Pfizer Inc.

views updated May 17 2018

Pfizer Inc.

235 E. 42nd Street
New York, New York 10017
U.S.A.
(212) 573-2323

Public Company
Incorporated: April 21, 1900
Employees: 40,000
Sales: $4.476 billion
Market Value: $12.417 billion
Stock Index: New York London Basle Lausanne Paris
Brussels Zurich Geneva

Recently, Pfizer has reported $4 billion in sales, projected $500 million for research and development by 1988, and commanded one of the largest overseas operations in the industry. All of this, of course, did not happen overnight. After almost one hundred years of quietly manufacturing fine chemicals, the revolution in medical care through the development of penicillin led Pfizer to important innovation within the industry.

In 1849 Charles Pfizer, a chemist, and Charles Erhart, a confectioner, began a partnership in Brooklyn to manufacture bulk chemicals. While producing iodine preparation and boric and tartaric acids, Pfizer pioneered the production of critric acid. To this day, Pfizer sells citric acid to soft drink companies, using large-scale fermentation technology.

While Pfizer technicians became experts in fermentation technology, across the ocean Sir Alexander Fleming made his historic discovery of penicillin in 1928. Recognizing penicillin’s potential to revolutionize health care, scientists struggled for years to produce both a high quality and large quantity of the drug. Experimentation with production became an imperative during the Nazi air raids of London during World War II. In a desperate attempt to solicit help from the community of United States scientists, Dr. Howard Florey of Oxford University travelled to America to ask the U.S. government to mobilize its scientific resources.

Due to their expertise in fermentation, the government approached Pfizer. Soon afterward, Dr. Jasper Kane from the company laboratory began his own experiments. Initially using large glass flasks, Dr. Kane’s experimentation then led to deep-tank fermentation. Later, the company announced its entrance into large-scale production with the purchase of an old ice plant in Brooklyn. Refusing government money, the company paid the entire $3 million for the purchase and within four months John McKeen (future chairman and president) had converted the ancient plant into the largest facility for manufacturing penicillin in the world.

However, early production was not without its difficulties. The first yields of penicillin required constant supervision, and yet quality and quantity remained low and inconsistent. In one of those inexplicable quirks of history, however, a government researcher browsing in a fruit market in Peoria, Illinois discovered a variant of the “Penicillium” mold on an over-ripe cantaloupe. Using this variant, production suddenly increased from 10 units per millimeter to 2,000 units per millimeter. By 1942 Pfizer divided the first flask of penicillin into vials for the medical departments of the Army and Navy; this flask was valued at $150,000. It was Pfizer penicillin that arrived with the Allied Forces on the beaches of Normandy in 1944.

Even as the government controlled production of the drug for the sole use of the Armed Forces the public, aroused by miraculous results of penicillin, asked Pfizer to release the drug domestically. In 1943 John L. Smith, Pfizer president, and John McKeen, against the explicit regulations of the federal government, supplied penicillin to a doctor at the Brooklyn Jewish Hospital. Dr. Leo Lowe administered what was thought of as massive dosages of penicillin to a number of patients and cured, among others, a child suffering from an acute bacterial infection and a paralysed and comatose woman. Smith and McKeen, visiting the hospital on Saturdays and Sundays, were witness to penicillin’s curative effects on the patients.

Nevertheless, it was not until the end of the war when the federal government realized its mistake in restricting production of the drug. In 1946 Pfizer purchased Groton Victory Yard, a World War II shipyard, in order to renovate it for mass production of the new publicly accessible medicine. This marked Pfizer’s first official entrance into the manufacturing of Pharmaceuticals. In a few years the five story high building, equiped with 10,000 gallon tanks, produced enough penicillin to supply 85% of the national market and 50% of the world market. In 1946 sales had already reached $43 million.

Competition from 20 other companies manufacturing penicillin soon resulted in severe price reductions. The price for 100,000 units dropped from $20 to less than 2 cents. Furthermore, while the company could boast ownership of fermentation tanks “exceeded in size only by those in the beer industry,” Pfizer’s bulk chemical business decreased as former customers began establishing production facilities of their own. Pfizer’s instrumental role in developing antibiotics proved beneficial to society, but a poor business venture.

All this was to change drastically under the new direction of president John McKeen. In 1949 McKeen, whose career at Pfizer began the day after he graduated from the Brooklyn Polytechnic Institute in 1926, was elevated to president and later chairman of the company. Already responsible for increasing sales by an impressive 800% between 1939 and 1950, McKeen’s business acumen became even more evident during the Terramycin campaign. In the postwar years, pharmaceutical companies searched for new broad-spectrum antibiotics useful in the treatment of a wide number of bacterial infections. Penicillin and streptomycin, while helping to expand the frontier of medical knowledge, actually offered a cure for only a limited number of infections. Pfizer’s breakthrough came with the discovery of oxytetracycline, a broad range antibiotic that would soon prove effective against some 100 diseases.

The drug’s remarkable capture of a sizeable portion of the market was not due entirely to its inherent curative powers. Rather it took McKeen’s ability to promote the new drug that actually propelled Pfizer into the ranks of top industry competitors. McKeen’s first accomplishment was the timely decision to market the antibiotic under a Pfizer trademark. Thus Terramycin, the drug’s chosen name, launched Pfizer into its first ethical drug campaign. Lacking the resources other pharmaceutical companies had to promote their drugs, McKeen announced the “Pfizer blitz” whereby the company’s small sales force used an unusual array of marketing strategies.

For the first time, the company circumvented traditional drug distributing companies and began selling Terramycin directly to hospitals and retailers. Pfizer’s miniscule detail force (pharmaceutical salesmen) would target one small region at a time and promote their product to every accessible healthcare professional. The salesmen left generous samples of the drug at every sales call, sponsored golf tournaments, and ran noisy hospitality suites at conventions. Surprised at the success of this tiny band of salesmen which would eventually grow into a 4000 man army, industry competitors reluctantly increased their own sales forces and similarly began promoting their products directly to physicians.

Taking the calculated risks of insulting the entire medical community, Pfizer ran lavish advertisements in the conservative Journal of the American Medical Association. The ad was greeted with a large degree of reservation and threatened the drug industry’s abhorrence of “hard sell” marketing. In an unprecedented move, the company had paid a prohibitive $500,000 to run the multi-page ad. In two years the entire Terramycin campaign cost $7.5 million and Pfizer became the largest advertiser in the American Medical Association’s journal.

After twelve months on the market, Terramycin’s sales accounted for one-fourth of Pfizer’s total $60 million sales. Yet problems with the company’s advertising strategy were soon to surface. In 1957, while promoting the reputability of a new antibiotic called sigmamycin, a Pfizer advertisement used the professional cards of eight physicians to endorse the drug. John Lear, science editor of the Saturday Review, denounced this advertisement in a scathing attack. Not only were the names of the eight physicians fictitious, Lear claimed, but the code of Pharmaceutical Manufacturers Association prohibited soliciting endorsements from physicians. Moreover, Lear used the Pfizer ad to underscore and criticize what he saw as a trend towards the overprescription of antibiotics, exaggerated claims on drug effects, and concealment of possible side effects.

Pfizer was quick to defend their advertisement. The company upheld the reputability of the ad agency, William Douglas McAdams Inc., a highly respected firm responsible for the Sigmamycin campaign. While defending the drug and the clinical reports supporting the drug’s efficacy, Pfizer admitted that the business cards were purely symbolic and therefore fictitious and, as a result, may have been misleading. The company accordingly changed the campaign.

John Lear’s final attack on Pfizer expressed an unspoken industry complaint. Not only was it disturbing that such “hard sell” marketing should actually prove successful, but since Pfizer’s recent past was in bulk chemical production this added “insult to injury,” so to speak. Being a newcomer to the industry of ethical drugs, Lear argued that the young company should have shown respect for the industry’s formal and restrained method of conducting business. However, Pfizer was not intimidated by the industry’s attitude toward its advertising campaign; it was interested in claiming and maintaining a share of the market. If it meant breaking tradition, it was clear Pfizer was not going to hesitate.

Aside from its modern marketing campaigns, Pfizer was very successful at developing a diversified line of pharmaceuticals. While many companies concentrated their efforts on developing innovative drugs, Pfizer generously borrowed research from its competitors and released variants of these drugs. While all companies participated in this process of “molecular manipulation,” whereby a slight variance is produced in a given molecule to develop greater potency and decreased side effects in a drug, Pfizer was particularly adept at developing these drugs and aggressively seizing a share of the market. Thus, the company was able to reduce its dependence on sales of antibiotics by releasing a variety of other pharmaceuticals.

At the same time Pfizer’s domestic sales increased dramatically, the company was quietly improving its presence on the foreign market. Under the methodical directive of John J. Powers, head of international operations and future president and chief executive officer, Pfizer’s foreign market expanded into 100 countries and accounted for $175 million in sales by 1965. It would be years before any competitor came close to commanding a similar share of the foreign market. Pfizer’s 1965 worldwide sales figures of $220 million indicated that the company might possibly be the largest pharmaceutical manufacturer in the U.S. By 1980 Pfizer was one of two U.S. companies among the top 10 pharmaceutical companies in Europe, and the largest foreign health care and agricultural product manufacturer in Asia.

Pfizer’s crowning success to its unorthodox business proceedures involved McKeen’s quest for diversification through acquisition. While competing companies within the industry preferred to keep between $50 and $70 million in savings, Pfizer not only kept a meager $25 million in cash, but was the only major pharmaceutical to use common equity to borrow capital. “Not to have your cash working is a sort of economic sin,” McKeen candidly stated. Between 1961 and 1965 the company paid $130 million in stock or cash and acquired 14 companies, including manufacturers of vitamins, antibiotics for animals, chemicals, and Coty cosmetics.

McKeen defended this diversification strategy by claiming that prodigious growth had decreased overall profits while competitors, on the other hand, had neither grown nor profited from their conservative investments. Furthermore, Pfizer’s largest selling drug, Terramycin, generated only $15 to $20 million a year and therefore freed the company from a dependence on one product for all its profits.

In 1962 Pfizer allotted $17 million for research and that same year McKeen announced plans for his “five by five” program which included $500 million in sales by 1965. Obviously, sales would not come from new pharmaceuticals, but from the company’s accelerated rate of acquisitions.

McKeen never actually saw the company reach this goal during his presidency. In 1964 sales did surpass $480 million, but the following year Powers replaced McKeen as chief executive officer and president, and inherited a company with almost half its sales generated from foreign markets and wide product diversification from 38 subsidiaries.

For the next seven years Powers continued to preside over the company’s comfortable profits and sizeable growth. In the absence of McKeen’s style of conducting business, Powers directed Pfizer towards the more conservative and methodical approach of manufacturing and marketing pharmaceuticals.

Powers guided the company in a new direction with an increased emphasis on research and development. With increased funds allocated for research in the laboratories, Pfizer joined the ranks of other pharmaceutical companies searching for the innovative, and therefore profit making, drugs. Vibramycin, an antibiotic developed in the 1960’s, was very profitable; by 1981 it generated sales of $250 million.

In the early 1970’s Edmund Pratt Jr. stepped in as company chairman and Gerald Laubach took over as Pfizer president. While company assets reached $1.5 billion and sales generated $2 billion by 1977, Pfizer’s overall growth was much slower through the period of the late 1970’s and early 1980’s. Increased oil prices caused comparable increases in prices for raw materials; low incidents of respiratory infections slowed sales for antibiotics; and even a cool summer in Europe reduced demands for soft drinks and, consequently, the need for Pfizer citric acids. All of these factors contributed to the company’s slow rate of growth.

In the light of this, the two new top executives significantly changed company strategy. First, funds for research and development reached $190 million by 1981; this marked a 100% increase in funding from 1977. Secondly, Pfizer began a comprehensive licensing program with foreign pharmaceutical companies to pay royalties in exchange for marketing rights on newly developed drugs. This represented a noticeable change from the years Powers supervised international operations. Under his directive Pfizer choose to market its own drugs on the foreign market and establish joint ventures or partnerships only if no other option was available.

The two new drugs, one called Procardia, a treatment for angina licensed from Bayer AG in Germany for its exclusive sale in the U.S., and the other called Cefobid, an antibiotic licensed from a Japanese pharmaceutical, promised to be highly profitable items. Furthermore, drugs discovered from Pfizer’s own research resulted in large profits. Sales for Minipress, an antihypertensive, reached $80 million in three years, and Feldene, an anti-inflammatory, generated $314 million by 1982.

By 1983 sales reached $3.5 billion and Pfizer was spending one of the largest amounts of money in the industry on research ($197 million in 83). Pratt, in a final move to shed Pfizer of its former idiosyncracies, began selling some of its more unprofitable acquisitions.

It is interesting to note that one Pfizer product acquired through a company acquisition in the 1960’s experienced a market rediscovery during the 1980’s. Ben Gay, an ancient liniment marketed for relief of arthritis pains through the late 1970’s, found new patrons in the health-conscious 1980’s. Discovering that sales for Ben Gay were increasing when marketed as a fitness aid, Pfizer began an advertising campaign by employing athletic superstars to endorse the drug. This campaign cost the company $6.3 million in 1982.

With a projected budget of $500 million for research and development in 1988, a comprehensive line of new drugs, and a reduction of diversification through sales of unprofitable acquisitions, Pfizer is well prepared for the future.

Principal Subsidiaries

Radiologic Sciences, Inc.; Shiley Inc.; Valleylab, Inc.; Composite Metal Products, Inc.; Redmond Holding Co.; Pfizer Hospital Products Group, Inc.; Site Realty, Inc.; Pfizer Pigments Inc.; Pfizer Genetics Inc.; American Medical Systems, Inc.; Quigley Company, Inc.; Adforce Inc.; Myerson Tooth Corp. The company also lists subsidiaries in the following countries: France, Ireland, Italy, and Japan.

International Directory of Company Histories

Pfizer Inc.

views updated May 29 2018

Pfizer Inc.

235 E. 42nd Street
New York, New York 10017
U.S.A.
(212) 573-2323
Fax: (212) 573-7851

Public Company
Incorporated: 1900
Employees: 40,700
Sales: $7.2 billion
Stock Exchanges: New York London Basle Lausanne Paris Brussels Zurich Geneva SICs: 2834 Pharmaceutical Preparations; 2833 Medical Chemicals & Botanical Products

Pfizer Inc. is one of the leading research-based, health care companies in the United States and the world. The company has introduced three major drugs—the antidepressant Zoloft, a cardiovascular agent called Norvasc and an antibiotic called Zithromax. Furthermore, Pfizer’s Procardia XL, a treatment for angina and hypertension, became the company’s first $1 billion product in the United States. Pfizer’s revolutionary developments occurred following almost one hundred years of manufacturing fine chemicals; the development of penicillin eventually led Pfizer to important innovations within the industry.

In 1849 Charles Pfizer, a chemist, and Charles Erhart, a confectioner, began a partnership in Brooklyn to manufacture bulk chemicals. While producing iodine preparation and boric and tartaric acids, Pfizer pioneered the production of citric acid, a product Pfizer continues to market to soft drink companies, using large-scale fermentation technology.

While Pfizer technicians became experts in fermentation technology, across the ocean Sir Alexander Fleming made his historic discovery of penicillin in 1928. Recognizing penicillin’s potential to revolutionize health care, scientists struggled for years to produce both a high quality and large quantity of the drug. Experimentation with production became an imperative during the Nazi air raids of London during World War II. In a desperate attempt to solicit help from the community of United States scientists, Dr. Howard Florey of Oxford University travelled to America to ask the U.S. government to mobilize its scientific resources.

Due to their expertise in fermentation, the government approached Pfizer. Soon afterward, Dr. Jasper Kane from the company laboratory began his own experiments. Initially using large glass flasks, Dr. Kane’s experimentation then led to deep-tank fermentation. Later, the company announced its entrance into large-scale production with the purchase of an old ice plant in Brooklyn. Refusing government money, the company paid the entire $3 million for the purchase and within four months John McKeen (future chairperson and president) had converted the ancient plant into the largest facility for manufacturing penicillin in the world.

However, early production was not without its difficulties. The first yields of penicillin required constant supervision, and yet quality and quantity remained low and inconsistent. In one of those inexplicable quirks of history, however, a government researcher browsing in a fruit market in Peoria, Illinois, discovered a variant of the “Penicillium” mold on an over-ripe cantaloupe. Using this variant, production suddenly increased from 10 units per millimeter to 2,000 units per millimeter. By 1942 Pfizer divided the first flask of penicillin into vials for the medical departments of the Army and Navy; this flask was valued at $150,000. It was Pfizer penicillin that arrived with the Allied forces on the beaches of Normandy in 1944.

Even as the government controlled production of the drug for the sole use of the Armed Forces, the public, aroused by miraculous results of penicillin, asked Pfizer to release the drug domestically. In 1943 John L. Smith, Pfizer president, and John McKeen, against the explicit regulations of the federal government, supplied penicillin to a doctor at the Brooklyn Jewish Hospital. Dr. Leo Lowe administered what was thought of as massive dosages of penicillin to several patients and cured, among others, a child suffering from an acute bacterial infection and a paralysed and comatose woman. Smith and McKeen, visiting the hospital on Saturdays and Sundays, were witness to penicillin’s curative effects on the patients.

Nevertheless, it was not until the end of the war when the federal government realized its mistake in restricting production of the drug. In 1946 Pfizer purchased Groton Victory Yard, a World War II shipyard, in order to renovate it for mass production of the new publicly accessible medicine. This marked Pfizer’s first official entrance into the manufacturing of pharmaceuticals. In a few years the five story building, equipped with 10,000 gallon tanks, produced enough penicillin to supply 85 percent of the national market and 50 percent of the world market. In 1946 sales had already reached $43 million.

Competition from 20 other companies manufacturing penicillin soon resulted in severe price reductions. The price for 100,000 units dropped from $20 to less than two cents. Furthermore, while the company could boast ownership of fermentation tanks “exceeded in size only by those in the beer industry,” Pfizer’s bulk chemical business decreased as former customers began establishing production facilities of their own. Pfizer’s instrumental role in developing antibiotics proved beneficial to society, but a poor business venture.

All this was to change drastically under the new direction of president John McKeen. In 1949 McKeen, whose career at Pfizer began the day after he graduated from the Brooklyn Polytechnic Institute in 1926, was elevated to president and later chair of the company. Already responsible for increasing sales by an impressive 800 percent between 1939 and 1950, McKeen’s business acumen became even more evident during the Terramycin campaign. In the postwar years, pharmaceutical companies searched for new broad-spectrum antibiotics useful in the treatment of a wide number of bacterial infections. Penicillin and streptomycin, while helping to expand the frontier of medical knowledge, actually offered a cure for only a limited number of infections. Pfizer’s breakthrough came with the discovery of oxytetracycline, a broad range antibiotic that would soon prove effective against some 100 diseases.

For the first time, the company circumvented traditional drug distributing companies and began selling Terramycin directly to hospitals and retailers. Pfizer’s miniscule detail force (pharmaceutical salespeople) would target one small region at a time and promote their product to every accessible healthcare professional. The sales force left generous samples of the drug at every sales call, sponsored golf tournaments, and ran noisy hospitality suites at conventions. Surprised at the success of this tiny band of salespeople, which would eventually grow into a 4000-man army, industry competitors reluctantly increased their own sales forces and similarly began promoting their products directly to physicians.

Taking the calculated risks of insulting the entire medical community, Pfizer ran lavish advertisements in the conservative Journal of the American Medical Association. The ad was greeted with a large degree of reservation and threatened the drug industry’s abhorrence of “hard sell” marketing. In an unprecedented move, the company had paid a prohibitive $500,000 to run the multipage ad. In two years the entire Terramycin campaign cost $7.5 million, and Pfizer became the largest advertiser in the American Medical Association’s journal.

After twelve months on the market, Terramycin’s sales accounted for one-fourth of Pfizer’s total $60 million sales. Yet problems with the company’s advertising strategy were soon to surface. In 1957, while promoting the reputability of a new antibiotic called sigmamycin, a Pfizer advertisement used the professional cards of eight physicians to endorse the drug. John Lear, science editor of the Saturday Review, denounced this advertisement in a scathing attack. Not only were the names of the eight physicians fictitious, Lear claimed, but the code of Pharmaceutical Manufacturers Association prohibited soliciting endorsements from physicians. Moreover, Lear used the Pfizer ad to underscore and criticize what he saw as a trend towards the overprescription of antibiotics, exaggerated claims on drug effects, and concealment of possible side effects.

Pfizer was quick to defend their advertisement. The company upheld the reputability of the ad agency, William Douglas Me Adams Inc., a highly respected firm responsible for the Sigmamycin campaign. While defending the drug and the clinical reports supporting the drug’s efficacy, Pfizer admitted that the business cards were purely symbolic and therefore fictitious and, as a result, may have been misleading. The company accordingly changed the campaign.

John Lear’s final attack on Pfizer expressed an unspoken industry complaint. Not only was it disturbing that such “hard sell” tactics should actually prove successful, but so was Pfizer’s status in the industry; as the company’s recent past was in bulk chemical production, it was a relative newcomer to the industry of ethical drugs. Lear argued that the young company should have shown respect for the industry’s formal and restrained method of conducting business. However, Pfizer was not intimidated by the industry’s attitude toward its advertising campaign; it was interested in claiming and maintaining a share of the market. If it meant breaking tradition, it was clear Pfizer was not going to hesitate.

Aside from its modern marketing campaigns, Pfizer was very successful at developing a diversified line of Pharmaceuticals. While many companies concentrated their efforts on developing innovative drugs, Pfizer generously borrowed research from its competitors and released variants of these drugs. While all companies participated in this process of “molecular manipulation,” whereby a slight variance is produced in a given molecule to develop greater potency and decreased side effects in a drug, Pfizer was particularly adept at developing these drugs and aggressively seizing a share of the market. Thus, the company was able to reduce its dependence on sales of antibiotics by releasing a variety of other Pharmaceuticals.

At the same time Pfizer’s domestic sales increased dramatically, the company was quietly improving its presence on the foreign market. Under the methodical directive of John J. Powers, head of international operations and future president and chief executive officer, Pfizer’s foreign market expanded into 100 countries and accounted for $175 million in sales by 1965. It would be years before any competitor came close to commanding a similar share of the foreign market. Pfizer’s 1965 worldwide sales figures of $220 million indicated that the company might possibly be the largest pharmaceutical manufacturer in the United States. By 1980 Pfizer was one of two U.S. companies among the top ten pharmaceutical companies in Europe, and the largest foreign health care and agricultural product manufacturer in Asia.

Pfizer’s crowning success to its unorthodox business procedures involved McKeen’s quest for diversification through acquisition. While competing companies within the industry preferred to keep between $50 and $70 million in savings, Pfizer not only kept a meager $25 million in cash, but was the only major pharmaceutical to use common equity to borrow capital. “Not to have your cash working is a sort of economic sin,” McKeen candidly stated. Between 1961 and 1965 the company paid $130 million in stock or cash and acquired 14 companies. including manufacturers of vitamins, antibiotics for animals, chemicals, and Coty cosmetics.

McKeen defended this diversification strategy by claiming that prodigious growth had decreased overall profits while competitors, on the other hand, had neither grown nor profited from their conservative investments. Furthermore, Pfizer’s largest selling drug, Terramycin, generated only $15 to $20 million a year and therefore freed the company from a dependence on one product for all its profits.

In 1962 Pfizer allotted $17 million for research and that same year McKeen announced plans for his “five by five” program which included $500 million in sales by 1965. Obviously, sales would not come from new Pharmaceuticals, but from the company’s accelerated rate of acquisitions.

McKeen never actually saw the company reach this goal during his presidency. In 1964 sales did surpass $480 million, but the following year Powers replaced McKeen as chief executive officer and president, and inherited a company with almost half its sales generated from foreign markets and wide product diversification from 38 subsidiaries.

For the next seven years Powers continued to preside over the company’s comfortable profits and sizeable growth. In the absence of Me Keen’s style of conducting business, Powers directed Pfizer towards the more conservative and methodical approach of manufacturing and marketing Pharmaceuticals.

Powers guided the company in a new direction with an increased emphasis on research and development. With increased funds allocated for research in the laboratories, Pfizer joined the ranks of other pharmaceutical companies searching for the innovative, and therefore profit making, drugs. Vibramycin, an antibiotic developed in the 1960s, was very profitable; by 1981 it generated sales of $250 million.

In the early 1970s Edmund Pratt Jr. stepped in as company chairman and Gerald Laubach took over as Pfizer president. While company assets reached $1.5 billion and sales generated $2 billion by 1977, Pfizer’s overall growth was much slower through the period of the late 1970s and early 1980s. Increased oil prices caused comparable increases in prices for raw materials; low incidents of respiratory infections slowed sales for antibiotics; and even a cool summer in Europe reduced demands for soft drinks and, consequently, the need for Pfizer citric acids. All of these factors contributed to the company’s slow rate of growth.

In the light of this, the two new top executives significantly changed company strategy. First, funds for research and development reached $190 million by 1981; this marked a 100 percent increase in funding from 1977. Secondly, Pfizer began a comprehensive licensing program with foreign pharmaceutical companies to pay royalties in exchange for marketing rights on newly developed drugs. This represented a noticeable change from the years Powers supervised international operations. Under his directive Pfizer choose to market its own drugs on the foreign market and establish joint ventures or partnerships only if no other option was available.

By 1989, Pfizer operated businesses in more than 140 countries. Net sales that year were $5.7 billion, but net income declined. Research and development expenditures had quadrupled during the 1980s, and Pfizer planned to continue investing heavily in research and development. Procardia XL was launched in 1989, and Diflucan, an antifungal agent, received Food and Drug Administration approval. Globally, Pfizer chalked up $150 million in sales—in 14 countries—of its Plax dental rinse.

Pfizer International launched 37 new products worldwide in 1990. Sixty additional launches were slated for 1992. Pfizer’s antifungal drug, Diflucan, became the world’s leading drug of its kind during this time. Sales of Pfizer’s newest products accounted for 30 percent of all pharmaceutical sales, up from 13 percent in 1989.

Pfizer entered the decade facing controversy about heart valves produced by Shiley, a Pfizer subsidiary. In 1990, 38 fractures of implanted valves were reported. Pfizer instituted a policy of compensating those with fractured valves.

In 1992, Pfizer received final approval from the Food and Drug Administration for Norvasc, used in treating angina and hypertension. Also in 1992, the company introduced Veri-Lo fat extenders for use in low-fat salad dressings, mayonnaise and sauces. Zithromax, an antibiotic developed to treat out-patient pneumonia, tonsillitis and pharyngitis, also hit the market after FDA approval. Net sales in 1992 were $7.2 billion, with a net income of $811 million, and research and development expenses hit $863 million. Pfizer’s chairperson and CEO of 19 years, Ed Pratt, retired and was succeeded by William C. Steere, Jr.

Cognizant of new national developments regarding insurance coverage and health-care cost containment, Pfizer stepped up its visibility in public discussions and planned to advocate comprehensive coverage as a necessary part of any health-care reform package. Pfizer also vowed not to raise prices on any single product by more than 4.5 percent in 1993. Other pharmaceutical manufacturers joined Pfizer in declaring a cap on price increases.

In 1993, Pfizer continued its vigorous research and development activities. The company filed with the FDA for approval of Enablex, an anti-arthritic drug. Other promising drugs Pfizer was developing included Dofetilide, one of a new class of drugs that can make irregular heart rhythms normal; zamifenicin, to treat irritable bowel syndrome; and ziprasidone, for psychotic illness. Researchers at Pfizer were confident that the remainder of the decade would be a time of unprecedented opportunity for innovations and development of new drugs.

Principal Subsidiaries

Radiologic Sciences, Inc.; Shiley Inc.; Valley lab, Inc.; Composite Metal Products, Inc.; Redmond Holding Co.; Pfizer Hospital Products Group, Inc.; Site Realty, Inc.; Pfizer Pigments Inc.; Pfizer Genetics Inc.; American Medical Systems, Inc.; Quigley Company, Inc.; Adforce Inc.; Myerson Tooth Corp.

Pfizer Inc.

views updated Jun 08 2018

Pfizer Inc.

founded: 1849

Contact Information:

headquarters: 235 e. 42nd st. new york, ny 10017-5755 phone: (212)573-2323 url: http://www.pfizer.com

OVERVIEW

Pfizer Inc., a global pharmaceutical company, develops, manufactures, and markets drugs and consumer health products for humans and animals. In mid-2000 Pfizer acquired in a hostile takeover one of its competitors, Warner-Lambert, nearly doubling its net income from $3.7 billion in 2000 to $7.8 billion in 2001.

Pfizer Inc.'s largest segment, its pharmaceutical division, produces cholesterol-lowering drug Lipitor; impotence treatment drug Viagra; antibiotic Zithromax; seratonin up-take inhibitor Zoloft; and allergy medicine Zyrtec.

COMPANY FINANCES

Revenues for 2001 were $32.3 billion, a 10 percent increase over the previous year. Net income in 2001 grew to $8.3 billion, a 28 percent increase over 2000. Diluted earnings per share in the same period increased 28 percent, to $1.31, an increase that was more than double the overall pharmaceutical industry. The company's pre-tax operating margins were 34 percent, a 4 percent improvement over 2000, placing them at the highest level in the pharmaceutical industry.

According to Pfizer Inc.'s 2001 annual report, the company's performance capped a spectacular decade of growth in which sales more than tripled, net income doubled, and research and development spending more than quadrupled. The report stated that Pfizer stock had outperformed the Dow Jones industrial Average and the Standard & Poor's 500 during the previous one-, five-, and ten-year periods. The company's stock had split four times since 1990, and the company's annual dividend had increased for more than 30 consecutive years.

Although Pfizer anticipated continued growth, shares in 2002 were on a slight downtrend and, at the end of the first quarter, were trading at $42.44 per share, with resistance at $42.50 per share. Still, Pfizer predicted at the end of the quarter shares would up to $45.00 by the end of the second quarter.

ANALYSTS' OPINIONS

Despite heavy industry competition, Pfizer's financial outlook was strong through 2010. Its diverse portfolio and eight products, which generate more than $1 billion in annual sales each is led by Lipitor, which sold more than $6.4 billion in 2001.

Standard & Poor's rated gave Pfizer a AAA/Stable/A-1+ rating due in part to the company's diverse product lines and in part because none of its major product patents expire until 2004, which will keep some competitors at bay for several years. Its top seller, Lipitor, is protected by patent until 2010; Norvasc until 2007; Zoloft until 2005; and Viagra until 2011.

Standard & Poor's also looked favorably on Pfizer because the company plans to continue to remain active in research and development, which is crucial to staying ahead of competition in the pharmaceutical industry. Pfizer spent more than $4 billion in research in 2001 and had plans to increase research spending the following year. Further strengthening its financial status was Pfizer's repurchase of $5 billion of its common stock through 2000 and 2001.

However, according to Forbes, the merger could pose some undesirable side effects and "swallowing Warner-Lambert almost whole may give Pfizer a stomachache that will last several years." Typically for three years after a merger, drug companies spend less on research, which can put their finances in jeopardy as current patents expire. Pfizer stated that the company would increase, not decrease, its research activity.

HISTORY

Pfizer Inc. got its start years before cousins Charles Pfizer and Charles Erhart emigrated to the United States from Germany. Charles Pfizer had trained as an apothecary apprentice, and Charles Ehrhart learned the confectioner trade. The two left their lives of privilege in search of excitement and opportunity, and moved to America in the mid-1840s.

Once in the states, they opened a chemical firm in Brooklyn in 1849, Charles Pfizer & Company. Their first breakthrough product came from a combination of both cousins' expertise. They made santonin, a bitter-tasting treatment of parasitic worms, a palatable medicine by blending it with almond-toffee flavoring and shaping it into a candy cone. The product was immediately successful. Less than 10 years later, the company was producing a dozen other products, including borax, camphor, and iodine.

The company's continued success relied on further innovation. Late in the nineteenth century, Pfizer's staple product was citric acid, used in cleaning solutions, for medicinal purposes, as flavoring and an ingredient in soft drinks. The raw materials to produce the acid had until 1880 primarily been imported from Italy. However, political instability, price fluctuation, and supply had affected Pfizer's ability to consistently profit from production. The company then faced a dire shortage of raw material supply and needed to either find a solution or close the business.

By 1914 the Italian imports stopped entirely, as the United States engaged in war in Europe, and Pfizer found other sources, although they were limited. Chemist James Currie joined Pfizer in 1917 and quickly applied his expertise in fermentation. He had discovered one of the by-products of cheese fermentation was citric acid, and began a series of experiments, conducted under extreme security, before discovering how to mass-produce the acid using molasses and processing them in a revolutionary deep-tank fermentation process.

The process set the company up for future success. In 1928 Dr. Alexander Fleming discovered the antibiotic uses for penicillin. Because he had no way to produce the bacteria in any large quantity, his discovery was dismissed by most of the scientific world. Scientists at Oxford University revisited Fleming's work a decade later and went to the United States to seek production options. Pfizer's John Davenport and Gordon Cragwall heard about the antibiotic at a symposium, and immediately saw the possibilities.

When the U.S. Government made an appeal to pharmaceutical companies to find a way to mass produce, Pfizer stepped up and invested heavily in using their deep-tank technology to mass-produce the antibiotic. The company purchased an ice plant and in fewer than four months converted it into a deep-tank fermentation facility. Pfizer supplied 90 percent of the penicillin for the Allied forces at Normandy on D-Day in 1944 and more than 50 percent of all the penicillin used during World War II.

After the company's breakthrough with penicillin production, Pfizer discovered a new antibiotic in soil. To find the antibiotic substance, the company conducted some 20 million tests and collected 135,000 soil samples before hitting "pay dirt." The drug that Pfizer developed was Terramycin and, although the company had always sold its products in bulk to other companies that sold them under their own brand names, Pfizer went into the pharmaceutical business for themselves and packaged and marketed Terramycin.

In the 1950s Pfizer began to expand globally, first establishing a small network of sales agents in a few countries, then developing offices and subsidiaries around the world. The world was divided into four regions: Europe, Western Hemisphere, Far East, and Middle East. Representatives in each of the regions were urged to immerse themselves in their markets and learn the languages, customs, and make contacts. They were given the autonomy to make quick decisions on behalf of the company, therefore rapidly establishing global presence.

During the last 50 years, Pfizer has continued to forge ahead through innovation, more so than through mergers and acquisitions. The company spends some $2.5 billion annually on research and development and has aggressively marketed its pharmaceuticals, quickly making some of its new drugs familiar to healthcare professionals and consumers.

STRATEGY

Pfizer's success has traditionally hinged on marketing, research, and development. However, a mega-merger in 2000, in which the company acquired Warner-Lambert through hostile takeover, placed the new Pfizer on top of the pharmaceutical industry. After the merger, Pfizer garnered a 7.0 percent global market share, making it the largest pharmaceutical company in the world.

Although prior to the merger, some analysts thought Pfizer may become a less nimble company, the first quarter of 2002 proved them wrong. Pfizer reported at the end of the 2002 first quarter it had earnings of $2.356 billion, or $.37 per share, compared with $1.93 billion and $.30 per share the previous year. Post-merger earnings rose 14 percent, or $.39 per share, excluding merger-related costs.

As part of the merger, Pfizer cut some $1.6 billion in operating costs in 18 months, starting with cutting about 10 percent of its workforce. At the same time, the company planned to more efficiently use its sales staff, which could effectively sell two formerly-competing drugs at the same time.

FAST FACTS: About Pfizer Inc.

Ownership: Pfizer Inc. is a publicly owned company traded on the New York Stock Exchange.

Ticker Symbol: PFE

Officers: Henry A. McKinnel, Chmn. and CEO, 59, 2001 salary $1,516,667, 2001 bonus $2,780,800; John F. Niblack, VChmn, 63, 2001 salary $944,600, 2001 bonus $1,062,700; David L. Shedlarz, CFO and EVP, 53, 2001 salary $722,800, 2001 bonus $736,900; C.L. Clemente, EVP, Sec., and Corporate Counsel, 64, 2001 salary $679,500, 2001 bonus $680,900

Employees: 90,000

Chief Competitors: Pfizer Inc. is the largest pharmaceuticals and consumer health care company in the world. Its competitors include Merck & Company Inc., Johnson & Johnson, Bristol-Meyers Squibb Company, American Home Products Corporation, Abbott Laboratories, and Eli Lilly and Company.

INFLUENCES

From the company's origins in the nineteenth century, Pfizer has had a history of taking risks and making them pay handsomely. The most recent substantial risk was the merger with Warner-Lambert. Some analysts stated that the move was purely strategic in nature, and Pfizer did not need the merger to improve its value. The takeover was motivated by the opportunity to become the largest pharmaceutical company in the world, a position that would increase Pfizer's leverage in contracts with wholesale drug buyers.

Along with the clout of being the largest drug company in the world, the merger also brought Pfizer some baggage, most notably its pending suits over Rezulin, which had been produced and marketed by Warner-Lambert. Suits were pending in five states in 2002, and Pfizer was appealing a nearly $12-million judgment against the company late in 2001. The suits claimed that the drug caused liver failure in some patients who used the drug.

PRODUCTS

Pfizer has three major product divisions: Human Pharmaceuticals, Consumer Health Care, and Pfizer Animal Health.

CHRONOLOGY: Key Dates for Pfizer Inc.

1849:: Charles Pfizer & Company, a chemical business, opens and produces its first medical product, candied santonin, an antiparasitic
1862:: Pfizer launches the first domestic production of tartaric acid and cream of tartar, both vital to the food and chemical industries
1868:: Pfizer opens corporate offices in Manhattan's Wall Street district to accommodate growth during the Civil War, when the company produced and supplied many drugs used by the Union forces
1880:: Pfizer begins manufacturing citric acid, and it quickly becomes the company's mainstay, as well as the launching pad later when the company becomes involved in penicillin production
1882:: Pfizer opens its first location outside of New York, in Chicago
1919:: Pfizer perfects mass production of citric acid, freeing it from dependency on European citrus growers
1928:: Alexander Fleming discovers the medical qualities of the penicillin mold
1941:: Pfizer is the only pharmaceutical company to use fermentation technology and begins mass-producing penicillin, at the urging of the U.S. Government, to treat soldiers in World War II
1942:: Pfizer incorporates, with an initial offering of 240,000 shares of common stock
1946:: Pfizer buys Electric Boat Victory Yard and builds the world's largest citric acid fermentation plant
1950:: Terramycin, an antibiotic, becomes the first pharmaceutical sold in the United States under the Pfizer label
1952:: Pfizer opens (in Terre Haute, Indiana) its first facility dedicated to research
1954:: Pfizer discovers Tetracyn (tetracycline), the first synthetic broad-spectrum antibiotic
1955:: Pfizer goes global and expands its worldwide operations; the company had since 1951 facilities in England, Cuba, Mexico, India, and Puerto Rico; in 1955 Pfizer opens a fermentation plant in England and partners with Japanese company, Taito (Pfizer would acquire the company nearly 40 years later, in 1993)
1963:: Pfizer purchases Desitin Chemical Co. Inc., which remains part of its Consumer Health Division
1971:: Pfizer establishes its Central Research Division, combining pharmaceutical, agricultural and chemical research and development
1972:: Pfizer reaches the $1 billion sales mark
1982:: Pfizer's anti-inflammatory medication, Feldene, becomes the first product to reach $1 billion in sales
1992:: Pfizer introduces three major new drugs: Zoloft, Norvasco, and Zithromax
1993:: Pfizer introduces its Sharing the Care drug donation program; the program provides more than 500,000 low-income and uninsured patients in the United States with prescription medicines
1994:: Pfizer invests more than $1 billion in research and development
1998:: Pfizer launches Viagra; the company invests nearly $2.5 billion in research
2000:: Pfizer acquires competitor Warner-Lambert, creating the world's fastest growing pharmaceutical company

The pharmaceuticals division accounted for some 79 percent, or $25.5 billion, of the company's total 2001 revenues. Lipitor, the company's top-selling drug, grew by 28 percent in 2001, to $6.4 billion. The company's fastest sales growth in 2001 was produced by Norvasc. Sales leapt 28 percent in 2001, from $5.0 billion to $6.4 billion.

The Consumer Healthcare division saw a 6 percent increase in 2001, with sales of $2.4 billion. The segment's fastest sales growth was achieved by Sudafed, Benedryl, and Listerine mouthwash. The launch of the Listerine PocketPaks also positively impacted the division's sales.

Animal Health increased 13 percent in 2001, to $1 billion, after a 20 percent decrease in 2000. The decrease was primarily due to foreign currency exchange factors and to the weak livestock markets amid the mad cow disease scare.

CORPORATE CITIZENSHIP

Established in 1953, the Pfizer Foundation is Pfizer's charitable organization. The foundation's mission is to "promote health care and education, to nurture innovation, and to support the community involvement of Pfizer people." In 2001 the Pfizer Foundation donated more than $400 million in products and money to organizations and people in the United States.

GLOBAL PRESENCE

Although Pfizer has established a presence in more than 150 countries worldwide, most of its growth has been in North America. In 2000 approximately 68.0 percent of Pfizer's sales were generated in North America, compared with its closest competitor GlaxoSmithKline, which had 56.6 percent of its revenues generated in North America. In 2001 Pfizer's U.S. revenues increased 10 percent to $32 billion, and international revenues climbed 6 percent to $12 billion. Revenues exceeded $500 million in seven countries outside the United States, and the United States was the only country to contribute more than 10 percent of the company's total revenue, according to Pfizer's 2001 annual report.

EMPLOYMENT

Pfizer Inc. offers employees in its research facilities opportunities that afford "the high visibility and responsibility available only in a small, entrepreneurial organization, yet your efforts will have the support of one of the world's largest and most respected pharmaceutical enterprises." In its recruitment efforts, Pfizer offers scientists an opportunity to work in state-of-the-art facilities and to work toward the development of life-saving drugs.

SOURCES OF INFORMATION

Bibliography

"ftc grants final clearance for pfizer/warner-lambert merger." available at http://www.pfizer.com.

galewitz, phil. "warner-lambert begins merger talks with pfizer." business news, 14 january 2000.

pfizer analysis, 30 july 2001. available at http://www.standardandpoors.com.

"pfizer profits surge on strong sales." reuters, 17 april 2002.

herper, matthew. "pfizer's warner-lambert acquisition has side effects." forbes, 21 june 2000.

"pfizer still ahead following glaxosmithkline merger." ims health, 4 january 2001.

shook, david. "pfizer-warner: one drug merger that might just deliver." businessweek, 17 may 2000.

"significant developments, pfizer inc." market guide, 25 march 2002.

For an annual report:

on the internet at: http://www.pfizer.com

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. pfizer inc.'s primary sics are:

2833 medical chemicals & botanical products

2834 pharmaceutical preparations

2879 pesticides & agricultural chems, not elsewhere classified

3842 surgical appliances & supplies

5122 drugs, proprietaries, & sundries

also investigate companies by their north american industry classification system codes, also known as naics codes. pfizer inc.'s primary naics codes are:

325320 pesticide and other agricultural chemical manufacturing

325411 medicinal and botanical manufacturing

325412 pharmaceutical preparation manufacturing

339113 surgical appliance and supplies manufacturing

Company Profiles for Students