Is $2.3 Billion Chump Change for Pfizer?

Wednesday, September 09 2009

Sept. 9, 2009

The damage to Pfizer had already been done when the New York Times and many other news agencies covered a dog-and-pony press conference last week at the White House. There, Kathleen Sebelius, secretary of health and human services, patted the backs of her fellow bureaucrats as they celebrated the $2.3 settlement that Pfizer already agreed to put on its books in the final quarter of 2008.

However, it did serve its purpose to remind the world of what the Times called the largest health care fraud settlement, and the largest criminal fine of any kind – ever. Wow, these Pfizer people must have really done it THIS time.

What, you ask? Pfizer has been in this boat before? Well, actually this was Pfizer’s fourth settlement regarding illegal marketing activities since 2002. Which is a point a couple of Forbes editors accidentally missed, apparently, in this truly entertaining column posted yesterday. Still, their argument has its merits. Pfizer DID NOT really do it this time, the editors say – unless you count the hurt feelings at the FDA worth anything.

The headline in the New York Times last week read just like the headlines did when the settlement came to light many months ago: “Pfizer Pays $2.3 Billion to Settle Marketing Case Wholesalers.” This probably made a few people ask the questions, “Is Pfizer in trouble and how can they absorb such a fine… What does $2.3 billion mean to a Big Pharma company like Pfizer?”

Well, here are your answers, in reverse order, just to spice things up…

1)  For full-year 2008, Pfizer recorded reported revenues of $48.3 billion (not bad considering it includes the $2.3 billion penalty), essentially flat compared with 2007 full-year revenues of $48.4 billion.

So the fine equals less than 5 percent of annual revenues. And we’re not sure if you’ve been tracking price increases recently, but Pfizer began to raise the cost of Viagra twice a year instead of once a year in 2007. Including the last six price increases since Jan. 1, 2007, the price of Viagra has gone up 45.5%.  This means that online pharmacies, such as AccessRx.com, have also raised the price of Viagra online to keep up with Pfizer's increases. 

Let’s put it this way, Pfizer will continue to find ways to be profitable, including its expected purchase of Wyeth for $68 billion. Makes the fine almost seems like play money, doesn’t it? Makes you wonder if all of these “corporate integrity agreements” that the feds make Pfizer sign are used as place holders or scratch paper.

2) Pfizer does not appear to be in trouble, and the fine can be “absorbed” if not replaced with additional streams of new revenue. The company’s stock bottomed out below $12 per share in late February, about a month after the company’s 2008 revenue reports were released. The shares climbed to above $16 in July, where they remain in early September.

It seems Pfizer’s track record indicates a profound ability to recover from similar and repeated misdoings, fines and even White House press conferences. Some of the facts surrounding the case are still somewhat disconcerting…

To borrow a line from the Times: “John Kopchinski, a former Pfizer sales representative whose complaint helped prompt the government’s Bextra case (which cost Pfizer $1.3 billion of the settlement), said that company managers told him and others to dismiss concerns about (another drug being marketed improperly) while pushing them to undertake similar illegal efforts on behalf of Bextra.

‘The whole culture of Pfizer is driven by sales, and if you didn’t sell drugs illegally, you were not seen as a team player,’ said Mr. Kopchinski, whose personal share of the Pfizer settlement is expected to exceed $50 million (thanks to a Civil-War era law that pays bounties to whistleblowers). Mr. Kopchinski left Pfizer in 2003.”

Of course, Pfizer is not alone among pharmaceutical companies who have settled, or been told, to pay  huge amounts of money. And the other companies are not hard to find. In fact, there are numerous industry blogs that track these and other pharma stories. For a good pharma carnival blog review that provides weekly insight, check out  http://blog.pharmalive.com.

By Brian Bujdos