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2001 BW 50



Q&A with Pfizer's Henry McKinnell
The CEO explains why he's confident of hitting his 15% earnings growth goal for each of the next three years

By many measures, Pfizer (PFE ), No. 3 on this year's BusinessWeek 50 list of top performers, has been the pacesetter in the drug business for several years. Thanks to its acquisition of Warner-Lambert in 2000, it has generated widening margins and healthy earnings gains. And Pfizer's marketing muscle is unmatched in the industry. The company's flagship product, the $6.4 billion cholesterol-lowering drug Lipitor, is on track to become the world's first $10 billion drug -- probably by 2005.

BusinessWeek's Amy Barrett, who covers the pharmaceutical industry from Philadelphia, recently sat down with Chairman and CEO Henry A. McKinnell to discuss Pfizer's performance and the challenges ahead. Edited excerpts from their conversation follow:

Q: Pfizer generated $1.4 billion in cost savings through the Warner-Lambert merger by the end of 2001, and that should rise to $1.7 billion by yearend. Some analysts have described your approach as a very aggressive, almost slash-and-burn integration of the two companies. Is that fair?
A: I wouldn't agree with that. We did three different integrations. We merged the small into the large and the simple into the complex.

We merged the Pfizer consumer health-care business into the Warner-Lambert business [which was larger]. We merged the Parke-Davis operation [Warner's pharmaceutical business] into the Pfizer pharmaceutical business. And for the research-and-development operations, which were of comparable size, we created a third structure. So we always had a lead business into which we were merging.

The other thing I think made a difference was unambiguous leadership. In mergers, quite often there is a negotiation of who gets what job. But we knew what we needed to do. We quickly identified the best people and best practices. A lot of it was finding best practices between the two companies.

Q: Some analysts worry that Pfizer's growth will have to slow in coming years. Do you agree?
A: We had three of the most successful launches in history [with Lipitor, the erectile dysfunction drug Viagra, and the arthritis treatment Celebrex]. The last three years we've grown earnings 25% a year on average. Clearly, that is not sustainable. But our goal is 15%-a-year earnings growth.

We've projected out three years. I know of no large company in any industry that has held itself accountable for growth that high for that long a period. We've said [we'll deliver] double-digit revenue growth and 15% bottom-line [growth]. We have the products to achieve that. It's a high-risk biz. We could do better with some lucky breaks, or we could do worse.

Q: AstraZeneca is expected to launch a new cholesterol-lowering drug, Crestor, later this year. Early data show it may be more potent than Lipitor. Is this a big threat?
A: The way to reduce cardiovascular risk is to get patients to [their cholesterol level] goal. On Lipitor, across the full dosage range, 95% of patients get to goal. I think the biggest impact will be on the other [cholesterol-lowering drugs]. If you look at Zocor, Mevacor, Pravachol, Lescol, clearly not as many patients get to goal.

Q: You will also see new competitors to Viagra. Is that a concern?
A: There is such a large untreated population [for erectile dysfunction]. And I think we are through any safety concerns about Viagra. New competition in that market could cause more patients to see doctors. We certainly will lose [market] share. But we'll hold the majority of the share, and I suspect we'll see continued growth.

Q: One of Pfizer's biggest strengths is marketing. Do you have marketing input early in the drug-development process?
A: We clearly do that the best in the industry. We are aligned all the way back to the discovery process. We call this the BAM process -- blockbusters are made. We don't discover drugs. We develop them.

Q: You have been very successful in striking marketing partnerships, including the deal to sell Celebrex with Pharmacia. Do you have any others in the works?
A: We signed a deal with Boehringer Ingelheim last year for Spiriva [a drug for chronic obstructive pulmonary disease]. We'll be launching that this year. Throughout the year, we probably look at 150 late-stage compounds [for which we might be a marketing partner]. We go into due diligence on 50, and then go into negotiations for three or four. And we end up doing one or two. We have two in negotiations right now.

Q: You've licensed or co-marketed a number of big drugs. Do you think your R&D labs are productive enough?
A: Looking back, we've had some big successes -- but too few of them. And we've supplemented them with licensing. Going forward, we have five drugs in regulatory approval and 15 more [that could come to market] over the next five years. If all that happens it would be wonderful. It looks like we are entering a period of dramatically rising productivity in R&D.

Q: Some analysts worry that they don't see the next Lipitor in that lineup. What's your take?
A: There's clearly some singles and doubles in there. But I can think of five or six that have multibillion-dollar potential. There are some potential home runs in there.

Q: Would you consider another merger?
A: Sure, if it made sense. If it were the right opportunity. The one thing we learned with Warner-Lambert is that we are able to do this. Pfizer had never done a merger on that scale. I was a bit concerned about how the organization would respond to it, how the two companies would come together.

We gained share during the integration process. I have the assurance now that if we saw the opportunity in the future and we thought it was right for us, I'm pretty confident we could implement it. Our execution ability has been proven.

MARCH 3, 2002

Edited by Beth Belton

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