Sunday, April 17, 2011

Placebo: How a sugar pill became a poison pill. Part 4 of a continuing saga...

Read part 3.

On a fine spring afternoon in March 2005, pharmaceutical executive Dr. Franz Humer, a man who'd grown accustomed to the applause of his peers, rose at a major Zurich symposium to deliver a speech guaranteed to generate more of the same.

Humer had a knack for painting colorful frescoes of the oft-hazy Big Pharma landscape. Despite fierce competition for market share in their respective niches—e.g. Viagra vs. Cialis vs. Levitra for erectile sup
remacy—the industry's major players periodically would call a truce long enough to attend conferences that celebrated their collective genius. In that respect they were like Hollywood on Oscar Night: Whatever jealousies exist over box-office receipts, whatever backstage machinations are in play over plum roles, they fade away as one and all bask for a few hours in the magic of make-believe. As it happens, that's an analogy with more than passing relevance here.

Humer was then CEO and board chairman of F. Hoffman-La Roche, nowadays simply “Roche.” Also known for his nonpareil efficiency, Humer that morning had made the 85-km commute from his company's Basel headquarters ensconced in the buttery luxury of a stretch Mercedes limo from Roche's corporate fleet. Had the trip been much longer, he would've flown, not driven, likely on Roche's corporate jet, which was similar to the jet Humer kept for his personal use, though admittedly a tad larger.

From Humer's point of view, the timing of the speech could hardly be better. With the first fiscal quarter not yet complete, Roche was well on its way to posting record sales of $35 billion and returning to investors an incremental yield of 50 percent over 2004. Part of this success could be traced to the company's established positions in the perennially hot mental-health segment, where Roche boasts a track record that few can match. In the 1950s the company pioneered the game-changing class of anti-anxiety drugs known as benzodiazepines. The hit parade began in 1957 with Librium, which became an instant (and over-prescribed) darling of psychiatrists everywhere. Three years later Roche topped even that by launching one of the most commercially successful drugs ever, Valium. To this day the drug remains a staple not just for treatment of anxiety but for surgical sedation as well. But Roche's soaring good fortunes in the spring of 2005 had more to do with its distribution of the first oral drug approved for use against the two primary types of influenza—Tamiflu—which Roche had licensed a decade earlier from a U.S. biotechnology firm, Gilead Sciences. In truth, the Roche/Gilead relationship was a stormy one. Tamiflu had been subject to a series of formal warnings and recalls that led to messy litigation in which the biotech David accused the pharmaceutical Goliath of uninspired marketing, poor quality control, and miscalculating Gilead's royalty payment on sales of the drug. Still, with fears of avian flu then sweeping the globe faster than the malady itself, and with other flu strains suddenly glowing on parents' radar screens, Tamiflu was the right drug at the right time. The two companies called off their legal teams and patched things up, and Roche was now raking in profits hand over fist.

All of which delighted Franz Humer, who was, first and foremost, a money man. The “Dr.” before his name misleads. Humer's doctorate is in law, not medicine. Also, like many of those at today's upper echelons of medical administration, Humer holds an MBA. At the time of his speech, he had occupied his lofty position at Roche since 1998, and in the intervening years had seen the right side of the corporate sales chart climb ever higher. (Such achievements helped soften the sting of Roche's being named, by one leading consumer watchdog group, “top corporate criminal of the 1990s” for its “anti-consumer, anti-competitive practices.”) In 2005, Humer himself would receive a base salary of 8.4 million Swiss francs, which sounds like a lot of money until you realize that it's barely $8.3 million U.S. Fortunately for Humer, his contract included substantial bonuses and equity participation, both of which were about to kick in with a vengeance. The total compensation package made him the third-best-paid CEO among Europe's publicly traded companies.

As an administrative hired gun, Franz Humer was an elite member of a managerial species that in recent decades has taken over from the doctors and scientists who once ran organized medicine. (After leaving Roche in '08, Humer became a board member at Diageo, whose only connection to healthcare is that its customers sometimes need it: Diageo's top brands include Smirnoff, Jose Cuervo and Captain Morgan.) These new-breed healthcare honchos recognize that Job 1 is to hit quarterly earnings targets, to deliver a healthy bottom line. An increasingly healthy bottom line. Further, they must deliver it again and again, thus meeting Wall Street's ever-rising expectations, feeding its insatiable hunger for More.
Self-aggrandizement—of their companies, their products, their managerial acumen—is a key part of the business plan. In pharmaceuticals especially, perception is reality. If the consuming public thinks that certain pills will melt its fat or mute its migraines, then the manufacturer of those pills makes money and The Street is happy, regardless of whether the pills' effects can be documented in a scientific way. It is therefore essential that top brass miss no opportunity to reinforce these perceptions by accentuating the positive. On that day in March of 2005, Franz Humer was accentuating big-time.

To be continued...

Read Part 5


Dimension Skipper said...

"In 2005, Humer himself would receive a base salary of 8.4 million Swiss francs, which sounds like a lot of money until you realize that it's barely $8.3 million U.S."


If 8.4 million Swiss francs = $8.3 million U.S., then there's no "sounds like a lot of money" about it, it IS a lot of money. I'm thinking perhaps one of those "millions" should probably be some other decimal scaled value?

Am finding this series of interest.

Steve Salerno said...

I was being ironic/sarcastic, DimSkip. For the benefit of those who might think the Swiss franc is some fractional amount of a U.S. dollar.

Dimension Skipper said...

OK, I just didn't get that. Sorry. I have a literal mind coupled with no concept or experience of monetary exchange rates.

Cosmic Connie said...

I'm truly enjoying this series, Steve, and I think you definitely have the makings of your next book here. Meanwhile, I'm keeping an eye out to see which one of the serial scammers/New-Wage hustledorks (who also famously hate Big Pharma) will quote your work out of context in an effort to promote their own wacko and pricey alt-remedies. Kevin True-dough and his minions come to mind. Of course the counter to that is simple enough: The sins of Big Pharma do not absolve the scammers.

Elizabeth said...

It's probably superfluous to point out that this sorry state of affairs is a result of coupling health care, in its different aspects, with profits.

In countries where medical services are withdrawn from the profit motive, we do not see such flagrant abuses of power, combined with aggressive and often deceptive marketing.

A Swedish colleague of mine, who visited Chicago a couple of months ago, was stunned and appalled by the number and sheer existence of pharmaceutical ads on TV.

In Sweden, as in many other countries around the globe, such advertising is forbidden. It is worth noting that those countries' populations are healthier than Americans, who are bombarded, daily, by hair-raising* pharma ads, some for maladies invented by pharmaceutical companies -- sometimes in cohoots with appropriate medical professional bodies -- just to peddle a new drug. (Like Social Anxiety Disorder, to be treated by Paxil -- now discredited as a remedy for the said made-up disorder and almost everything else.)

*Side effects may include headaches, nausea, explosive diarrhea, kidney failure, pneumonia, aneurysm, stroke, and death. Ask your doctor if Fukitol (also known as Effitall) is right for you.