Pfizer has decided to stop selling Exubera, it's highly self-touted inhalable insulin product. As you have read here before, Exubera may be a technical breakthrough but it's also one without a proven benefit to the consumer. For whatever reason, management at both Nektar (the developer of the inhaler) and Pfizer got too enamored about the technology and chose to put their head in the sand about market demand and acceptance for such a product.
The consequences are devastating for both companies financially and highly damaging to their reputations as both researchers and marketers. On the financial front, Pfizer is taking a $2.8 billion pretax writedown. This, in light of blockbuster sales projections of $2 billion per year and an actual performance of just $12 million.
In case you are interested, here is how the $2.8 billion charge breaks out:
- $1.1 billion of intangible assets from the acquisition of the rights to Exubera
- $661 million of inventory
- $454 million of fixed assets and
- $584 million of other exit costs
On the research front, the new mantra is to fail early. Apparently this did not register with the team responsible for this product or management who continued to back it despite a host of technical roadblocks and safety concerns. What's inexcusable is that doctors and clinicians who work for Pfizer did not stand up and in unison say that a. taking insulin by injection is not such a big deal and b. that doctors would be worried about pulmonary side effects.
On the marketing front, whatever research was done either did not reveal the potential adoption resistance by either physicians or patients or the results were ignored. Even if the clinicians within Pfizer did not identify the potential scientific or marketing issues to the marketers, their own research should have revealed them.
In hindsight, Pfizer is now stating that it will use three fundamental principles that guide its investment decisions:
- it will be realistic;
- it will listen to customers; and
- it will be very disciplined in how it evaluates both internal and external investments
(Note: In another blunder, Pfizer failed to inform its partner, Nektar, that it was taking this action.)
We can assume that Pfizer broke all three of these principles. Since the principles did not exist at the time, I will call them the Kindler principles. Kindler, as you most likely know, is the new CEO of Pfizer.
During the Q3, 2007 earnings phone call with Wall Street analysts, Ian Read, President, Worldwide Pharmaceutical Operations, offered the following answer to the question "Why is Pfizer also not moving forward with the next generation insulin inhalation device?":
"...when we look at the marketplace, there are two barriers, I think. We clearly underestimated the barrier to moving patients or the physician community earlier to Exubera. I think this is one of the major issues we underestimated -- the resistance from physicians and patients to going onto Exubera -- going onto insulin in any form earlier than they have been to date. So that is one major barrier. The second one is, per se, the burden that the Exubera technology represented to the practice, which went from the lung function testing, the training on the device, and while the size of the device may have been a component of that, I think you have to look at the totality of it. And that's what led us to our decision to exit."
The phrasing of this answer is quite interesting since, to this reader at least, it tries to minimize Pfizer's colossal blunder misreading the market. It implies that they should have started an education campaign earlier and thus avoid the adoption issues. The reality of it is that no amount of education would have moved either the physician or patient community to switch to Exubera. Exiting the whole business is possibly gutsy on Pfizer's part and most likely would not have happened under the old management.
Note: As I've stated earlier, taking insulin injections is a lot less painful than using a lancet to prick your finger. This latter procedure is much more distressing to diabetics than injecting the insulin.
I'm hoping, but not betting, that other companies (e.g. Eli Lilly) will take the Exubera mess to heart and rethink their plans to put any type of inhalant or intra-nasal insulin on the market. Diabetics would be better served if the R&D dollars were focused on the development of a non-invasive blood glucose meter and the search for a real cure rather than any chronic treatment method.
Note to Harvard: This would make one fantastic business case.