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Biopharma: The Next 10 Years

Pfizer: Irrational EXUBERAnce

ExuberaThe other shoe has dropped!

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.


robert price

Mr. Smith

Your 21 October 1977 posting raises some good options. Would you kindly communicate with me via e-mail. I have read the "Deceitful Turkey."

Pharma Giles

Excellent article. How many times can companies make such huge mistakes in todays climate. The answer should be never but suprisingly they get away with massive errors. I hope the industry sees this as a wake up call.



Mr. Farrell, you are right, I do not have diabetes. However, my wife has been a type 1 diabetic for over 33 years, takes insulin 4 times a day and also has to monitor her blood glucose fairly often. So, I am living with diabetes and worry about extreme lows all the time. This is one reason that I have taken such interest in Exubera and, indeed, any diabetes advance. Your points are very ligitimate and although I did not say it in so many words, a key failing by Pfizer and Nektar was not having talked to patients and/or physicians about their needs and daily hassles. I still believe that doing a finger prick to get a drop of blood causes a lot more anxiety than doing the insulin injection. So, this is why I would still like to see a non-invasive glucose monitor AND a real cure for the disease itself.

Bernard Farrell

Mr. Lazlo

All good points, though I suspect (based on how you write) that you don't actually have diabetes. There are people with diabetes, especially Type 2, for whom injections are really difficult. An alternative delivery mechanism for insulin would be ideal for this population.

Problems with Exubera included a very complex dosing mechanism, an overly large and poorly designed delivery mechanism, and not enough information on long term pulmonary issues.

I do hope that before another drug maker tries a novel delivery mechanism targetted at the diabetes marketplace they first actually consider TALKING with people who have diabetes. There are a large number of active diabetes bloggers (including me) and I think many of us would be happy to try and improve the state of diabetes management if we were asked.

John L. Smith

While this is a classic blunder, the suggestion that the money would have been better spent developing a noninvasive blood glucose monitor is not a good one. Almost the same amount of money has been spent in that pursuit (see the book published on the web at http://www.mendosa.com/noninvasive_glucose.pdf), and the big companies who have been involved in the pursuit to date have made even worse technology choices.
Basic research into the fundamental issues with diabetes and new treatment modalities might have been the best use for the $2.8B.

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