In preparation for a possible split of the company, Pfizer (NYSE:PFE) is experimenting with innovative direct-to-consumer approaches.
Selling Viagra directly to customers from its own website, heavy advertising on television to a mass audience, sidestepping wholesalers in Australia, acquisition of OTC drugs and deals with generic drugmakers are all part of a marketing experiment to find innovative ways to sell lifestyle drugs directly to the buyers.
Unscrupulous online pharmacies offer patients fake Viagra and other brand-name drugs for up to 95 percent off with no prescription needed. Patients often don't realize that the drugs are fake or that legitimate pharmacies require a prescription.
Crooks running the illegal online pharmacies explain the low price, (Viagra often for $1 to $3 a pill), by claiming they sell generic Viagra. But there is no such thing as generic Viagra. Pfizer has patents giving it the exclusive right to sell Viagra in the U.S. until 2020 and for many years in other countries.
As a countermeasure, Pfizer has decided to sell Viagra through its own website, Viagra.com. The prescriptions will be verified and the product shipped by CVS Caremark Corp. (NYSE:CVS), because by law, drugmakers are not allowed to sell directly to patients.
Bashful patients still need a prescription, but they won't have to face a pharmacist to get it filled. And Pfizer is offering three free pills with the first order and 30 percent off on the second one to soften the blow of the $25-a-pill price.
It is not the first time that Pfizer has collaborated with a pharmacy to sell directly to consumers. After Lipitor lost U.S. patent protection in late 2011, the drug maker began mailing Lipitor directly to patients in a partnership with Diplomat Specialty Pharmacy in Flint, Mich.
Viagra is Pfizer's most counterfeited medicine; more than 9.5 million bogus tablets were seized last year. There are almost 24 million searches a year for Viagra online, said Victor Clavelli, senior director in Pfizer's primary care unit, in a company statement. 36 percent of the 1,000 men surveyed by Harris Interactive two years ago said they would consider making a purchase over the Internet.
In 2011, Pfizer Global Security evaluated 22 websites appearing in the top search results for the phrase "buy Viagra" and conducted chemical analysis of the pills advertised as Pfizer's Viagra. The study found that about 80 percent of these pills were counterfeit, and while the fake Viagra pills contained the active ingredient, sildenafil citrate, the amount was only 30 to 50 percent of what was advertised.
Fake online pharmacies and the products they sell are an escalating public health threat. Consumers have difficulty distinguishing the legitimate from the fake pharmacies, yet more than 1 in 3 (36 percent) would consider purchasing erectile dysfunction medicines online.
Pfizer says it launched the home delivery of Viagra to help patients to avoid websites selling counterfeits. Through Pfizer's website, standard shipping is free. But if you've got a hot date this weekend, you'll have to pay extra for expedited shipping.
It's difficult to put a dollar figure on how much money Viagra is losing to counterfeit drugs that are sold online, but according to some reports, it could be losing hundreds of millions of dollars to men who are either too embarrassed to buy the drug through traditional channels or too strapped to afford the full price.
A great deal of money is spent on direct-to-consumer advertising. Although spending slowed somewhat from the $5-billion-a-year highs set during some years in the last decade, the sums spent are still large.
According to Nielsen, the TV polling company, the top ten spenders last year spent $2.7 billion on ads for TV, magazines, newspapers, radio and billboards. Two-thirds of the amount went to television.
Pfizer, the biggest spender in 2012, spent $342.7 million on television of a total advertising budget of $622.3 million. It spent $129.8 million on promoting Celebrex, $107.9 million on Viagra and $91.7 million on Lyrica.
These ads bypass healthcare providers and promote their products directly to consumers by influencing patients to ask their doctors for brand-name drugs sold by the company.
But do they work?
Yes, according to at least one survey published by the Henry J. Kaiser Foundation. 44 percent of adults reported they received prescriptions after asking their doctors about medications they saw on television.
The U.S. and New Zealand are the only countries in the world that allow direct-to-consumer medical ads that include product claims.
Advertising can useful for introducing new products. A full promotional campaign was launched in March for Pfizer's newly approved rheumatoid arthritis drug Xeljanz, and direct-to-consumer advertising is planned for the summer.
In the second half of 2013, a major campaign will be started for anticoagulant Eliquis, once the six month of advertising moratorium period is over and the FDA and OPDP (Office of Prescription Drug Promotion) permits are obtained.
Pfizer tried something different in Australia. In 2010, Pfizer decided to sell prescription drugs directly to pharmacies rather than sell through wholesalers. And according to Credit Suisse, this decision cost over $1 billion in revenues per year for wholesalers.
Why would Pfizer make such a drastic move?
Pfizer's Australia managing director, Mr. John Latham, explained the reason: "In order to develop stronger partnerships with pharmacists and better adapt to the changing environment, we have decided that a dedicated field force with specific pharmacy experience and a direct distribution model for all our prescription medicines sold into community pharmacy are critical."
After losing patent protection on Lipitor and some other well-known brands, by re-establishing relationships with pharmacies, Pfizer had a better chance of solidifying its image as a generic drug maker by going direct.
Pfizer once had a large consumer-health products business, but sold its portfolio, including Listerine, to Johnson & Johnson (NYSE:JNJ) several years ago.
But the company now has several well-known consumer health products again, including ChapStick, Centrum vitamins, the Dr. Scholl's foot care and Coppertone sun care product lines, acquired through the Schering-Plough Corp purchase in November 2009.
Nexium was the world's fifth-best-selling medicine last year, with global revenue of nearly $8 billion, according to IMS Health. The drug has long been touted in TV commercials as "the purple pill" that stops heartburn for 24 hours.
Pfizer said it is planning to apply to the FDA in the first half of 2013 for approval of nonprescription Nexium in 20-milligram, delayed-release capsules and also an application to sell the same dosage, but in tablet form, was filed with the European Medicines Agency.
If approved, Pfizer plans to launch over-the-counter Nexium in the U.S. in 2014. AstraZeneca will still manufacture and sell prescription Nexium, and will supply Pfizer with the nonprescription version.
The FDA is supporting the trend: it unveiled a plan to make more drugs available over the counter, saying easier access to treatments for hypertension, high cholesterol and other ailments would encourage patients to stick to therapeutic regimens while freeing up doctors to focus on patients with more serious illnesses.
Viagra is still one of Pfizer's star products, with about $2 billion in sales last year. But the drug faces threats on a number of fronts, not just from cheap counterfeit versions, but also from legitimate rivals.
Viagra's share of the $5 billion global market for legitimate erectile dysfunction drugs fell to 39% last year from 46% in 2007.
Pfizer's move against counterfeit drugs is also seems like a good way to recapture patients from competing brands for erectile dysfunction like Eli Lilly's Cialis and Bayer and GlaxoSmithKline's (NYSE:GSK) Levitra.
In the first quarter of 2013, Viagra sales were $461 million world-wide, down 7% from the same period in the previous year, while Cialis sales were up 11%, partially due to increased prices in the U.S.
Like Viagra, Levitra sales could use a boost; sales were down 9% year over year in the first quarter.
Pfizer's potential long-term plan to split up the company into innovative drugs and generics requires that it strengthens both.
Paying more attention to OTC drugs and reorganizing the distribution channel goes a long way to reinforcing the generic side.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.