Good Counsel

July 1, 2006
Pharmaceutical Executive

Volume 0, Issue 0

Jeffrey Kindler holds two blue, diamond-shaped pills in the palm of his hand. One is authentic Viagra, manufactured by Pfizer. The other is counterfeit, maybe bought by an undercover Pfizer investigator, or intercepted when smugglers crossed a border, or perhaps seized in a raid on an illegal Chinese factory. Kindler challenges visitors and fellow employees to tell the difference between the two pills. Neither looks in any obvious way "fake," and no one among the journalists, corporate communications employees, or even security specialists gathered in Pfizer's global security operations center cares to hazard a guess.

Jeffrey Kindler holds two blue, diamond-shaped pills in the palm of his hand. One is authentic Viagra, manufactured by Pfizer. The other is counterfeit, maybe bought by an undercover Pfizer investigator, or intercepted when smugglers crossed a border, or perhaps seized in a raid on an illegal Chinese factory. Kindler challenges visitors and fellow employees to tell the difference between the two pills. Neither looks in any obvious way "fake," and no one among the journalists, corporate communications employees, or even security specialists gathered in Pfizer's global security operations center cares to hazard a guess.

Pfizer CEO Hank McKinnell received a McCloy Award from the American Council on Germany for promoting transatlantic economic ties.

In fact, the two pills are all but identical. Without a laboratory report, most experts would not be able to tell one from the other. And for just that reason, Kindler, the deliberate and measured general counsel, vice chairman, and—if you believe the mainstream business press—candidate to succeed Hank McKinnell as Pfizer's CEO, holds in his hand, both literally and symbolically, some of the most pressing intellectual-property, innovation, and security issues facing the pharmaceutical industry today.

Kindler's List

Unlike early crude counterfeits that emerged when Pfizer launched Viagra (sildenafil) in 1998, Kindler's two pills may well contain nearly the same dosage of active ingredient and react almost identically in the body. Producing such a pill infringes on Pfizer patents and trademarks, including the blue diamond form the company trademarked with the Viagra name. Or one of the pills could turn out to have no active ingredient, or to be poisonous. Introducing it into the legitimate pharmaceutical supply chain might cause problems ranging from customer dissatisfaction to illness or even death. All of these responsibilities, from safeguarding intellectual property to protecting the patient, even tracking down the counterfeiters, fall within Kindler's responsibilities at Pfizer.

Charlene Barshefsky

"The lifeblood of a research-based, innovative company like ours is our intellectual property," Kindler says. "Apart from our people, our most important asset is our intellectual property. That's obviously very critical to innovation and to having the ability and the incentives to develop the new medicines of tomorrow."

In some respects, Kindler was an odd choice to be general counsel and vice chairman at Pfizer. Unlike most Big Pharma executives, he did not come up through the ranks. The company hired him away from McDonald's, where he started out as general counsel but became CEO of outside brands. Why did Pfizer want him?

Marc Brotman

"We were looking for a good attorney," says McKinnell, who recruited Kindler. "We would have preferred somebody with pharmaceutical experience obviously, but we felt we had that capability in house, and it was something over time that Jeff could learn. We ended up choosing the best general counsel rather than the best pharmaceutical general counsel."

Kindler learned the law from masters. After graduating from Harvard Law School, he clerked for two judges, including United States Supreme Court Justice William J. Brennan, Jr. From there he went to work as a trial lawyer at Williams & Connolly in Washington, DC. After making partner, he promptly jumped ship and joined the in-house counsel team at General Electric (GE), which, under the leadership of Benjamin Heineman (himself a Williams & Connolly alum), broke new ground in the late 1980s by hiring blue-chip talent at top salaries.

Aaron Kornblum

After Kindler, at some risk to his reputation at GE, took a seat at the defense table and won a big antitrust case—in which the government accused GE of colluding with DeBeers to fix the prices of industrial diamonds—Jack Welch, then CEO of GE, made him an officer of the company. Later, Kindler would tell friends that he "earned his MBA under Jack Welch." When McDonald's called in 1995, Heineman remembers, Kindler was in his early 40s and had become established and comfortable as a key senior lawyer on one of the top in-house legal staffs in the world.

"He knew he would have to start over in a new industry and reshape an organization with much less talent than he had at GE," Heineman says. "The fact that he took that job at McDonald's is consistent with his willingness to take risks."

Pfizer's Top Lawman

One of his assignments at the fast-food giant was to buy the real estate of Boston Market out of bankruptcy, so that the company could convert the locations into McDonald's stores. However, Kindler felt that the brand was still strong and proposed that the company try to run the locations as Boston Market stores. He got the assignment to oversee Boston Market, and eventually became CEO of all partner brands, including Pret a Manger, Chipotle Mexican Grill, and Donato's Pizzeria. Did Kindler's experience running consumer brands make him a more attractive candidate for Pfizer?

"That played no factor," says McKinnell, who notes that Kindler does blend a rare understanding of business with his grasp of the law. "In fact, we were kind of wondering why he would do that."

The remarks of his boss notwithstanding, Kindler is likely to find breadth of executive experience a key advantage at Pfizer, a company with a bigger budget and more contact with foreign governments than many countries. As the largest company in a heavily regulated industry, Kindler says, Pfizer faces the broadest conceivable range of legal issues: from international regulatory and policy issues to class-action lawsuits; from trademark-infringement litigation to the merger-and-acquisition deals of Big Pharma's pipeline crisis. Not to mention defending 300 patent suits in some 50 countries around the world. The big job commands princely pay. Kindler earned $1.9 million in salary and bonus in 2005, more than any other general counsel in pharma, according to an annual survey of SEC proxy filings by Corporate Counsel magazine. Kindler's annual compensation totaled $5.2 million, including stock options, shares, and other benefits, according to the proxy statement.

Meet the Enemy

"I try to convey to our lawyers that we're not here just to practice law for the sake of practicing law," says Kindler. "We're here to help this business succeed. And one of the distinguishing characteristics of a good inside lawyer, in my judgment, is the ability to look for practical, businesslike solutions to problems, and we try very hard to do that." With 440 lawyers on staff, according to a directory of in-house law departments maintained by Corporate Counsel, that means delegating authority. Kindler meets every couple of weeks with key reports but keeps closer tabs on certain issues, like Lipitor (atorvastatin) lawsuits.

"Leadership is really much more important than management at this level," Kindler says. "And leadership means trying to communicate a set of values and missions to the organization, and then empowering many talented, skilled people to implement them."

New Strategies

Under Kindler, lawyers seem to stretch for new approaches to problems, and to feel free to enlist outside help from unusual sources. Marc Brotman, a Pfizer lawyer assigned to the Viagra group, thought about the nation's e-mail inboxes filling up with Viagra spam (none of which is sent by Pfizer) and called Microsoft for help. He encountered Aaron Kornblum, an attorney who tracks and sues spammers under the CAN SPAM Act, a federal law that allows Internet service providers to bring civil suits against owners of Web sites that send unsolicited bulk e-mail. Some of the spammers Kornblum was chasing turned out to be sites marketing illegal generic Viagra produced in India and diverted to the United States.

"We could go after them for trademark infringement, for false advertising," Brotman says. "But Microsoft brought the spam action to it, and they were able to identify sites when they set up what are called 'trap accounts,' trap e-mail accounts."

Intellectual Property

One measure of any research-based company's success is how well it protects patents at home. Nicholas Groombridge, a partner at Weil, Gotshal & Manges, LLP in New York, is impressed with Pfizer's record defending patents on Accupril (quinapril), Diflucan (fluconazole), Lipitor, Norvasc (amlodipine), Zoloft (sertraline), and Zithromax (azithromycin). But he points to one serious adverse decision on two Neurontin (gabapentin) patents in August 2005. A New Jersey court ruled that the patents were indeed valid, but also decided that products by a dozen generic companies did not infringe on them, and so declined to enjoin the manufacturers from making the drug. "We expect to be able soon to appeal the summary judgment decisions and, pending the outcome of an appeal, hold a full trial on all the issues," Pfizer said in a statement. "If we prevail at trial, then Pfizer will pursue damages from these companies for their at-risk launches."

Says Groombridge: "It looks to me like they've had a pretty good run, particularly in a climate that was hostile to Big Pharma. I think you could give them a solid B+ [for defending their patents]. When it comes to legal expenses, I'd say they are paying between $100 million and $150 million a year to litigate. It's a lot of money, but the upside is far greater than that."

Innovation

Kindler says Pfizer will fight for any patent in any country, no matter how small the drug and how minor the market. However, his approach to protecting innovation goes beyond protecting intellectual property. He recently reached out to Charlene Barshefsky, now senior international partner at WilmerHale in Washington, DC, who served as US Trade Representative during the Clinton administration, to advise Pfizer on foreign policy matters. In particular, Ambassador Barshefsky looks at practices of economic and foreign governments—including their (lack of) transparency and due process, their systems of reimbursement and access, among others—that are often designed to promote the interests of domestic industry at the expense of innovators from abroad. This not only affects pharmaceuticals, but information technology and other industries as well.

"In some countries in Europe, when you apply for a pricing decision," Barshefsky says, "the government prices a brand new innovative drug at the level of generic drugs, so as not to disadvantage their own domestic manufacturers." Such pricing practices, Barshefsky notes, which are often shrouded from public view, frequently save government payers money in the short run, and discourage market penetration for new drugs. Not only do they keep less efficacious drugs on the shelves when better ones have been developed, the equal prices imply that the older drugs are just as good as the new ones.

"It's free-riding on innovation that someone else had to pay for," Barshefsky contends, being careful not to name specific countries. "There is an attempt by many countries to leapfrog into a leading position, but not on the basis of their own innovative research."

It is likely that Kindler, who is responsible for government relations and public policy at Pfizer, will take Barshefsky's policy suggestions to the US government in hopes of improving access to foreign markets.

"I'm spending a lot of time working with our government relations and public policy group to get that message out in an effective way," Kindler says. "Pharmaceuticals is a crown jewel of the US economy and one that should be nurtured, not just here in the United States, but around the world." The recently adopted Australian free trade agreement, he says, "was an example of a situation in which the US government was advocating to another country the importance of transparency and due process and a reasonable system of reimbursement and access that, again, is in everybody's interest."

Regulation

Like most large pharmaceutical companies, Pfizer operates under a corporate integrity agreement imposed by the Office of the Inspector General (OIG) at HHS as part of a settlement of off-label marketing fraud charges against Warner Lambert before Pfizer bought the company. The charges are old, but the agreement was closed on Kindler's watch, and he does not seem to chafe under its restrictions.

"We put in place a very robust compliance program that the OIG has actually complimented us on," Kindler says. "We have very good relations with them; and I think that's the approach you have to take. At the end of the day, being at odds with people who regulate us is not in the interest of the company or, ultimately, of the patients that we serve."

If Kindler accommodates OIG , he takes a hard line on people who threaten the integrity of Pfizer's products and supply-chain. That includes patent and trademark infringers as well as foreign governments whose access policies amount to what he calls "price controls." But no group comes in for rougher treatment than counterfeiters. Under Kindler's leadership, a team of in-house investigators—most of them seasoned professionals with years or decades of government law-enforcement experience—tracks illicit drug manufacturers around the world. To meet the criminals they helped capture, turn to page 52. For a look at technology solutions, in particular radio frequency identification (RFID) tracking to protect the pharmaceutical supply chain.