What the FBI did not know was that no matter who was listed as the owners on corporate registrations, Arthur was always in control. He was a natural puppet master for his tight circle of family, friends, and business associates.1 It meant he gave far-flung advice on every aspect of their budding businesses. He encouraged Frohlich to create a string of new corporations with sometimes similar names, all of which might come in handy as they expanded.I2 Arthur convinced his brothers to add two successful products to the Purdue Frederick line, Cerumenex, a prescription earwax remover, and Senokot, a natural laxative. He also set goals for Mortimer and Raymond to continue clinical research into the organic causes of mental illness.
They occasionally bristled at his overbearing way. Help from Arthur was sometimes a euphemism for micromanagement. The wearying family dynamic was that after Arthur helped them—as he did by paying for their medical educations or funding Purdue Frederick—he made them feel as if they were bit players in his grand play.
In the meantime, everyone agreed Arthur had a knack for making money. He told Martí-Ibáñez and Frohlich that the 1955 launch of Pfizer’s tetracycline was not only an opportunity for a redux to his smashing success with Terramycin but a chance to test the synergy in their parallel businesses.3 II 4
Sackler and his McAdams agency pushed the limits of pharma advertising for tetracycline (Pfizer’s brand name was Tetracyn). Frohlich furtively fed him prescribing data collected by IMS. It helped target those doctors who were big prescribers and most likely to be early adopters of new drugs. It also revealed that physicians were receptive to new Pfizer products because of “the reputation and image [the company] has created with the physician for quality and service.”5
Martí-Ibáñez, who was so busy that he suffered from “headaches and insomnia,” helped interpret the IMS data as a sub-rosa consultant for a McAdams subdivision. He was also publishing scholarly articles in Medical Encyclopedia that hyped tetracycline. Some researchers who published in Martí-Ibáñez’s journals complained their work had been edited to include “repeated reference to Pfizer products” and it “gave the impression it was written for Pfizer rather than for physicians.”7
Sackler’s campaign, aided by Frohlich’s prescribing data and the coverage in Martí-Ibáñez’s journals, helped tetracycline sales far exceed Pfizer’s already high expectations. In just over two years it became the most prescribed broad-spectrum antibiotic in America.8
When Lederle realized that tetracycline was a single atom modification of its Aureomycin, it sued Pfizer and simultaneously filed its own patent for tetracycline under the brand name Achromycin.9 That encouraged other drug firms to reexamine their earlier lab research to determine whether their scientists had also isolated tetracycline but failed to recognize it as a stand-alone drug.10 In what one industry analyst described as “an amazing coincidental discovery of the same substance,” Bristol-Myers, Squibb, and Hayden Chemical filed lawsuits seeking to invalidate Pfizer’s patent.11 Each also filed for separate patents contending they were the rightful owners of their branded version of tetracycline.12
The firms prepared for a protracted legal battle. American Cyanamid, Lederle’s parent, bought Hayden’s patent for $600,000 more than its book value.13 Squibb and Upjohn, two that did not have a scientific claim to a tetracycline patent, agreed to pay Bristol’s litigation costs in return for a sizable discount on their bulk purchases of the drug should Bristol prevail.14
As the industry approached the $2 billion milestone in annual sales by mid-decade, the legal battle over who owned the right to tetracycline attracted the attention of Congress.15 III 16 The House Committee on Government Operations began a two-year probe into whether the FTC and FDA were doing enough to regulate the therapeutic claims made by pharma firms.17 New York congressman Victor Anfuso called on the Federal Trade Commission to “conduct a full-scale investigation” to determine if the companies were putting profits ahead of patients and also to determine if there was genuine price competition.
The FTC had good credentials for such an investigation. Earlier in the decade it had conducted highly praised probes into the oil and steel industries. In fact, four years earlier the FTC had opened a preliminary probe into pharma. It had been sparked by a Yale law school professor who noticed, when he had filled a prescription for antibiotics at his local pharmacy, that three brands of the identical drug were priced the same. That puzzled him since the drugs were made by different companies with different manufacturing and development costs. That professor was married to an industrial economist at the FTC. She opened an official inquiry after he told her what he saw.18 But the FTC did not give it the money and personnel to convert it into a serious probe. Anfuso and many of his fellow Democrats intended to change that. They authorized the budget the agency requested—$4.3 million—and by the end of 1955 the FTC had launched a vigorous new inquiry, in which it subpoenaed tens of thousands of company documents.19 Those provided a rare look at how pharma rivals divided markets and blocked new companies’ access to the market.
That FTC investigation was one of several public relations headwinds that pharma faced that year. It was proving difficult to maintain its postwar image of a selfless industry in which companies shared scientific research in pursuit of drugs that saved millions of lives. While there had been more laboratory breakthroughs—the antibiotic erythromycin (1952), synthetic cortisone (1954), the antipsychotics Thorazine (1954) and Serpasil (1955), and oral anti-diabetic medications Orinase and Diabinese—none matched the excitement penicillin had generated.20
Another problem was that the importance of some 1950s innovations would not be immediately evident. It took more than forty years, for instance, before biotechnology firms turned Judah Folkman’s research on the circulatory system into angiogenesis inhibitor therapies, drugs that prevent cancer tumors from using the body’s blood vessels to grow.21 At the University of Washington in 1953, an Italian physician, Rita Levi-Montalcini, isolated nerve growth factor (NGF) from cultures. Scientists at Stanford and Cornell used genetic engineering on NGF a quarter century later to develop drugs that treated cancer and eye conditions that led to blindness. It took until 1986 for Levi-Montalcini to get a Nobel for her discovery of NGF.22 The same happened with two Burroughs Wellcome biochemists who had little success in blocking enzymes to develop an effective leukemia drug in 1953. Thirty-five years later the pair won the Nobel for their research, which led to immune-suppressive drugs that made organ transplants a reality and provided treatment for a broad range of severe autoimmune disorders.23 And finally, a British researcher discovered interferon in 1957, but it took thirty years before gene-cloning technology allowed it to be converted into an effective drug against some cancers.24
Any laboratory advances were overshadowed in April 1955 when Cutter Laboratories, one of four pharma firms the government had selected to produce the polio vaccine, shipped vaccine lots contaminated with the live virus. More than forty thousand schoolchildren in five Western states fell ill, two hundred were permanently paralyzed, and ten died.25
Cutter—today best known for its insect repellants—had failed to follow Jonas Salk’s protocol for deactivating the virus with formaldehyde. A National Institutes of Health epidemiologist responsible for testing the vaccines had found live virus in Cutter’s version and warned the NIH director. He disregarded her findings.26 Wyeth—which had been acquired by American Home Products, whose successful products included the over-the-counter analgesic Anacin, the hemorrhoid cream Preparation H, Black Flag insecticide, and Chef Boyardee canned ravioli—also produced vaccine with traces of live virus, but only the Cutter lots made people sick.27IV
The fatal mistakes prompted the surgeon general’s call for stricter testing and safety protocols for vaccine production. The NIH’s division for regulating vaccines expanded in a year from 10 employees to 150.28 In Congress, for the first time, pharma became a target. Repeatedly in debates over what safeguards should be implemented to prevent a repeat disaster, regulators rebuked drug firms for worrying that stricter safety regulations would be too costly.29
Following the lead of the FTC, the House Subcommittee on Intergovernmental Relations began a wide-ranging investigation of the firms that produced vaccines. The probe targeted not only whether they had cut safety to save money but also if they had fixed vaccine prices. The industry was justifiably concerned about the reputational damage that would be an inevitable by-product of two major government inquiries.
More bad news came in December 1955 in a scandalous New York criminal trial.30 A jury found John G. Broady, an attorney and private investigator, guilty as the “prime mover” in a conspiracy that tapped the phones of prominent politicians and businessmen.31 A subplot in the front-page coverage of City Hall dirty tricks involved corporate espionage at the highest levels of the pharmaceutical business.
One of Broady’s clients was Robert Porter, Pfizer’s general counsel. Porter had paid Broady $60,000 ($572,000 in 2018) to spy on dozens of Pfizer executives as well as tap phones at Squibb and Bristol-Myers headquarters.32 Bristol seized on that testimony and tried to leverage it against Pfizer in the ongoing tetracycline litigation.33 Pfizer’s chief counsel denied under oath that he ordered any spying but Bristol threatened to sue claiming that Pfizer’s tetracycline patent was the result of confidential data illegally obtained by the wiretaps.
Pfizer’s CEO, John McKeen, held a summit with Bristol’s vice president, Frederick Schwartz (in another eighteen months, Schwartz would be the company’s first non-Bristol-family-member president). McKeen convinced Bristol to pause its legal action while the five companies fighting over the rights to tetracycline redoubled their efforts to reach a negotiated settlement. Several months of intensive talks resulted in a sweeping March 1956 agreement that ended the litigation before the Patent Office and federal courts. Lederle, Squibb, Bristol, and Upjohn acknowledged the validity of Pfizer’s patent. Pfizer and Lederle had secretly agreed that whichever of them prevailed on the patent claim, the other would withdraw its action in return for a favorable licensing agreement.34 Pfizer executed a series of complex cross-licensing, assignment, and distribution agreements that allowed those firms to sell their own brands of tetracycline; Lederle got better terms than the others.35 Industry analysts wondered whether the five rivals would soon be engaged in the same cutthroat price discounting that had decimated profits in the penicillin and streptomycin markets.36 Tetracycline would only fulfill its bottom-line promise if its price remained stable.
In the wake of the settlement, all five firms offered a standard pack of tetracycline (sixteen capsules of 250 milligrams each) at $5.10. That was the price set by Pfizer and Lederle. It did not seem to matter that all had different production costs.37 Upjohn and Squibb did not manufacture the raw material needed for the drug, instead buying it in bulk from Bristol, making manufacturing expenses for Upjohn and Squibb three times costlier than its competitors. Still, neither charged more for their tetracycline. No firm offered a discount.38 All submitted the same prices when making sealed bids for federal and state government contracts. Nor did the prices vary in thirteen other countries where they sold the drug.39 The five firms controlled the market and reaped hundreds of millions in earnings. That prices did not budge for the rest of the decade, concluded John Braithwaite, an Australian professor of business regulation and white-collar crime, was “either the result of price fixing or coincidence that defies belief.”40
Confirmation that something was not right on the unmovable tetracycline pricing was what happened with the industry’s second-biggest market, corticosteroids. Schering got a patent in 1955 on prednisone, which it claimed was several times more potent than previous patented versions of cortisone. Merck, Pfizer, Upjohn, and Parke-Davis filed for their own patents and contested the one granted to Schering. Just as had happened with tetracycline, the companies resolved the matter with a series of complex cross-licensing and royalty agreements. And the five supposed rivals kept their prices uniform at $17.90 per one hundred 5-milligram pills. It took a Mexican drug company, Syntex, to spark a price war by selling bulk prednisone at one fifth the price of the U.S. firms.41
There was no equivalent of Syntex for tetracycline. As a result, the gross profit margins for those firms topped 75 percent. Pfizer and Lederle between them boasted half of the broad-spectrum market.42 Lederle antibiotics profits offset losses in the rest of its poorly performing drug division. Pfizer’s revenues had increased 600 percent since the end of the war and tetracycline was responsible for more than 80 percent of its profits.43 The companies used some of those gigantic returns to begin the expansion that in the next decade would transform them into powerful multinational conglomerates.44
I. In addition to L. W. Frohlich, there was soon Intercon Inc., Intercon International Inc., Intercon International Marketing Co. Inc., Shelfco Trading Co., IMI Liquidating, and IMTD Corp., most with their offices listed at 34 East 51st Street, New York, the same as Frohlich’s advertising agency.
II. While Pfizer and Sackler prepared for the tetracycline release, pharma competitors joined forces to wage a campaign against the discretion of pharmacists to substitute a similar drug for a prescribed one. What good was a drug patent that protected a firm’s exclusive rights to sell it if pharmacists substituted a competitor’s version? The pharma industry’s intensive lobbying campaign succeeded in a few years to convince forty-four state legislatures to outlaw drug substitution by pharmacists.
III. When the industry sales passed $2 billion, prescription drugs accounted for all but $3 million. The pharmaceutical companies had destroyed any vestige of patent drugs. They had not yet begun concentrating on the over-the-counter market for medications that would in coming decades be a significant part of revenues and profits.
IV. Fears over the safety of Salk’s vaccine led to its replacement in 1963 with a live-virus vaccine developed by Dr. Albert Sabin. It had the benefit of oral administration, although it also was more dangerous since it occasionally produced polio in a small number of patients. Prior to its nationwide rollout in the U.S., human trials for that vaccine were given to about a million people in what was then the Belgian Congo.