Known and Unknown (30 page)

As the one making these decisions, I felt a responsibility to meet with as many of the people being let go as I could. I had already been out of a job several times in my life when I left the Navy and after several political campaigns, so I knew what it was like, particularly with a family to support. My words to them were what I felt would be helpful to me if I were in their shoes. I knew they would have to go home and explain their situations to their spouses, children, friends, and neighbors. I told them the truth—that the decision did not reflect on them. The reality was that the pharmaceutical industry and the company were both changing; U.S. companies, including Searle, needed to adjust to globalization. We were eventually able to provide many leaving Searle with outplacement assistance services to ease their transitions.

The rapid changes we were making at Searle caused heartburn for some, especially among our traditional investor base. I decided to freeze the company's stock dividend. This was not a uniformly well-received decision, particularly by shareholders who were accustomed to receiving dividend checks that increased over the years. The idea was to gradually move our shareholder base away from investors focused on dividends to investors more interested in the company's long-term growth.

I also decided to increase our investment in Searle's pharmaceutical research and development with the money we received from selling off some of our subsidiaries. One of my concerns was that the research and development division had too few promising new products in the pipeline. A number of the patents on existing products were expiring and would begin to face competition from generic drugs. I knew we needed to invest more if we were to be a successful research and development–based pharmaceutical company.

One of the more underappreciated aspects of the pharmaceutical industry is the time and investment put into research and development. Time and again the pharmaceutical industry has been singled out as a villain in corporate America and as the main culprit in escalating health-care costs. In fact, pharmaceutical and drug costs are less than 12 percent of the total of health-care costs.
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I never cease to be amazed at people, particularly lifelong politicians of both political parties, most of whom have never created anything of value, savaging those who do. Successful pharmaceutical companies have to invest; that is to say they have to put at risk hundreds of millions of their investors' dollars in an effort to discover new therapies to save lives, extend lives, and improve the quality of lives, and, yes, also to try to make a fair return for their investors while doing so. More often than not, many years of trial and error result in dead ends. But with expensive facilities and talented researchers, breakthrough discoveries do occur. And even when efforts are unsuccessful, they learn what need not be tried again. Because of companies like Merck, Pfizer, Searle, Gilead Sciences, and others, millions of people in our country and across the globe are living longer, healthier lives.

During my third year at Searle, no doubt because of the cost-cutting measures I was implementing, I found myself included in a
Fortune
magazine cover story as one of the supposedly ten toughest CEOs in the country.
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In some quarters it probably helps to be considered a tough boss. But I was uncomfortable with it.

I never thought that being tough was an appropriate or successful leadership approach, nor was it the way I managed. While I wanted everyone to feel the sense of urgency I felt, I found we achieved better performance when we treated everyone fairly and respectfully. Rather than being tough, my goal was to be effective, to achieve results, and to be willing to make difficult decisions even when there weren't obvious, attractive options. Searle was becoming a leaner and more focused operation, and we were increasingly able to leverage its strengths. If the message was coming across that the new CEO meant business, I had no problem with that. We had to drive forward and make the now slimmed-down company more profitable. There was one product in the pipeline that we knew could help significantly. The only impediment was the federal government, which was not a minor one.

 

O
ne of the more unexpected things I discovered as CEO of a pharmaceutical company was that I had to think as much or more about the federal government than I did about our competition. I had known on an intellectual level that government was involved in the private sector in a great many ways, but it was only when I was actually in business that I felt the full impact. The government was a participant in practically everything we did—from the IRS to the Food and Drug Administration to the Department of Justice's antitrust division to the Federal Trade Commission to the Securities and Exchange Commission. We needed government clearance for almost all of our products. We also needed government approvals in each of dozens of other countries where Searle did business.

This was the case with the artificial sweetener Searle had discovered and had been developing for more than a decade. Aspartame was an example of the occasionally serendipitous results from research and development programs. In 1965, a Searle scientist was working on a treatment for ulcers involving amino acids. He happened to have some residual powder from two amino acids on his finger and accidentally discovered the sweet taste of the compound when he licked his finger to pick up a piece of paper.
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We knew that the products from aspartame could help the company, especially since there were questions being raised about the safety of the existing artificial sweeteners, notably saccharine. Searle had put aspartame through an extensive testing process, and the FDA had approved the product for commercial dry tabletop use in 1974. But a year and a half later, eighteen months before I joined Searle, the FDA took an almost unprecedented step when they issued a stay of their earlier approval of aspartame. The FDA had raised questions about Searle's overall research and development activities, which had complicated the situation considerably. There was press speculation that the Department of Justice might indict Searle over allegations that some of the company's research documentation might not have been in order.
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Given the cloud cast over Searle, aspartame began to look much less promising than had been hoped.

I was learning a critical difference between the federal government and the private sector. People in the public sector tend to be praised and rewarded for their efforts or intentions, rather than judged by the results of their actions. What government does is assumed to be respectable and in the interests of the public. The FDA, for example, is criticized only if it errs and approves a drug that turns out not to be safe or effective—as it should be. But there is no criticism of the FDA if it delays the approval of drugs that are safe and could save or extend lives.

Unlike in government, good intentions are not what are rewarded in the business world—results are. What matters is outputs, not inputs—that is to say, in business millions of dollars in investment mean nothing unless there is a fair return. In government, progress is often judged by how much money is thrown at a problem. Federal education programs, for example, are more often measured by the size of the education budget, not by the results they are producing, such as the graduation rate. And regardless of its mistakes, the federal government does not go out of business. If businesses make mistakes, they suffer, lose money, managers are replaced, or the companies go into bankruptcy. So while the FDA could wait as long as it wished in delaying aspartame, Searle paid the price.

The FDA stay of approval gave competitors more time to research alternative products to aspartame. It allowed critics of the sweetener to engage in a public relations campaign, raising concerns in the minds of potential customers, investors, and employees. And, importantly, Searle's patent on aspartame continued to run, thereby shortening the number of years the shareholders would have the financial benefits of patent protection if and when the stay of approval was eventually lifted.

My view was that if Searle had been at fault over any of the research documentation issues that the government had raised, then we needed to figure out promptly what the problem was, fix it, and move on. The most harmful thing would be the continuing stalemate that was so costly to the company. Since there was a real possibility that the stay of approval on aspartame might never be lifted, we had to wean ourselves from the mindset that aspartame might be an answer to Searle's difficulties and focus on other solutions. The day-to-day management of the legal and regulatory issues surrounding aspartame was handled by John Robson.

After years of testing, the FDA's stay of approval for the dry use of aspartame was finally lifted on July 15, 1981. This was six years after the FDA stay of approval had been issued, which meant that Searle's investors had lost that many years of patent protection on what would become a major product.
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With FDA clearance, we moved ahead and invested in the necessary manufacturing facilities and plans to market aspartame under the trade name Equal. Equal became a national success in short order and then an international success under the trade name of Canderel. Millions of those lightblue packets found their way to supermarkets, homes, and restaurants. That was only the start. There were even bigger things in store for aspartame and Searle, thanks to a company called PepsiCo.

In 1983, the FDA gave approval for wet use of aspartame, which meant it could now be used in liquids in addition to the dry use as a tabletop sweetener. As with equal, Searle's creative marketing team decided to establish a brand name for its use in beverages. We called it NutraSweet and gave it a distinctive red-and-white swirl logo. It was one of the early examples of branding an
ingredient
, rather than a product, which thereby boosted the value of both.

The Coca-Cola Company had been among the first to use aspartame in its diet soda Tab. But the company did not use 100 percent aspartame, choosing instead to combine it with saccharin, which was less expensive and more readily available. As a result, we did not allow Coke to use our NutraSweet logo. But if Coke or Pepsi made the decision to go 100 percent NutraSweet in their diet colas, it could change the beverage industry—not to mention help Searle greatly.

As we negotiated with representatives of the soft-drink companies, CBS launched a new attack on aspartame. On the evening news, CBS anchor Dan Rather highlighted some discredited allegations for three nights running in January 1984. Searle had provided CBS and his producers with data and information about the safety of NutraSweet that they did not use. In a letter, Searle's general counsel blasted Rather for “patently absurd” reporting and “manipulative editing.”
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It may have been the first time Rather was caught up in such poorly researched journalism, but it would not be his last. Fortunately, the facts were on Searle's side. Aspartame had gone through one of the most extensive food additives tests in history to earn FDA approval.

Despite the CBS TV attacks, later in 1984 I was contacted by Don Kendall, the CEO of PepsiCo. Kendall confided that a small group at PepsiCo was involved in confidential discussions to abandon saccharin altogether and go with 100 percent aspartame in one of their diet drinks, enabling it to adopt the NutraSweet logo. This was a gamble for the company, since aspartame would increase Pepsi's costs and news reports like CBS's were not helpful in developing public confidence.

Nonetheless, Kendall was inclined to put 100 percent NutraSweet in every can and bottle of their biggest selling low-calorie drink, Diet Pepsi. He thought it would reinvigorate their brand and distinguish them from their competitors. He asked that Searle help share the cost and risks, agree to a reasonable price for aspartame, and provide a sufficient supply to Pepsi. Knowing how important it was for one of the major cola companies to adopt the product, I agreed.
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Kendall was pleased. “Rumsfeld, you are a genius,” he said, adding, “or at least I am going to make you look like one.”
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With Kendall's decision on Diet Pepsi—and a substantial advertising campaign about the benefits of NutraSweet—aspartame became one of the most successful new products introduced in the United States during that period, with sales in excess of $700 million by 1985.

NutraSweet was sought out by people interested in managing their weight and maintaining healthier lifestyles. It is now in use in some five thousand products, reaching hundreds of millions of people in more than one hundred countries worldwide. I never forgot the many years and millions of dollars lost while waiting to get that stay of approval lifted by the government.

 

O
ver my first six years at Searle, the company's earnings per share, as well as its share price, had increased threefold. The overall picture had improved noticeably, but the core pharmaceutical business remained challenging. It did look like we would have some new products by the mid-1980s as a result of our increased investments in the late 1970s, but Searle was competing against larger companies worldwide that were able to outinvest us in research and development.
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To better ensure a stream of new drugs in the decades ahead, the Searle family and the board of directors began to discuss the notion of a merger with another firm.

In the fall of 1985, we began talks with Monsanto, a company that had experience in research and development and was interested in moving into the pharmaceutical sector.
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Though a merger seemed within reach, negotiations got bogged down in the hands of lawyers and investment bankers. I was concerned that over time the merger talks would get into the press. I decided to inform Monsanto that we would agree to the sale of Searle common stock, but only if Monsanto's investment bankers and lawyers could get an acceptable agreement signed and announced before the New York Stock Exchange opened the following morning. If not, the deal would be off. Sure enough, the deal was announced the next morning, shortly before the stock exchange opened.