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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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April 8, 2009

Pfizer's New Structure: Good Luck To All

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Posted by Derek

So Pfizer's announced its post-Wyeth structure, and on the face of it, the plan makes as much sense as you can make of such a massive organization. The big divide is between small molecules and biologics, which makes sense - the two of them have different R&D, manufacturing, and regulatory issues in many ways. Besides, that's how most companies already divide things up internally if they do both.

There's a lot of brave talk in the press releases about how Pfizer has learned from its past mergers, how this organization will be ready to take wing just as soon as the last signature is put on the last form. I'm not buying it. It's good to hear that the company realizes that the previous mergers led to so much disruption and lost time, but I don't see how good intentions will help that much. There is no way, as far as I can imagine, to integrate ten billion dollars worth of R&D in an orderly fashion. The best that they can hope for is "not as hideous as the last couple of times", but I suppose the lawyers wouldn't sign off on that language as appropriate. And even that's a fairly ambitious goal.

We won't know for years if they've succeeded, either. The final measure is the productivity of the new organization, and for some time they'll be running on what was already in the works at both companies before. That, as I've said before, is one of the hardest things about the drug business: the lag time before you see results. You can change the early R&D, and see in a year or two if you've started more projects than you used to. But you won't know if they were good projects (or better ones, anyway) until they've run for a while. Maybe you just lowered your standards and initiated a bunch of stuff with a higher failure rate?

For that to resolve itself, you have to see how many of these new-regime projects make it all the way to the clinic. But then you'll have to wonder if you've just thrown some exhausted, just-barely-there stuff over the wall to declare victory - everyone who's worked in a big pharma organization has seen that one. The real measure of success in this industry is how many things come out of the clinic alive, and that's so dependent on luck (since we don't understand enough about toxicology and drug mechanisms), that those numbers may not reflect anything you're doing particularly right or wrong. No one at Pfizer saw torcetrapib's horrible failure coming, for example.

But hold on - another real measure of success in this industry, when you get right down to it, is money. Did those projects you started, took to the clinic, got through human trials, took to the FDA, and got out onto the market ever pay for themselves? There's always the possibility of an Exubera, to pick another example from Pfizer's recent past. And now we're up to ten or twelve years since you overhauled basic R&D. How many overhauls have you done since? Who's to say what thing had which effect and how? Pfizer can tell you about that, too - the dust hadn't settled from the Warner-Lambert deal when the Pharmacia one went through.

So, yes, we'll see about all this. But we won't see for a while, and when we finally do see, it'll probably be impossible to say just what we're looking at.

Comments (31) + TrackBacks (0) | Category: Business and Markets


COMMENTS

1. The Pharmacoepidemiololgist on April 8, 2009 10:32 AM writes...

Actually, you'll know a lot sooner than you think. There's this futures-discounting industry called Wall Street. Imperfect, to be sure, but it does manage to do the job of discounting future success. In a couple of years, look and see if the share price has budged much.

One of the reasons for PFE buying WYE was to support its massive stock price--not that PFE was going up on its own so well. On the other hand, what has PFE been producing in the way of innovation, or even new products, during the past 5-10 years? Not much? That sure concords with its stock price movement.

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2. startup on April 8, 2009 10:32 AM writes...

I sincerely wish them the best of luck. Not because I particularly like Pfizer, I don't, but for the simple reason that if this merger is not profitable they will just come back and gobble up the next company.

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3. Hap on April 8, 2009 10:52 AM writes...

1) Isn't it sort of problematic to do something whose outcome you can't measure or understand in a meaningful way? Stock price is essentially the opinion of lots of people as to whether a merger is effective, but they can't observe anything meaningful either (and they have significantly less data on which to base their conclusions than people inside the companies who still don't know). Even if the company succeeds or fails, you won't know what caused the success or failure - stock price is only a measure of overall success or failure rather than of specific decisions, on which it is an opinion poll, worth more than most only because cash backs it, and not because of added knowledge.

On the other hand, it makes sense if you get bonuses and pay based on the merger - if no one can tell if the decision to merge was good or not, you can pay yourself and take credit if it succeeds or blame the component companies or something else) if it fails.

2) The combined company may want to facilitate the merger, but the 15k? 25k? employees who will be laid off with no good prospects of employment may not want to facilitate it so much. People have trained their replacements lots of times before, but if the situation is complicated, there plenty of room for a little added obfuscation.

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4. David Pearlman on April 8, 2009 12:06 PM writes...

I defy you to name for me a single big pharma merger (big pharma + big pharma) that, after a few years, didn't amount to the following:

1) A merger of the intellectual property profiles of the two merged companies
2) Reduction in headcount of approximately 70-100% of the smaller of the two merged companies
3) No appreciable notable improvements in efficiencies, speed of the initiation->market process, etc.

The bar is therefore very low for the Wyzer (Wy-Phi) merger. Oops, I meant aquisition. (Ironically, in light of yesterday's announcement, this aquisition looks more like a merger--with retention of Wyeth's biologics management--than many so-called mergers). Do I think they can jump that bar? I'd say it would be hard not to. Do I think that in a few years time they'll be teaching this as a case study at Harvard Business on how such a merger, er, aquisition, should be carried out? I am not convinced, but it would be nice to find that Pfizer has learned something, and that what they've learned works not only on paper but in reality.

In the meantime, they haven't figured out to avoid the huge staff reductions, and I expect the next year will be a very black period for a lot of people at the two companies. Yesterday's announcement suggests the following to me:

Researchers in Pfizer's small molecule discovery divisions will mostly survive, as will researchers in Wyeth's biologics/anti-virals divisions. The small molecule people at Wyeth and the biologics/av people at Pfizer should probably be networking for a fall back position at this point.

One question that is not addressed at all in yesterday's announcement is where the new company will be located, physically. The two companies have too many physical research sites at this point, some of which even overlap (Boston area), so it is almost a certainty that some will close.

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5. Hap on April 8, 2009 12:37 PM writes...

I don't think avoiding large staff layoffs is ever an issue with a merger - much of the "synergy" counted on to make the merger financially successful is the ability to cut lots of payroll, because it looks to good to the people who buy the stock.

It sort of puts the lie to mergers trying to make development more efficient - if you could actually make things more efficient with a merger, then having the same number of employees would generate more profit relative to the separate companies, and would make more money than a company with fewer employees (though the same return - which may explain some of the reduction). If you can't tell whether you're getting the same amount of work done (or can't tell what connection output has to the merger) then you can't know whether you've made the companies more efficient by merging.

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6. CMC Guy on April 8, 2009 2:25 PM writes...

"Did those projects you started, took to the clinic, got through human trials, took to the FDA, and got out onto the market ever pay for themselves?" The picture here is complex too as this is skewed by a couple issues. Drugs that reach the market are paid for by past or (potential for) future profits. Companies pay "as you go" for today's R&D from earnings on already marketed products or in some cases VC or Stocks will fund projects that will (hopefully) payoff with high ROI. Likewise Pharma. particularly Big Cos, must burden in those high failure rates so every success must make up for the costs associated with drop outs. Smaller outfits typically can not tolerate much failure and will disappear altogether if that happens.

Declining Profits/Increased Price Pressure will/has hit R&D hard thereby reducing capabilities to address issues (and become self fulfilling prophecy in lack of innovation).

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7. Pfizerite on April 8, 2009 6:49 PM writes...

Hi,

1. the 'divide' between biologics and ordinary chemicals is not real. There are a lot of reporting relationships that cross the divide, and a lot of strange allegiances (like the anti-inflammatory unit in the biologics structure) that make no sense whatsoever. Typical Pfizer 'wisdoom'. Like keeping MM.

2. The effects of this acquisition on R&D will be impossible to quantify as the company will restructure and change things several times in the next few years. Go figure what change resulted in what effect - I dare you.

3. Don't forget the neuroscience changes that are coming - take a look at who's running this unit.

4. There will be around 50K layoffs aggregate over the next 2-5 years. Expect more outsourcing to CRIB countries.

So, what's there to like about this?

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8. Chrispy on April 8, 2009 8:55 PM writes...


I, for one, cannot believe that I have put all the effort into a PhD and freaking hard work to get into an industry like this. Wah, wah -- I know.

I should have spent my time on on table tennis, bong hits, and iPhone apps.

Lesson learned.

Permalink to Comment

9. Pfired on April 8, 2009 9:05 PM writes...

To be fair, I think Kindler is doing a good job this time. I agree that Wyeth small molecule and Pfizer biomolecule will be hit hard. Here is the guess ----- St Louis and Collegeville are gone; Pearl River and Sandwich are in danger; Pfizer manufacturing will be cut to bone.

Permalink to Comment

10. LFree on April 8, 2009 11:38 PM writes...

The real measure of success is money, and Pfizer has the most of that (so far). Have the readers and the blogger cost more money than they have created (and/or productivity) over a career (so far).

Permalink to Comment

11. Jose on April 9, 2009 1:10 AM writes...

"Same-same but different!" Duh!

Permalink to Comment

12. Damien Bove on April 9, 2009 2:40 AM writes...

Its the same Merry go around that we always see, merge - phew relax for 5 years and then merge again. Sometimes it makes sense and sometimes it doesn't all I know is that the companies use it as an excuse to ditch more and more of their discvory arms. Big Pharma are like upturned iceburgs, the mass of their structures beign visible and the invisibale discovery element gets smaller and smaller. I'm not saying that is wrong, I personaly think its right, its just a fact.

Permalink to Comment

13. drug_hunter on April 9, 2009 4:52 AM writes...

From what I've heard, morale at Pfizer research was already quite low because of the most recent layoffs. Can anyone with firsthand knowledge of the situation comment on how yesterday's re-org announcements are going over?

Permalink to Comment

14. LNT on April 9, 2009 5:35 AM writes...

Pfired writes: "Here is the guess ----- St Louis and Collegeville are gone; Pearl River and Sandwich are in danger"

Do you really think Collegeville is gone? What about Princeton and CAM? Those seem like more likely candidates to me. How big is the STL site? Collegeville has ~3000 while Princeton has only a few hundred.

Permalink to Comment

15. David Pearlman on April 9, 2009 8:54 AM writes...

I agree with LNT (I thought you went out of business, incidentially...): Based on size, Princeton seems a more likely candidate for closure than Collegeville. Not that that means anything. Size does matter, but it's not all that matters, here or elsewhere... :-)

From what I hear, the WyPhi merger has created considerable anxiety at Pfizer, which is not quite the same as lowered morale. Yes, they're correlated, but as we learned last week, correlation is not always causation. Though, on the other hand, this time...

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16. startup on April 9, 2009 8:57 AM writes...

#10
Yes they have the money, but we've all seen what happens to the companies with lots of cash and nothing that public wants. Pfizer have seen it firsthand, having had a facility not far from one.

Permalink to Comment

17. David Pearlman on April 9, 2009 9:52 AM writes...

One thing that hasn't been mentioned in this thread, and I think deserves mention: In the current economic environment, cash is king, queen, and the entire royal court. Those with large piles of cash will increasingly get to make the rules.

Until the Wyeth deal, Pfizer was sitting on an enviable mountain of cash (more than $20 billion). Yes, a lot of it was outside the US, and would probably be subject to repatriation costs if/when brought back into this country. But their cash position was incredibly good. For the Wyeth deal, they've not only burned that cash, but gone into additional debt via recently issued bonds.

Now, while it is possible that the synergies of the merger are just too great to resist, an alternate scenario would have Pfizer sitting back and picking off (on the cheap) the IP of small biotechs with promising programs who, in the current environment, simply cannot get additional financing. Per a recent Wall Street Journal article, there are about 250 publicly traded small biotech companies, and HALF of those have less than 6 months operating cash left--and for most, there's no outlet for additional financing. The VCs I've spoken with seem to feel comfortable with an estimate that about half of the 250 publicly traded small biotechs will disappear in the next year. New IPOs are pretty much dead. VC funding is such that whereas in good times you could expect to give away about half the company for your first round financing, now that number is up to around 90% (!!!) And for most, you'd be lucky to get anyone to commit financing even at 90%.

All of which is a roundabout way of saying that the financial/VC markets are very tight and one would expect a lot of very good opportunities to present themselves in the near future. When they were sitting on all that cash, Pfizer was enviably poised to take advantage of some of these. Now? They have little cash, and lots of merger related fires to distract them anyway.

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18. smurf on April 9, 2009 12:10 PM writes...

LaJolla will be gone.

Permalink to Comment

19. Confused on April 9, 2009 12:28 PM writes...

What confuses me in this whole deal is how R&D will be structured. Sure, you divide it into biologics and small molecules. But then you appoint "world class scientists" as CSOs for smaller units (oncology, CNS, etc). Those units will use both biologics and small molecules, so who does the CSO report to? In today's "in vivo blog" podcast, MM and MD did not really address this question....

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20. Confused on April 9, 2009 12:29 PM writes...

What confuses me in this whole deal is how R&D will be structured. Sure, you divide it into biologics and small molecules. But then you appoint "world class scientists" as CSOs for smaller units (oncology, CNS, etc). Those units will use both biologics and small molecules, so who does the CSO report to? In today's "in vivo blog" podcast, MM and MD did not really address this question....

Permalink to Comment

21. Anonymous on April 9, 2009 6:54 PM writes...

LNT said "Do you really think Collegeville is gone? What about Princeton and CAM? Those seem like more likely candidates to me. Collegeville has ~3000 while Princeton has only a few hundred."

Pfizer has already said they intend to lay off something like 20k employees from the combined company. 3k at Collegeville would be entirely consistent with that plan, and would save a lot more money than the few hundred at Princeton.

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22. Petros on April 10, 2009 7:10 AM writes...

Pfired

Why should Sandwich be under threat. Hasn't it been the major source of innovative NCEs within Pfizer for years?

Permalink to Comment

23. Alig on April 10, 2009 7:47 AM writes...

LOL Petros,
Success is never a factor in determining which sites get shut down. The most important factor is proximity to the decision maker's home or if it a place they like to visit.

Permalink to Comment

24. Hap on April 10, 2009 10:00 AM writes...

I assume the relevant difference between small molecules and biologics is the ability to make generics for the former and the inability (or extreme difficulty) in doing so for the latter, effectively giving biologics a much longer sales lifespan for the company than small molecules. Of course, that assumes that there's a lack of biosimilar policy to inhibit the development of biogenerics, and that the biologics are developed for indications for which people are willing to deal with the problems (need for injection or going to a doctor) they may pose. The merger might be a high-stakes bet that neither of those events will occur. I don't know how good an idea that is.

Permalink to Comment

25. Anonymous on April 10, 2009 7:20 PM writes...

Rumor has it that Hassan would be CEO of Pfizer soon. His immediate objective would be to negotiate with his old buddy at Merck to get another reverse merger going. But this time, he promised he would also merge the name of the company and call it "Pfizerck".

Permalink to Comment

26. Anonymous on April 10, 2009 7:23 PM writes...

25. Funny. But I have heard that he was going to become the president of Pakistan and then sells it to India in a reverse merger.

Permalink to Comment

27. Anonymous on April 10, 2009 7:27 PM writes...

This is just the first step for Pfizer. The next step is to hire Merck's Peter Kim to be the global research head and Kathleen Metters to manage all the sites. She knows how to cut.

Permalink to Comment

28. ex-wyethite on April 11, 2009 7:40 PM writes...

Pfizerite is right.

Within three years, half of Wyeth will gone. And in 5 years, the other half will be gone. All of R&D will be gone in 3 years. Its their plan.

Permalink to Comment

29. Meet me in St Louis on April 12, 2009 9:36 AM writes...

St Louis is 1200 FTE at the moment and three sites are being consolidated into one in Chesterfield.

The internal local move overlayed with the global announcements and recent layoff brings a unique experience to the term corporate change. The unique new facility is impressive.

What we do not know, is the future even with all the immediate change.

Yet the pipeline moves on until I hear otherwise.

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30. Anonymous on April 13, 2009 7:08 AM writes...

All the big pharmas are doing the same. Research at pharma becomes harder and harder. Bad news for both the industry and employees. But good opportunity for the top executives (Hassan, Clark, etc,) to make money and claim accomplishments.

http://pipeline.corante.com/archives/2009/03/27/layoffs_at_merck.php

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31. Mad scientist on April 15, 2009 2:00 PM writes...

Princeton is home to Neuroscience, and with Dr Pangalos (former head of Wyeth's CNS dept) being named the head of the combined combined company's NS dept, there is a good chance it will remain open. Or at least people who work there are hopeful.

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