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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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October 20, 2009

What Pfizer Will Look Like in a Year

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Posted by Derek

The Wall Street Journal's Health Blog got a chance to ask the higher-ups at Pfizer what their R&D will look like a year from now. Their (understandably) not too-in-depth answers are here: Decentralized research units, with some functions run company-wide, and this quote: "There are elements of drug discovery and development where you just need scale".

Well played! I wouldn't expect anything less. But are there elements of drug discovery and development where scale - massive, ponderous, hundreds-of-vice-presidents scale - actually hurts? I don't think you're going to hear that topic brought up very much at Pfizer, at least not out in the open. And let's not lump those two functions together: drug development benefits from a company's size a lot more than drug discovery does. Once you've gotten to a critical-mass level, sheer size (as far as I can see) does nothing to help productivity in drug discovery, and actually seems to damage it. As evidence for that statement, let me point to Pfizer's internal research record, as opposed to the stuff they've gone out and bought.

And what might be refreshing is an admission that big mergers - drag-on-for-months am-I-going-to-still-be-here mergers - come with an acute productivity penalty no matter what. I may have missed it, but I don't recall hearing anyone from Pfizer say anything like "Although we know that this is going to be a huge disruption, we think that in the end it'll be worth it". No, it always seems to be the Day One, hit-the-ground-running, now-the-synergy-starts stuff, which is just not in sync with reality.

Well, we can come back in a year and see what Pfizer's R&D operation really looks like. But I'll venture a guess: huge. Unwieldy. Not as productive as you'd think it should be. Still rearranging and getting smaller as the company tries to figure out how to make it all work. And looking over its shoulder for the next big acquisition. Anyone want to bet against any of those?

Comments (23) + TrackBacks (0) | Category: Business and Markets


COMMENTS

1. emjeff on October 20, 2009 7:54 AM writes...

"Well, we can come back in a year and see what Pfizer's R&D operation really looks like. But I'll venture a guess: huge. Unwieldy. Not as productive as you'd think it should be. Still rearranging and getting smaller as the company tries to figure out how to make it all work..."

Exactly. Recall that GSK tried this with the CEDD concept almost 10 years ago. Look at what a powerhouse (not) GSK is. In theory, it is a great idea; 3M makes it work, why not GSK? In practice though, no one will really let these "small, independent units" actually be independent. The same layers of management remain, along with the endless presentations to different governing bodies within the company. Add this on top of the already difficult job of identifying new targets and the hostile economic climate, and you've got a recipe for this merger accomplishing nothing.

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2. otisday on October 20, 2009 8:44 AM writes...

"....And looking over its shoulder for the next big acquisition...."

I do not keep up with Pfizers business dealings nor potential M&A targets, but let the specualtion begin:

1. BMS
2. Biogen
3. Ligand

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3. Mark on October 20, 2009 9:29 AM writes...

Not to sound like a cynic, but since when does Pfizer know how to run a R&D organization?

Take a look at Pfizer's current products and figure out which ones were actually developed in house (the compound in question was first synthesized in a Pfizer lab).

That will answer the question "Will this new model work?"

Mark

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4. CMCguy on October 20, 2009 9:48 AM writes...

Derek although I agree the development side does require/benefit more so from "scale" than discovery it too can suffer from "massive, ponderous, hundreds-of-vice-presidents scale" drag. Development efforts demand more diverse disciplines and greater funding than discovery so it may be a different set but still must achieve a critical mass without damaging over-bloat. Development takes the right balance and mix to progress and often what hurts big organization is overspecialization where Departments (usually mini-empires) are grown rather than internal acquisition and maintenance of the appropriate skill sets. I also think can not do good discovery without awareness of development while development should likewise needs strong connections with discovery to tap in to previous knowledge. There is truth behind the concept in the quote regarding scale but I am not sure a place like Pfizer can reverse to optimal size.

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5. Lucifer on October 20, 2009 10:09 AM writes...

I think Pfizer should abandon the pharmaceutical area and become a bank holding company.

They could get hundreds of billions in public money, which they could then leverage via derivative and other financial instruments (that is how goldman-sachs creates profits) . The "profit" created via such public money supported shenanigans could then be paid to management, shareholders and bondholders. Who care about R&D?

It is certainly a more honest existence than pretending to be a pharma company trying to revitalize itself.

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6. anchor on October 20, 2009 10:25 AM writes...

D:

agreed with your prediction. The clue here is to see how the stock is doing. If it is still trading in at 17-20$, more likely that they will accelerate the acquisition process. The question who else is left to be taken over? May be Merck?

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7. Hap on October 20, 2009 10:26 AM writes...

I'm assuming, though, that the incentives for (at least some of upper) management and (at least some of the) stockholders all motivate them towards making Pfizer a larger company. In other businesses, size gives companies more leverage and the ability to exploit opportunities noticed by other - companies don't want to be in businesses in a competitive market, but ones where they have a monopoly or close to it. The management is usually paid more for running a bigger company, and the board members hope to be rewarded by their friends in management when their positions are reversed. Short-term stockholders profit (in most cases) from the layoffs, and the presumed higher profitability. Long-term stockholders probably don't know how to make the company successful in the long term, and in the absence of a good alternative tactic, they lose out to everyone else. Unless the long-term stockholders are able to assert their interests, there doesn't seem to be any drag on the phagocytosis of other companies by Pfizer.

Does this make sense?

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8. milkshake on October 20, 2009 1:00 PM writes...

my bet is that Pfizer will look much like it does now only with couple new management catchphrases and a lot less people. Fungus Amongus.

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9. hypnos on October 20, 2009 1:30 PM writes...

Scale actually hurts in doing research: the number of people that can (should) be directly involved in a certain research project is limited (10, maybe 25 - depending on who you count). And there are only so many promising, druggable and validated targets around. Smaller companies have the ability to pick the most promising ones while the really big companies have to work also on the less promising targets (unless they allow internal competition). This will increase their attrition rates.

The only advantage comes from the huge piles of patents these guys are sitting on. Things are often much easier when you find out that your hot structural class is covered by one of your own (instead of a foreign) patent.

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10. RandDChemist on October 20, 2009 2:47 PM writes...

I've always been a strong proponent the concept of critical mass. That mass is directly related to what is being attempted.

#7 So many people, in both the public and private sector have lost sight of the work of Peter Drucker. One of the things he put forth is that having competitors can expand your sales in the end. A monopoly, no matter how big, has finite capacity to reach its customers. Competitors deepen market penetration. Of course, too much isn't good either.

One of the major problems is that pharma management is risk adverse. Afraid to try something, and afraid to give up.

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11. Sili on October 20, 2009 4:58 PM writes...

How many centralised services (NMR, screening, crystallisation) could one buy for the price of a middle manager/VP?

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12. cliffintokyo on October 20, 2009 9:47 PM writes...

All very pertinent comments.
10-
My experience also is that it is more difficult to stop a project than to start one (think of the people, and the money you've already spent....)
Taking everyones' comments about inefficiencies of ponderous giants to heart, surely the out-of-the-box next logical step for Pfizer is to become SMALLER!
Yep, if I was appointed CEO, I would set in motion a plan to split the dinosaur into 5 or 6 separate companies. The fun would be in figuring out a good way to do it, and perhaps in the process to re-recruit some of the talent that had been 'let go' in the mega-mergers.

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13. Jose on October 20, 2009 11:01 PM writes...

My bet: it'll be a lean, mean, wholly inefficient shell of a research organization. Maybe this is just a Machiavellian metaploy to implode, then re-form smaller units, to then intentionally implode, all in the name of CEO prestige/shareholder driven "progress." Oh wait, that would be giving everyone far too much credit in the strategic planning department. Happy Meals and McFlurries for everyone! Yeah, that's the ticket!

Permalink to Comment

14. Morten G on October 21, 2009 3:55 AM writes...

Isn't this one of the tricks that Enron employed? 10-15% of the workforce had to be fired each year regardless of performance because the cost-cutting went into the balance sheets in some manner that made them more desirable to the stock market?
I might be wrong of course.

Permalink to Comment

15. Kim on October 21, 2009 4:39 AM writes...

Pursuit of "scale" through M&A hasn't helped the biopharma industry much in the 20-odd years during which folks have been keeping score. Shareholder value just about invariably gets destroyed. However, it's important to look at both the Pfizer/Wyeth and Merck/SP deals for what they really are-- not a way to to make R&D "better" but rather a way take capacity out of an industry that has reached maturity. The changing external environment has made big parts of the biopharma business model obsolete. Senior executives generally haven't yet accepted the changes that be required so in the meantime, they're cutting costs with tools like "big bang" M&A which can serve as a a great rationale for eliminating jobs on a wholesale level.

Permalink to Comment

16. Outsider on October 21, 2009 5:29 AM writes...

Well put Kim. The business model is obsolete because of the external environment and the ever decreasing choice of 'low hanging fruit'. I left big pharma because I just couldn't stand the senior/middle management lies and spin any longer - anyone with half a brain can see things need to change, so why is it then that these highly paid, (alledgedly) experienced minds can't seem to do their job properly and prepare their organisations for what is to come? They just seem to want to revert to a good ol' M&A to 'deflect' the problems for a couple more years.

So, what will Pfizer look like in a year? Well I'd hazard a guess that they look identical to Pfizer now. The same inept, mediocre individuals will occupy the same positions of power and spin the same old lines to appease shareholders and the board, yet achieving nothing tangible.

But what will they look like after Lipitor falls off the cliff...? That's the big question!

Permalink to Comment

17. Anonymous on October 21, 2009 5:48 AM writes...

RandDChemist, I agree that there must be something like "critical mass" behind a project, but the term critical mass suggest that mere numbers may suffice... I think that it is far more important that all the critical components are present. I've see too many project teams that were positively bloated, yet were unable to make progress because critical skills and were missing from the team.

And the way management pursues benefits of scale often contributes little. If John knows everything there is to know about gene expression, Anne is a specialist in kinase profiling, and Hans is an excellent microscopist, there is little obvious benefit from putting them in the same team. The management way around this is labelling them as Resource 1, Resource 2 and Resource 3, and then re-assuring some hard-pressed team leader that he or she will be assigned a 50% Resource, to be made up from whatever spare time the people have... From a management perspective, this results in Resources Being Used More Efficiently.


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18. Anonymous on October 21, 2009 7:13 AM writes...

I would just like to point out that there is often mention of Pfizer as being a poorly productive R&D outfit on this blog, but there is rarely any mention of the scientists themselves. Having worked as a chemist at both Merck and also at Pfizer, I would just like to point out that in my experience, the chemists at both are highly productive, extremely hardworking, and passionate individuals. It's a shame that the discussions here do not distinguish between those carrying out the research and the direction of the company overall.

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19. Anonymous on October 21, 2009 7:50 AM writes...

I agree with 18

In my short span of 2 years at Pfizer, I have seen some real hard working and Smart chemists, project leaders, the leadership team, however is ehhh!

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20. John on October 21, 2009 7:55 AM writes...

I agree that Development benefits from scale. I think Discovery should too...if Discovery is done right. Discovery comes from innovation and creativity. An army of innovative and creative people, allowed to be such, is better than a dozen.

The real problem is that creativity and innovation are lacking. An army of scientists, smart people mind you, being led by a few people with limited vision will generate only what those few see. I say limited vision, not to imply that they are incompetent, although they may well be, but that from few heads comes few ideas. I think development is amenable to a hierarchical framework, Discovery is not.

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21. S Silverstein on October 21, 2009 8:31 AM writes...

Is there anything to be learned from Merck the way ti was run under Roy Vagelos?

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22. S Silverstein on October 21, 2009 8:38 AM writes...

John wrote:

"An army of scientists, smart people mind you, being led by a few people with limited vision will generate only what those few see. I say limited vision, not to imply that they are incompetent, although they may well be, but that from few heads comes few ideas."

Allow me to introduce a term used by medical licensing boards for physicians who are not quite up to par: dyscompetence.

The FSMB (Federation of State Medical Boards) defines dyscompetence as "failing to maintain acceptable standards of one or more areas of professional practice" and incompetence as "lacking the requisite abilities and qualities (cognitive, noncognitive, and communicative) to perform effectively in the scope of professional practice.

These can be adapted to other domains - such as management, and specifically, pharma R&D management.

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23. FormerPfizerBiostat on October 26, 2009 2:34 PM writes...

Pfizer has had several previous mergers, none of which appear to have improved shareholder value, R&D productivity, or employee moral. Why expect a different outcome this time?

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