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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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« Selective Scaffolds | Main | Munos On Big Companies and Small Ones »

December 10, 2009

Pfizer's R&D Productivity

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Posted by Derek

Courtesy of Bernard Munos, author of the Nature Reviews article that I began blogging about yesterday, comes this note about Pfizer's track record with new molecules. His list of Pfizer NMEs since 2000 is Geodon (ziprasidone, 2001), Vfend (voriconazole, 2002, from Vicuron - whoops, not so, this one's Pfizer's), Relpax (eletriptan, 2002), Somavert (pegvisomant, 2003, from Pharmacia & Upjohn), Lyrica (pregabalin, 2004, from Warner Lambert), Sutent (sunitinib, 2006, from Sugen/Pharmacia), Chantix (varenicline, 2006), Selzentry (maraviroc, 2007), and Toviaz (fesoterodine, 2008, from Schwarz Pharma). There are some good drugs on that list, but considering that even just five years ago, the company was claiming that it had 101 NMEs in development, and was going to file 20 NDAs by now, it might seem a bit thin.
Pfizer%20graph%20fixed.jpg

It might especially seem that way when you look over this graph, also provided by Munos (but not used in his recent article). You can see that Pfizer's R&D spending has nearly tripled since the year 2000, but that cumulative NME line doesn't seem to be bending much. And, as Munos points out, two (and now three) productive research organizations have been taken out along the way to produce these results. It is not, as they say, a pretty picture.

Comments (49) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Industry History


COMMENTS

1. Nick on December 10, 2009 1:37 PM writes...

How long would one expect the lag between capital investment and NME to be? Would one expect to already be reaping the rewards of research investment?

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2. John on December 10, 2009 1:44 PM writes...

It would be interesting to see the y-axis make logarithmic, so that the percentage increases can be more easily understood. The NME would be tapering off, while the R & D line would be almost flat at the end.

I'm not as sure about having a time-offset, but there certainly there is a lag between when spending starts and when an NME is declared, but this is looking at an aggregate situation, so that is more difficult to clarify.

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3. Anonymous on December 10, 2009 1:44 PM writes...

So shouldn't M&A costs be included as well? Perhaps including both graphs for NMEs vs. R&D and total NMEs vs. R&D plus M&A would give us a more complete picture of what is going on. I'm not an expert on M&A, though. Is there any other reason a pharmaceutical company buys another besides acquiring the company's pipeline?

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4. wei on December 10, 2009 1:54 PM writes...

9000 $bn?
it seems a big number even for a cumulative one

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5. Anonymous on December 10, 2009 1:57 PM writes...

Wei,

The scale is $million, not $billion. There is a typo.

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6. Mutatis Mutandis on December 10, 2009 2:17 PM writes...

I love Munos' quote from Jean-Pierre Garnier in Harvard Business Review, 2008:

"The leaders of major corporations including pharmaceuticals have incorrectly assumed that R&D was scalable, could be industrialized and could be driven by detailed metrics and automation. The grand result: a loss of personal accountability, transparency and the passion of scientists in discovery and development."

There's Pfizer for you... And in Fig.2b of Munos' paper, you can see which other companies are making that error as well.

But here is a puzzle... The approvingly quoted Jean-Pierre Garnier is exc-CEO of GSK. His HBR article is a good read and contains other words of wisdom. But it also contains the extraordinary claim that "our productivity is now two or three times as high as the average of our competitors". Of course any CEO claiming to have achieved miracles makes me very suspicious. (Although being three times better than average might not mean much if the distribution reflects a power law.)

But interestingly, Munos' paper doesn't include GSK among the most productive companies. In fact it doesn't mention GSK, reckoned to be the second largest pharmaceutical in the world, at all. It only includes in its graphs Smith Kline & French, who used to be called that 27 years and several mergers ago, somewhere in the tail of less productive companies.

Why? Is GSK's record so good that it would make Munos' own employer look comparatively bad, is it so poor that it falls of the graph, or are there too little data about it?

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7. Derek Lowe on December 10, 2009 2:24 PM writes...

Just fixed the scale on the chart - sorry about that! Pfizer's not spending 9 trillion on R&D. Yet.

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8. Peter on December 10, 2009 2:24 PM writes...

Vfend was a late-stage drug that came with the acquisition of Vicuron. So that seems to leave only Geodon, Relpax (a me-too triptan), Chantix and Selzentry from their own labs on this list.

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9. Ben A on December 10, 2009 3:13 PM writes...

I do not believe voriconazole was originally a Vicuron product. Perhaps people are confusing it with the echinocandin antifungal anidulafungin, which was in late stage development at the time of acquisition...

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10. peter on December 10, 2009 3:41 PM writes...

My apologies - Ben A is correct, and I was indeed confusing Vfend with anidulafungin.

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11. CMCguy on December 10, 2009 4:01 PM writes...

Derek I am not clear on how NME is being applied in the Chart. Is this just compounds that have been accepted for Development or does it represent those that make to PIII or NDA? Data I recall a couple years ago suggested Pfizer had on the order of 70-80 drugs programs in PI-PIII so would think they do have more now after acquisition of Wyeth.

Of course based on past Mergers in Pharma there will likely be trimming of many projects, some are duplicative but most because reorganizationitis where key personnel or advocates for particular projects did not survive the transition. That is probably another reason why the curves do not correlate well with every "addition" event being countered by the negative consequence of integration lags and eliminations of people that killed potential or active NMEs.

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12. Anonymous on December 10, 2009 4:20 PM writes...

To CMCguy: NMEs are counted when they are approved by FDA. That's the metric used by the author to measure innovation.

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13. Hap on December 10, 2009 4:23 PM writes...

If merging and research productivity are related as 1+1 = 1 (as the graph seems to imply), then what would the point of doing it be (other than to enrich some of the upper management and some short-term stockholders, though probably not longer-term ones)? (If the effects of a merger are absorbed by its costs to the company, why is it in the company's interest to merge at all?)

I thought that the point of merging was to control the output of two companies and gain extra revenue above what the merger cost (since people aren't selling commodities, I assume that reducing competition isn't as much of a factor, and that seems like the main situation where merging and getting no direct productivity would still be helpful.) Or have the positive effects of the mergers simply not shown up yet?

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14. Don B. on December 10, 2009 6:01 PM writes...

Is there a graph on MBAs employed vs NMEs?

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15. PFEGuy on December 10, 2009 7:13 PM writes...

Pfizer has been great at acquiring other companies and firing their productive people. The lousy managers that killed their productivity were only able to save their own behinds by killing off their new colleagues who were better scientists but not as politically savvy.

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16. Mark on December 10, 2009 8:57 PM writes...

I remember Pfizer's slogan back in 2003 or so: "20 by 2010".

That is, 20 NMEs by 2010. I think it took about one year before 25% of the candidates on the chart were dropped and the signs quickly removed.

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17. Mark on December 10, 2009 9:02 PM writes...

I think big pharma's problems can be summed up by the quote of a former co-worker, which I think a lot of the top management needs to understand:

Whenever his wife wondered why he didn't always come home by 5pm, his reply was "We're not making f^&kin' ham sandwiches here."

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18. ex-Pfizerite on December 10, 2009 9:06 PM writes...

I think the Pfizer model changed after the Pharmacia merger and failure of LaMattina's goal to have 7 NMEs approved in 2004 and a further 5-7 NMEs approved every year there after. The result of this failure is that Pfizer's new corporate plan is to buy pipeline/products and then shrink the companies headcount to fit the revenue stream of the combined company. As products go off patent the headcount is reduced so that the profit margin remains constant.
The problem with this approach is that it devastates research as scientists and other technical personnel become disengaged and start looking for other opportunities and it becomes more difficult to recruit employees. This directly impacts productivity in terms of NMEs because of lack of people and additionally leads to careerism in the remaining research and development people as they subvert standards to meet arbitrary goals ie throwing a CAN over the transept in December to meet year end goals.

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19. alig on December 10, 2009 10:06 PM writes...

Pfizer's R&D spending seems to corelate with global temperatures. Maybe Pfizer is causing global warming. I think we should shut them down, to save the world.

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20. CMCguy on December 10, 2009 10:11 PM writes...

#12 Anon thanks as presumed was focused on successful NME and guess was confused by the statement preceding the chart with 101 NMEs/20 NDAs. Problems with any such analysis occur as can really account for the differences in costs/requirements working in various therapeutic areas, types/complexity of compound involved ("easy vs hard" SM, Biologic), Clinical studies demands and then increasingly tougher Regulatory hurdles.

To me this reflects more on what Pfizer has "internally selected" to innovative as there were probably a number of projects that could have lead to approved products if had not been halted because did not fit marketing/financial ROI metrics. Will never know how many more Products that could have been approved if used other criteria. That's what makes it a tough business as no one has unlimited time and resources, even Pfizer, so end up making decisions with incomplete data on both science and business aspects that years later do not turn out as expected.

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21. srp on December 10, 2009 11:44 PM writes...

I've tried to address this before without seeming to make much of an impression, but what the heck. Once again with feeling:

IF these mergers make sense it is because of consolidation in the marketing/distribution parts of the companies. There are considerable economies to having more relevant drugs/salesperson and more stops per unit area per salesperson and so on. There may also be some economies of scale and learning in managing trials and dealing with the FDA, handling legal and PR issues, etc.

You guys sometimes talk about the importance of having large chemical libraries and other things that a really small research outfit might not have, so there may be SOME scale economies at the research level. But I would bet that these are exhausted a lot more quickly (i.e. at a lower scale) than the economies in marketing and distribution.

We probably, therefore, should have a smaller number of marketing, sales, and distribution pipelines than we do research pipelines. One can imagine a structure where a multitude of research firms sells or licenses drug candidates, at various stages of completion, to a small number of huge marketing/sales/distribution outfits, thereby right-sizing everything.

Unfortunately, there are all kinds of contracting hazards that make arms-length relationships among research, regulatory-approval, and marketing & distribution problematic. So we end up with the devour-and-destroy merger tactics of Pfizer as a second-best (or third-best) strategy to achieve these distribution economies, because vertical integration is the only way people know how to safely manage the vertical links.

So, IF the vertical relationships among the research, regulatory approval, and marketing and distribution stages could be handled through contractual means instead of in a vertically integrated structure, THEN the efficient industry structure would be a host of little biotechs, maybe a score or so traditional pharma research units, an unknown number of trials managers/FDA interfacers, and three to six marketing & distribution firms. Financing arrangements could be all over the place (see movie production for an environment with zillions of different ways to pay for projects).

When you have a bunch of greedy people following similar courses of action over a long period of time, simple stupidity is a poor explanation of their behavior. My MBA students aren't always brilliant but at worst they know how to react to financial pain and pleasure as transmitted by their company spreadsheets and income statements. It is unlikely that the merger wave is completely unmotivated by realistic considerations (and I say that as a big skeptic about most large mergers).

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22. Anonymous on December 11, 2009 12:41 AM writes...


#21 srp, you are making the classic MBA colossal blooper of treating drugs as commodities.
If you had been awake, you would have noticed that Hap has already intelligently pointed out (#13) that ethical pharmaceuticals are NOT COMMODITIES.
When I was a new med chem researcher some 30 years ago, I made a rash prediction, to no-one in particular, in my ignorance, that drugs would become like chocolate biscuits and cola - only distinguished by the *wrapper*.
To my chagrin, this stupid prediction now appears to be becoming a reality.
Pharma execs will not get it right until they understand that drugs are different, because they come with the awesome ethical responsibility of giving and taking human life. Most people think they have no business going about trying to sell prescription pharmaceuticals like commodities.
I assume that you (srp) are a business school teacher, and can think only in one dimension, like your MBA graduates - i.e. that one model fits all businesses. Your self-righteous ego-trip is responsible for producing the self-serving idiots who are destroying pharma RIGHT NOW.
The best person to have as CEO of a pharma company these days is a MD. Nobody else has been trained to m