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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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July 29, 2013

Pfizer Rearranges

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Posted by Derek

Ian Read at Pfizer has announced that the company will be divided into three parts. Here's the press release, and let's see what sense we can make of it:

Today, Pfizer is announcing plans to move forward to internally separate its commercial operations into three business segments, two of which will include Innovative business lines and a third which will include the Value business line. . .

One of the Innovative business segments. . .will generally include products across multiple therapeutic areas that are expected to have market exclusivity beyond 2015. The therapeutic areas include Inflammation and Immunology, CV/Metabolic, Neuroscience and Pain, Rare Diseases and Women's/Men's Health. . .the other Innovative business segment will include Vaccines, Oncology and Consumer Healthcare. . .The Value business segment. . .will include products that generate strong, consistent cash flow, and will be positioned to provide patients access to effective, lower-cost, high-value treatments. In addition to products that have lost market exclusivity, it will generally include mature, patent-protected products that are expected to lose exclusivity through 2015 in most major markets, biosimilars and current and future established products collaborations. . .

I'm not at all sure that I understand this yet. I can see why the "Value" business segment exists separately, although I think that it's unfortunately named. (You can either get the impression that the other two don't have value, or make the connection with "cheap/generic" as in some store's "Value Line" of products). But I'm not getting the distinction between the other two so well. It's not broken down by biologics/small molecules, or by specialty marketing/wider market, not from what I can see. And putting vaccines, oncology, and consumer health into one bunch sounds like a random draw of tiles out of a bag.

No doubt there will be many, many more explanations to come, and I look forward to seeing how many of them are coherent. For now, it looks like more uncertainly and disruption, which is not quite what Pfizer seems to need.

Note: for those of you wondering where the obvious Latin joke is, Chemjobber already got the Julius Caesar quote off on Twitter!

Comments (49) + TrackBacks (0) | Category: Business and Markets


COMMENTS

1. Chemjobber on July 29, 2013 10:52 AM writes...

The driving force for the rearrangement is probably an increase in the employee entropy term.

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2. myma on July 29, 2013 10:53 AM writes...

There must be some advanced math in the seemingly random tile pick. Yessirree, real strategery going on.

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3. watcher on July 29, 2013 11:01 AM writes...

Have to wonder if this is a way to consider a spin off or two, or even a break up down the road.

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4. Dr K. on July 29, 2013 11:02 AM writes...

Seems very arbitrary, though more disruption, uncertainty, confusion, distraction and business paralysis should certainly help to hide the fact that Pfizer (and every other pharma company) don't have a clue how to deal with the real issues of declining innovation and R&D productivity. Best just to bury that elephant in the room with lots of noise, and hope that nobody notices.

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5. Pfizer RankNFile on July 29, 2013 11:25 AM writes...

I've been puzzling over the internal announcements today. My working hypothesis is that this is marginally simpler than the many-to-many relationship between Research Units and Business Units that existed previously (RU = CV/Metabolic, Inflammation, etc; BU = Primary Care, Speciality Care, etc). The mappings are slightly more straightforward to understand now.

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6. Anon on July 29, 2013 11:30 AM writes...

So now Pfizer has given up even the pretense of pitching PR that makes sense?

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7. BCP on July 29, 2013 11:38 AM writes...

Sounds like the sort of thing one would do, when trying to avoid risk in one part of the business adversely affecting the health of other parts of the business.

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8. RB Woodweird on July 29, 2013 11:50 AM writes...

I'm currently looking for a job, and I have to say that I view every Pfizer opening with a little balloon over my head in which Admiral Ackbar appears.

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9. ScientistSailor on July 29, 2013 12:00 PM writes...

Shuffling deck chairs on the Titanic?

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10. emjeff on July 29, 2013 12:59 PM writes...

More MBA BS. I am amazed at what people do in big companies that has no value or meaning at all.

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11. startup on July 29, 2013 1:11 PM writes...

What's there to understand? 5 to 10 thousand workers are to be laid off.

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12. Helical Investor on July 29, 2013 1:29 PM writes...

I didn't read ahead in the press release, but assume the line 'being done for tax optimization purposes' was in there somewhere. That is how it reads to me anyway.

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13. Am I Lloyd peptide on July 29, 2013 1:31 PM writes...

I think the press release could have said "Mgjahskjd kjee jeenjhitot banaghut wampiloma" and it would have meant the same thing (or the lack thereof). More fancy MBA jargon with zero substance, typical of the piffle coming out of the Mother of Pharmaceutical Failures.

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14. bbooooooya on July 29, 2013 1:33 PM writes...

Merge small companies into big one, then break up break up the big company back into small ones, repeat as required.....


Nope, that doesn't sound like three card monty.

I guess it's easier than doing real work?

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15. Bell4 on July 29, 2013 2:05 PM writes...

Seems like Read is getting to his 3rd envelope in record time.

(This will make sense to readers who know the very old joke about the new CEO who finds 3 envelopes that his predecessor left for him...)

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16. Anon on July 29, 2013 2:13 PM writes...

Keep calm and lower cLogP

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17. bobbin along on July 29, 2013 2:39 PM writes...

Due to a bad case of the Mondays, and despite 4 years of high school Latin, it took me way too long to figure out "the obvious Latin joke".
But Googling the 3 envelope joke was worth the time.

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18. Todd on July 29, 2013 2:41 PM writes...

This is just a hunch, but I'm willing to bet the vaccines/oncology/consumer health gets spun out. That's mostly the old Wyeth (with pieces of other companies), and the business model writes itself. You use the steady money from vaccines and consumer health and use it to pay the bills from oncology and the big bucks. If payors start messing with the oncology money, up the price for consumer health a bit and watch the bottom line rebalance itself.

On the flip side, the value business would look like bait for the Mylans and Tevas of the world.

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19. oldnuke on July 29, 2013 3:07 PM writes...

Funny, when I saw the heading on this entry, the first thing that popped into my mind was that verse from Julius Caesar.

I must be getting senile, having 7th grade flashbacks! gr

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20. Stevil on July 29, 2013 4:24 PM writes...

I'm calling dibs on PfizVie.

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21. Anonymous on July 29, 2013 4:26 PM writes...

The more I think about this, the more I think this Dilbert comic and its sequel are appropriate.

@4:

Seems very arbitrary, though more disruption, uncertainty, confusion, distraction and business paralysis should certainly help to hide the fact that Pfizer (and every other pharma company) don't have a clue how to deal with the real issues of declining innovation and R&D productivity. Best just to bury that elephant in the room with lots of noise, and hope that nobody notices.

It must be someone's amazing theory that the way to improve productivity in pharma is by making sure work doesn't happen and getting rid of the people who once did it (and replacing them with people who never have). It's like the reverse of administratium formation, but with the same effect. Well, mostly - in this case, someone gets rich. That ought to be worth something.

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22. Dr. Manhattan on July 29, 2013 4:37 PM writes...

Here's a post on the possibility of this being a metastable intermediate state, rearranging to a final end product.

PS- nice point at the end about the question of creating value by first merging many companies and then breaking the megacompany up into units.

http://finance.yahoo.com/news/pfizer-restructuring-may-precede-total-192851247.html

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23. RM on July 29, 2013 4:43 PM writes...

Okay, for those of us who never took Latin, and who have difficulty using Twitter effectively enough to easily find where Chemjobber posted it, (let alone those in the future browsing the archives, who won't really have easy access to that part of the tweet stream), the quote in question is apparently "Gallia est omnis divisa in partes tres" "Gaul is divided into three parts", referring to the three different tribes inhabiting three sections of Gaul. (The Belgae article at Wikipedia currently has a nice map.)

If there's some relevance besides the "divide in three parts" bit, I'm not getting it. ("You see, the Value division is like the Aquitani, because ...")

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24. Hap on July 29, 2013 4:59 PM writes...

Or those who have Twitter blocked?

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25. Varro on July 29, 2013 5:02 PM writes...

The "Value Division" sounds more. like a case of "lucus a non lucendo, canis a non canendo".

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26. Hurin on July 29, 2013 5:02 PM writes...

"putting vaccines, oncology, and consumer health into one bunch sounds like a random draw of tiles out of a bag"

Its not that hard to understand really. None of the management at pfizer has any idea how pharmaceuticals work, so they put all the ones they don't expect to make that much money in a category. This restructuring will probably be followed by the elimination of all of the people in the aforementioned division.

"I can see why the "Value" business segment exists separately, although I think that it's unfortunately named."

Yeah, seriously. The word "Value" implies that pfizer is producing any. I call bullshit on that.

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27. Shannon | Ready Medical Staff on July 29, 2013 5:25 PM writes...

Good luck sorting out that helpful press release!

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28. Chemjobber on July 29, 2013 5:44 PM writes...

I have linked my tweet above for posterity (/sarcasm). The tweet says "$PFE est divisa in partes tres". (I note that $PFE on twitter links to the stock information for the relevant ticker symbol.)

I find it hilariously true to form that the Innovation Part 2 division will be reporting to Amy Schulman, Pfizer's former (current?) general counsel. I know that this is not a trend that's completely unheard of (Jeff Kindler, Ken Frazier, for two), but it's something that I find sort of odd and vaguely insulting.

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29. Hap on July 29, 2013 5:47 PM writes...

Sorry - it's just that not home blocks Twitter.

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30. oldnuke on July 29, 2013 6:17 PM writes...

Value Diviasion might be appropriate, like McD's Value Meals -- all calories, no nutrition. gr

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31. annonie on July 29, 2013 6:31 PM writes...

1) what we want and like
2) what we don't understand or know what to do with
3) what we will try to squeeze as much revenue from as possible before generics completely wipe away any income

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32. Yokono on July 29, 2013 8:13 PM writes...

How'bout they are getting ready for a merger?

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33. NHR_GUY on July 29, 2013 8:43 PM writes...

Ha ha...glad I got out. Good luck to my buddies still there.....you've been through enough already.

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34. sepisp on July 30, 2013 1:43 AM writes...

The difference seems to be how the product is sold and administered. Segment 1 drugs are administered over years to chronically ill patients, segment 2 comprises medications that are "one shot per patient". No doubt they require different marketing strategies.

If you remove Oncology from the second, the Vaccine/Consumer part makes even more sense.

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35. Anonymous BMS Researcher on July 30, 2013 6:36 AM writes...

One way or another, I fear more good people will soon join the many friends of mine who are proud owners of Pfired coffee mugs.

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36. Anonymous Big Pharma Researcher on July 30, 2013 6:37 AM writes...

http://pharmagossip.blogspot.com/2010/03/song-for-pfired.html

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37. The Aqueous Layer on July 30, 2013 8:05 AM writes...

I find it hilariously true to form that the Innovation Part 2 division will be reporting to Amy Schulman, Pfizer's former (current?) general counsel. I know that this is not a trend that's completely unheard of (Jeff Kindler, Ken Frazier, for two), but it's something that I find sort of odd and vaguely insulting.

Lawyers know everything, just ask them.

They spent so much money listening to Wall St tell them they needed to be huge to succeed. They wasted thousands of careers, shuttered numerous sites affecting the communities around them, only to change courses 5 years later because Wall St told them in order to survice they needed to get smaller. With the mega-merger period gone, investment banks needed to keep their pharma revenue flowing, so now they want everyone to split.

5 years from now the process of merging will start all over again because diversification will be back in vogue. It's truly insane.

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38. John Wayne on July 30, 2013 8:44 AM writes...

Even the marketing fellow I work with thinks this is a bit nutty; the last thing that a pharmacy or hospital wants is to deal with three separate faces of a single company when they want to purchase something.

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39. Anon on July 30, 2013 9:44 AM writes...

Stock brokers make money no based on the performance of the stock market but on the volatility. If its doing really well or really bad, people trade their shares and the broker collects their fees. The same thing happens to big pharma. The investment banks are able to convince them they can derive value from constant acquisitions, mergers, spinoffs, etc. So long as they can keep the shells moving, they make money. It doesn't matter if it actually helps the company or not, they will always come out ahead.
I think this is one reason for Regeneron doing so well. They ignored the investment banking shenanigans. Same goes for Genentech and several of other small/midsized companies before they were acquired.

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40. Nick K on July 30, 2013 9:53 AM writes...

#37: Excellent observation. It is in Wall Street's interests to encourage mergers and break-ups as the "investment" bankers make millions in fees and advice each time. Sir Richard Sykes, former head of GSK, admitted recently that the mergers and takeovers of Wellcome and SKB were motivated mainly by the bankers.

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41. simpl on July 30, 2013 11:37 AM writes...

Even a straightforward transfer from general medicine to OTC or to the "old iron" segment is not easy between divisions, yet the aim is clear: to maximise the market value through its life-cycle when positioning a drug. In the 35 years I've been around, I have rarely seen a smooth transition. Even a convincing plan to increase value, beyond passing on the responsibility, is uncommon.
One obvious solution, given that all changes have high cost, would be to let old drugs fade away with as few changes as possible. Yet the rise of generic competition has made going off-patent an increasingly disruptive time, and the arguments for adding value by handing over from one team/division/divestment to another are unclear. How well have Pfizer done with Lipitor, anyway (a B, maybe: I'm feeling generous today)?
This would make for interesting case studies in the hands of a skilled MBA school. I suspect that the path of almost every drug differs, and would throw up many variations around the main issues.

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42. Anonymous on July 30, 2013 6:16 PM writes...

@41-A simple google search for "Pfizer" and "HBR" shows that there have been many, many business teaching opportunities..........

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43. Your local banker on July 30, 2013 7:02 PM writes...

Merging = layoffs and big Investment Bank profits

http://www.time.com/time/business/article/0,8599,1873565,00.html

Does Pfizer get a refund of the fees from the Investment Banks now that they are splitting up?

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44. simpl re #42 on July 30, 2013 8:43 PM writes...

Thanks anon: yes plenty, though I didn't find much more than hints on pros and cons of late-stage channel switching.
And some hydrobromides, inevitably.

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45. bruce on July 31, 2013 1:56 PM writes...

Can anyone really take these re-orgs seriously? Don't these companies announces seemingly dramatic re-orgs more frequently than presidential elections? "We're reorganizing dramatically into four groups...three groups...six groups...four different groups..." Isn't it a merry go round?

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46. josh on July 31, 2013 2:09 PM writes...

Orwell would be so proud. "Value" business? Please.
If you value your career you need to get out of there.

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47. Fat Old Man on August 1, 2013 3:31 AM writes...

Did anyone consider that there may be some 'reverse psychology' in operation here? That the company may have set this up intentionally to not make sense so that it would actually be harder to split it up in the future ? -:)

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48. Anon on August 1, 2013 5:18 PM writes...

Pfizer & pharma in general: good at "reorgs", layoffs and corruption

Pfizer's Umpteenth Settlement (for $491 Million Plus a Guilty Plea), but No Person Held Responsible

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49. Anonymous on August 12, 2013 10:32 PM writes...

CVMED CSO Tim Rolph is moving on in early 2014. Why?

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