Quote Of The Day: Pfizer R&D ‘Not In A Good Position’
10 CommentsBy Ed Silverman // July 6th, 2011 // 8:25 am
Over the past few years, Pfizer has made news not for startling discoveries, but instead for slashing key areas of R&D, closing facilities and laying off thousands of employees. The moves have cut billions of dollars in expenses, a process that was hastened by the acquistion two years ago of Wyeth. Just last month, another $1 billion in spending was targeted (back story).
Of course, the wisdom of eliminating many R&D areas is regularly debated. For his part, Pfizer ceo Ian Read claims a core company can emerge as a growth vehicle, especially after shedding unrelated businesses (see this). But some on Wall Street believe the drugmaker “is not doing enough R&D to create growth” (look here).
Stepping into this maelstrom is John LaMattina, who was the Pfizer R&D chief from 2004 to 2007, when he took early retirement. He left a few months after the spectacular failure of the once-heralded torcetrapib cholesterol pill, which was supposed to be revolutionary by raising HDL, the good cholesterol, but instead caused heart attacks and deaths, causing a Phase III trial to be aborted (see here and here).
The flame out helped trigger the R&D cuts (see here). Last year, R&D amounted to 13.9 percent of revenue down from 16.5 percent in 2008 (see page 20) and by next year, the percentage is expected to range between 10 percent and 11 percent as the R&D budget falls to between $6.5 billion and $7 billion.
And the decline surprises LaMattina. “That’s a pretty low percentage for the largest pharmaceutical company in the world,” he tells Reuters. “This industry historically has spent anywhere from 15 to 20 percent of top-line sales in R&D. It’s their lifeblood. If you don’t have new products, you don’t have a business anymore…In the short term, I guess that’s okay, in terms of delivering for shareholders. But four, five, 10 years out, I’m not sure that is going to be a very good position to be in.”
Of course, Pfizer execs are trying to put a good face on the gutted R&D machine. Last March, Pfizer R&D chief Mikael Dolsten told Reuters the drugmaker still maintained a “large R&D budget…and that will allow us to drive innovation in a number of areas. I’m not convinced that more is necessarily better. If you take the perspective of science, business and finance together, where you want to deliver a good return of investment to shareholders and future investors as well as providing important products to patients, and we have tried really to have a comprehensive approach.”
But LaMattina, who is now a senior partner at PureTech Ventures, a healthcare venture capital firm, doesn’t buy this argument. “I don’t think people have recognized the impact that (the cutbacks have) had on R&D organizations and R&D productivity,” he says. “When you have just about every company in the industry doing this, that really jolts the situation quite a bit.”
original industry insider
John is right. Pfizer is in no man’s land. Using their data, I calculate approximate savings of $1.6 billion from lower R&D expenditures. This is too small to start another pipeline project and maybe too small as well to in-license a product with follow-on development for a drug that may be a potential blockbuster.
This is why I say diversify, diversify, diversify. Drugs are the most expensive entities to develop. For that same $1.6 billion you could get several diagnostic and/or device products developed and approved in much shorter time. Problem is that Pfizer is pretty much a pure pharma play, and lakes the infrastructure to go this route.
Observer
While i have the greatest respect for those in R&D (especially “real R” instead of just ‘enhanced D”), I have to disagree with LaMattina’s summary point:
“I don’t think people have recognized the impact that (the cutbacks have) had on R&D organizations and R&D productivity,” he says.
These organizations (at least in their traditional form) have been sadly lacking in productivity for years - and it is precisely that lack of results that has finally justified the cuts. Do I like it - no, but I also hear the echo of the quote attributed to Einstein:
“The definition of insanity is doing the same thing over and over again and expecting different results.”
original industry insider
There are two virtual certainties:
1) Nursing home doctors are always wrong (from George C Scott in “The Hospital”, 1971), and
2) It is a stone cold impossibility to develop a quality drug product faster, better, and cheaper. This lesson has been lost on Pfizer and the rest of Big Pharma.
Old Timer
What people miss is that the underlying science has changed. The pharma dynamo of 1970-2000 was fueled by chemistry and ability to synthesize compounds (it also helped the market would absorb whatever new pill could be manufactured without questioning the added value).
The chemistry-based science ran dry in the late 90’s and the newer sciences, genomics etc., are far more nascent and much harder to develop drugs. So output per R+D dollar is down. More significantly, there appear to be no economies of scale in R+D - Merck/Pfizer et al develop less new drugs per dollar spent than biotechs.
This is why in house R+D makes no sense for a big pharma company - let the VCs and start ups take the development risk and in-license the promising compound for phase 3 and regulatory clearance.
The model for big pharma moving forward is much more like a wholesaler than a research companu
Outsider
Friend of mine who has been major innovator and in and out of a number of the bigs would agree with a number of comments here. Obviously, there are exceptions. But his view is that the bigs are just too organizationally byzantine and institutionally risk-averse/thick-headed. He would say that’s been mostly true for about twenty years.
original industry insider
Agree with Old Timer. When I ran R&D for a VC-funded startup pharmna company, we were required to submit detailed progess reports every THREE months to the investors. The math was very simple: no progress = no more money, period.
How’s that for incentivization.
cliffintokyo
Re: original ii on VC funding:
A skillful manager-leader who is the front man for meetings with the VC will know how to control the flow of news about significant progress to nuture his project/organization, and thus demonstrate his loyalty and commitment.
Caveats:
1. Only a scientist-manager has the intelligence & integrity to do this (MBAS are clueless)
2. Could not happen in big pharma; all the *managers* are too much in love with their careers to give a d**n about their company
Mike
Well… one thing hasn’t gone down along with stock prices, and R&D spending. The compensation of executives such as Mr. LaMattina, who oversaw thousands of layoffs.
Where exactly is the money not delivering value?
LMartin
Oldtimer said
“This is why in house R+D makes no sense for a big pharma company - let the VCs and start ups take the development risk and in-license the promising compound for phase 3 and regulatory clearance.”
Unfortunately, according to the latest PWC VC report, funding for discovery/early stage is down while funding for late stage is on the rise.
LMartin
Link to PWC report referenced above…
http://www.pwc.com/us/en/press-releases/2011/Q1-2011-Life-Sciences-MoneyTree.jhtml