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The Poster Child of “The Strategy of No Strategy”: Pfizer

Pfizer is trying to reinvent itself by shrinking, according to the New York Times. I can’t say that I’m surprised.  The CEOs and financial guys are still living in their own worlds.

The Strategy of No Strategy is strong in this one.  Oh such tasty morsels in this article.  Where to start.  How about this paragraph full of chewy goodness:

Pfizer — once the Big in Big Pharma — is making a radical shift, one being watched closely by the rest of the industry. It is getting smaller.

Last week the company announced it was selling its infant nutrition business to Nestlé for $11.85 billion, and it is expected to divest its profitable animal health business by next year. At the same time, the company is slashing as much as 30 percent of its research budget as part of a plan to focus on only the most promising areas, like cancer andAlzheimer’s disease.

1.) It’s getting smaller only 2 years after it made itself bigger.  Pfizer bought up Wyeth and laid off every single one of my friends and former colleagues in research.  It hired back a handful and sent them to Groton, CT.  I’ll get to Groton in a minute.

2.) It’s getting rid of valuable assets to concentrate on cancer and Alzheimers.  And why those two therapeutic areas, you ask?  Allow me to get cynical.  Well, more cynical than I already am.  These two diseases progress rapidly and the sufferers are almost desperate for a cure, cancer drugs get fast tracked for approval, toxicity profiles are relaxed, you can pretty much charge what the market will bear, and even if the drugs fail the patients rarely complain.  So, quick approval and no class action lawsuits.  What’s not to love?  Looks like you Lupus sufferers and schizophrenics are SOL though.

“It’s not necessarily smaller per se, it’s focused,” Ian C. Read, Pfizer’s chief executive, said in an interview Tuesday. “We are at our heart a biopharmaceutical company focused on applying science to improving people’s quality of life. That is what our core is. That is what will determine our success.”

{{rolling eyes}}

This part is good:

Drug executives are asking themselves: “What is it that we now face, given that in the past decade — when everything was going right — we didn’t build with this future in mind?” said Jeremy Levin, who oversaw a similar reorganization of Bristol-Myers Squibb and is about to take over as chief executive at Teva Pharmaceuticals.

At Pfizer, skeptics have questioned the decision to shed some of its most profitable units in favor of doubling down on the risky pharmaceutical business. Pfizer’s nutrition unit grew by 15 percent and animal health by 17 percent in 2011, while its pharmaceutical sales dipped by 1 percent. And Pfizer has suffered some notable flops over the last several years, including the failure of an experimental cholesterol treatment that was seen as a potential successor to Lipitor and poor sales of an inhaled insulin drug that the company eventually abandoned.

So, in the past decade, when everything was going right, why did Pfizer decide to eat smaller companies and lay off all the research staff and put companies and projects in a state of limbo while they merged, and how could that *possibly* result in not building with the future in mind?

Now it’s selling off it’s most profitable divisions.  It doesn’t take a rocket scientist to realize that it’s doing it to pay off the shareholders, who must be obeyed after all:

The acquisitions, some said, turned Pfizer into a Frankenstein’s monster — a giant stitched together from the scraps of smaller companies that lurched forward with little purpose.

“I think the company sort of lost their way in the years before the Wyeth acquisition,” said Catherine J. Arnold, an analyst for Credit Suisse.

Ya think?  Hey, how about the next time a merger is in the works, we actually ask the people discovering drugs whether it is a good idea.

Oh and about that plan to cut research costs by 30%:

Even so, the company’s decision to cut research budgets as it is planning to recommit to its pharmaceutical core struck some as risky. Mr. Gordon, the Michigan business professor, called it a “magic trick.”

It’s a magic trick, however, that most major pharmaceutical companies are also trying. “The question is how do you remain successful and sustain your operations if you’re investing less and less in R&D?” said Kenneth I. Kaitin, a professor and director of Tufts University’s Center for the Study of Drug Development. “The answer to that is to try to find a new way and a more efficient mechanism for discovering and developing drugs.”

If you want to discover more drugs, cut research!  Everyone is doing it.  Let me just suggest to the “smartness” crowd and masters of the shareholder universe that the reason you don’t have any blockbusters is because you treated research like a red-headed stepchild while you were busily merging your little hearts out and collecting bonus checks.  “A more efficient mechanism for discovering drugs” now means outsourcing to China all the grunt work while trying to buy licenses for drugs from struggling and desperate former research staff who will sell them for a tiny fraction of what they may be worth.

Pfizer plans to reduce its research budget from $9.4 billion in 2010 to $6.5 billion to $7 billion this year. It closed a research center in Britain and has been trimming its facility in Groton, Conn., and moving resources to areas closer to universities in Boston and Cambridge, England.

In 2011, the company ended 91 projects, canceling programs aimed at treating bladder infection, for example, as well as one to treat nasal symptoms from allergies. Company executives have also said they will be on the lookout for smaller acquisitions to fill gaps in their portfolio, and will expand partnerships with academic institutions.

Mr. Read said the cuts would not affect the areas that the company has prioritized. “Most of what I cut had a low probability of success,” he said.

Those projects had an even lower probability of success after tens of thousands of research jobs were cut, the budget was slashed more times than a libidinous teenager in a horror movie and the rest of the staff was made to play a game of musical chairs moving from Princeton and Pearl River to Groton to not Groton but we don’t know where yet to Cambridge.  I’ve heard reports that the few former Wyeth staff have been laid off more than once since the merger.

Pfizer has to be the poster child of The Strategy of No Strategy.  They’ve abandoned some of their hardest, smartest workers, and I know some of these people so I know how good they are, to chase get-rich-quick-schemes from the oh so cleverer people at Harvard and MIT and then get Chinese PhDs at a fraction of the cost to churn out compounds in Shanghai.  Pfizer has completely abandoned the idea that it takes 10-15 years to discover and develop a drug, and that continuity of research is crucial.  Pfizer first acquired and then ripped apart all of the smaller pharmas under it to become a bloated behemoth of a leviathan that could be consumed by shareholders in wild abandon.  It’s left a big gaping hole in the pharmaceutical landscape and so far as I can tell, not one politician has bothered to find out why our drug discovery expertise is disappearing right before our very eyes.

Right about now, it is dawning on Wall Street, the CEOs and the investors that they have unleashed Pharmageddon and that they’ve made some big mistakes, not least of which is that the profits that can be shared are slowing down to a mere trickle.  Nevermind all the scientists who no longer have careers, what about their bonuses?? I don’t know about bonuses. My former colleagues and I should be worried about our pensions.  That big pile of cash is going to look mighty tasty and we are all headed for a seniority of deprivation if we don’t figure out a way to stop them from consuming it all.

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24 Responses

  1. The money shot:

    ”A more efficient mechanism for discovering drugs” now means outsourcing to China all the grunt work while trying to buy licenses for drugs from struggling and desperate former research staff who will sell them for a tiny fraction of what they may be worth.

    This is the primary business model. The only thing I would add as an addendum is that he Chinese Communist Party will soon tell Pfizer “in order to continue to do the grunt work for you, you will need to build any new R&D facilities in China, as our very good friends at Merck have done”. Pfizer will comply, close down the R&D facilities in the U.S., transfer those few Ph.D. scientists who speak Chinese well to the new R&D facility in China, and lay off everyone else.

    • Mebbe. But I don’t think these guys think that far ahead.
      Like I said, the finance gods think they will be swimming in blockbusters in a very short period of time but you know and I know that it’s not going to happen. The laws of the universe are alive and well in China as well as here in the USA.
      Before they even get research humming along in China, the money men will have pulled out.

    • I’m still betting on Western Europe. They have the best shot at long term strategy and discoveries. They can’t decimate their workforces too much because their governments and unions won’t let them, their infrastructure is more well developed, and their culture is more conducive to innovation than their chinese counterparts. Once they trim their bureaucracies they’ll be in good shape. So, that’s where your best research is going to happen.
      Roche and Novartis come to mind.

      • Holy Haruhi! Ya mean social democracy works better than oligarchic authoritarian crapitalism? :o

        Nobody could have predicted… ;)

        • Yeah, I’m betting against the market on this one. For discoveries in science, you need to have stability and continuity. Not saying that it can’t develop in China but China has a long way to go. Right now, it is renting itself out as a national CRO, which is the antithesis of stability and continuity. There are small discovery centers being set up in China but there are a couple of things to remember. One is that most of the cream of China’s crop of scientists came here to the US to study and get jobs. They had to because China, for as amazing and smart their students are, did not have a modern tradition of discovery scholarship. Remember the Cultural Revolution? So, they had to come to the US to places to learn that. And secondly, many of them have families here and are now US citizens and the ones I talked to don’t want to go back. They like to visit but they don’t want to live there for a wide variety of reasons. I suppose you could possibly lure some of them back to China to work but I think that would set a bad precedent. Because you have scientists now who are used to the American way of life. Not just the quality of living but some independence of thought and respect and that’s not easy to give up. They would be moving back to a country with a censored internet where they have to be a lot more careful about what they say and do. I’d be very surprised if they had too many takers to repatriate. I could be wrong, because so many of us are laid off now. But my guess is that Chinese US citizens will find a way to stay in the US even if they have to switch professions. This could be a great thing for education. I imagine that there are many places in the country that would benefit greatly from having chinese science and math teachers.
          But yeah, my bet is on Western Europe. Research is expensive and it needs time and stability to thrive. Western European countries invest in their scientific infrastructure where we tend to let it die.

        • There is another venue that is in its infancy that I am really excited about and that is the Middle East.

    • If by karma you mean laying off hundreds of thousands of scientists who don’t set the price of drugs and shuttering labs in the US which will never open again, all without changing how much drugs cost or who profits from that, then I guess it’s karma. Unfortunately for the people who hate big pharma without thinking, it’s going to affect them as much or more than some smug asshole on Wall Street because the drug hunters will be out of work indefinitely and won’t be able to do a damn thing to help you.

      • So much is contained in that article that it’s difficult to know where to start. But in the section on the corruption of research activities operating within Big Pharma companies, these are noteworthy:

        Marketization pursues efficiency and profit rather than quality (Hsiao, 1994). Pharmaceutical companies have a primary goal to provide profits for shareholders and to restrict costs to their companies; costs are shifted over time resulting in larger marketing departments and smaller research units, and profits are go increasingly to upper levels of management, resulting in a winnowing out of research.

        and

        Statistically significant results are touted as clinically significant when they are not.

        The bulk of her critique of Big Pharma is spot on, as far as I can tell. Given that, the larger question is, is Big Pharma reformable, or is its ideology (to obsessively provide maximal profits for shareholders at any cost) too entrenched, making it inevitable that Big Pharma will devour itself, bringing modern medicine itself to the brink of collapse?

        One interesting issue Mary Logan, R.N., did not bring up is the issue of side effects. For any disease, 50% of Americans on average do not comply with treatment (meaning they don’t take their medicine as prescribed), and if you follow those who are complying over time, many of them stop complying within a year or two. The primary reason, bar none, for non-compliance is fear of potential side effects, a fear that without question is being exacerbated by DTC advertising.

        • GIANT pharma- probably not reformable.
          teensy pharma- just fricking impractical
          medium pharma- my guess is that it’s just right. Not too much behemoth bureaucracy with centralized planning and frequent reorgs, yet big enough that most functions are accessible within the company without engaging in a lot of extra negotiations for goods and services.
          Think Vertex size. That’s probably about right.

        • BTW, I read her critique and it is *not* spot on in many respects. She has fallen victim to many of the misperceptions about pharma, ie that we’re trying to poison everyone with unnecessary medication, that we fake results, etc. It find it disturbing.
          Unless you’ve actually done pharma research, you need to stop assuming we’re all a bunch of Simon Barsinisters trying to thwart Underdog.

          • That’s why I didn’t say “spot on in everything”. But she makes a number of good points regarding the growing collusion between pharma companies, government regulators, and the peer-review system. If everyone involved in the regulation of pharmaceuticals in the U.S. is also taking money from their manufacturers, that’s a problem.

            But one of the biggest issues pharmaceutical companies in the U.S. are not taking seriously is one the author didn’t even address: the abject fear Americans have of side effects–real or perceived. In large part because of the way medicines have been marketed and “explained” in the U.S. since 1990, the majority of Americans now see modern medicine as poison–a POV they didn’t have, say, in 1975. Now, American doctors routinely experience this from their patients:

            http://www.psychologytoday.com/blog/medicine-in-translation/201006/why-don-t-patients-take-their-meds

            Even giving the medicine away doesn’t improve compliance:

            http://www.usatoday.com/news/health/medical/health/medical/heartdisease/story/2011-11-14/Study-finds-many-patients-shun-free-heart-drugs/51202514/1

            In the U.S., at least, fear of side effects is becoming pervasive, and confidence in the value of modern medicine has already begun unraveling.

          • Hi, everyone, thanks for commenting. I am biased about the consumer end of the pharmaceutical chain, yes. And I do not know much about the research end; that is why your blog, RD, has been on my bloglist for a while, and I’ve been enjoying your posts. My points about Big Pharma are primarily derivative from a previous post on the big picture of healthcare.

            http://prosperouswaydown.com/healthcare-for-all/

            We can’t afford the system we’ve got, which is too complex and too captured and too oriented towards profit-making while much of the country goes uninsured. I don’t expect to make any headway with pharmaceutical CEOs; I’m just trying to make some points about a costly, inequitable system oriented towards bad goals, which are profit-making for a few. The general goal of my website is to shift world views about the big picture system within which we operate, and why it can’t go on growing like it has been.

          • NK, surely you must know (I know, stop calling you Shirley) that the FDA isn’t cutting pharma any slack these days. Getting anything approved these days is incredibly difficult.
            As for side effects, the body was meant to reject medicines as foreign substances. That’s why our liver gears up to metabolise them and why most drugs can’t get across the blood brain barrier. Every medicine, whether enhanced by humans or present in nature is a threat to the body. The body doesn’t tend to discriminate between chemist made and plant made or fungus made, for that matter. I think I’ve mentioned this before but I don’t think you could get aspirin approved by the FDA these days. It has real deleterious side effects. And I have no idea why we can still buy acetaminophen without a prescription. That stuff can kill you and has an unpredictable LD50.
            I’m going to guess that the phobia about side effects has two causes: 1.) those stupid television ads where everything seems to cause nausea, vomiting, dizziness and shortness of breath and 2.) Class action lawyers who have a motive for making a drug sound as dangerous as possible.
            It’s a pity, really, there were some good drugs pulled off the market in the past 20 years that shouldn’t have been,

          • odumlogan: I’m glad you stopped by. Yes, we all want to stop the excessive profit taking by corporate CEOs and Wall Street. You are not alone in this. And you may be surprised to find out how many pharma researchers are on your side. In other words, just about everyone I know.
            The problem is that there is a mixing up of cause and effect. Drug prices are too high and it’s unsustainable therefore the research people must be doing something wrong too. I just have to tell you that most of the stuff you wrote about us is wrong. I’ve worked in corporate research labs for 2 decades. You’ll have to take my word on this. If you figure out what’s really going on, you will be a much stronger advocate for your side- our side.
            It distresses me when I see activists and occupiers throw everything at pharma to see what sticks. That’s never going to work and Wall Street will roll right over you. They count on you not knowing where to discriminate between the bad actors and the good ones. But if you learn about what is really going on in pharma, you will be doing the researchers a big favor because we need your help and you definitely need ours.

          • If I gave the impression that I was blaming researchers for the ills of The Corporation, I apologize. That post was a last minute composition when someone else pulled theirs, and it probably suffers from lack of editing :-}. I’m a scientist, but I’m big-picture oriented and am probably a bit biased against reductionist methods (does it show??). And as an ICU nurse, I have seen way too much of the problems that too much care (including pharm) can bring. But better living through chemistry can also be lifesaving and pretty awesome. Yes, I failed to present that piece in my hunt for billionaire CEOs.

            Our world views may be pretty different, however. I believe that the current system, especially healthcare and education as the most egregious bubbles in the US, are unsustainable and not long for this world, once our financial system and currency collapses. What do we want in their place when that happens? Different world views, yes?

            http://www.energybulletin.net/stories/2012-05-01/questioning-growth-assumptions

          • odumlogan,

            Dennis Meadows recently stunning the crowd at the Smithsonian’s 40-year retrospective on the publication of the Limits-to-Growth, when he publicly said that sustainability (your category 2) was no longer possible, given that world leaders chose to continue “business as usual”. There is no longer any combination of political, economic, social and technological policies that lead to a sustainable world. All World3 scenarios now end in collapse. So, Meadows has now moved into the category 3 camp (“we can no longer avoid what is coming, but we can still adapt proactively to avoid worst-case outcomes of overshoot and collapse”).

            For Meadows, “saving” modern medicine, like everything else, is out of the question. It’s now “which parts of modern medicine should we prioritize for saving, and which parts are we willing to let go?”

          • Nakajima, thanks again for listening. I concur with Dennis Meadows. Because of policy gridlock and autocatalytic loops (profit incentive begets creation of more feedback begetting more profit) our healthcare system will grind along until the petrodollar collapses. Our greenback is only worth printing as long as the global trade system (which includes all those derivative promises) holds together. At that point we reboot the system, and its time to come up with a new plan, because the country will be a lot poorer without debt to foist off on other countries in exchange for their resources, including 20-25% of the worlds oil.

            http://prosperouswaydown.com/subsystems/economics/

            The good news is that there is a lot of waste, over-treatment, and inequity in our healthcare system. The bad news is that I’m not sure we have it in us to overhaul our system of medical ethics, which is grossly entitled?

  2. (I was going to try leaving a comment but the combination of Forced Microshit with our workplace computers blew it up. Maybe later . . . )

    • Speaking of microshit, does anyone know how to gunzip a compressed tar file under Windows 7? Winzip is not available and I’m not shelling out $30 to buy it for a computer that isn’t mine. I’ve looked for open source stuff but they’re either one version behind or from a dodgy source (not my computer so I don’t want to mess it up).

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