Pfizer’s (PFE) research campus in Sandwich, England, is the birthplace of Viagra, the $2 billion-a-year erectile dysfunction pill that’s among the most famous and widely used drugs in the world. Nonetheless, the 213-acre site, once Pfizer’s biggest European lab, is for sale, and more than 2,000 of the employees who worked there were fired in 2011. Chief Executive Officer Ian Read says he can’t be sentimental. The Sandwich closure, announced in February 2011, two months after he became CEO, is part of his strategy to narrow Pfizer’s focus to just five therapeutic areas. “It was a very difficult decision for us,” says Read. But Sandwich’s scientists did research on allergies and respiratory diseases, “areas where we were less productive and less likely to win in the marketplace.”
Read is betting his less-is-more strategy will yield better returns. So research programs in gene therapy and respiratory disease are gone. Pfizer’s animal health and infant nutrition businesses are being divested. And overlap from the $64 billion acquisition of Wyeth in 2009 is being cut. When Read is done transforming the world’s largest drugmaker, with 2011 sales of $67.4 billion, it will focus on cardiovascular diseases; cancer; neuroscience; vaccines; and inflammation and immunology.
The downside to targeting just a few research areas is that the odds of turning out a blockbuster may narrow. “It’s a risky strategy in a risky business,” says Erik Gordon, a professor at the University of Michigan’s Ross School of Business. Developing major new drugs is harder than in the past, partly because diseases that still lack effective treatments, such as Alzheimer’s, are more complicated. Only 16 percent of drugs under development ever get regulatory approval, and experimental compounds that eat up research and development dollars today typically take a decade to turn profits—if at all. That’s led Abbott Laboratories (ABT) and Johnson & Johnson (JNJ) to rely more on non-drug businesses such as medical devices, everything from stents to artificial joints.
When Read took charge in late 2010, Pfizer had too many employees, offices, and labs after three big acquisitions—Warner-Lambert, Pharmacia, and Wyeth—from 1999 to 2009. And Lipitor, the blockbuster cholesterol pill that accounted for 16 percent of Pfizer sales, was facing generic competition. (Lipitor’s sales are expected to fall by two-thirds by 2013, two years after its patent expiration last year.) Also, a string of new products had failed, including Lipitor replacement torcetrapib in 2006 and the inhalable insulin Exubera, whose flop cost the company $2.8 billion.
Read, a Scottish-born accountant who joined Pfizer in 1978, cut spending by $642 million, or 5 percent of total expenses, last year. As a result, Pfizer’s operating expenses are at their lowest point since the 1980s, and it now has 103,700 workers, 20 percent less than after the Wyeth deal. “When we announced Wyeth, we said the target [cut] was 15 percent in three years, and we did 20 percent in two,” Chief Financial Officer Frank D’Amelio says of the firings. Read plans $1 billion more in cuts this year.
Pfizer executives analyzed each lab program for costs, payoff, and risk before deciding to close Sandwich and cut 3,000 more research jobs in New London, Conn. Mikael Dolsten, Pfizer’s research chief, however, decided to stick with Alzheimer’s research, so far one of the least successful areas of drug development but one that holds huge sales potential. To limit risk, Pfizer has partnerships with rivals Johnson & Johnson and Elan Pharmaceuticals (ELN) on one Alzheimer’s drug, bapineuzumab. “We’ll invest and try to share the bets we make,” Dolsten says.
Meanwhile, Pfizer’s sales force is spending less time courting doctors directly to prescribe its drugs, and when they do they hand out fewer binders filled with marketing materials. It’s also hosting fewer “speaker programs,” where Pfizer pays doctors to talk to colleagues at dinners or seminars.
Expense cutting aside, Pfizer can grow only if its drug pipeline bears fruit. Its new blood thinner, Eliquis, and tofacitnib, an arthritis pill, should be approved this year. And sales of Prevnar 13, a new vaccine to prevent pneumococcal disease, are growing. The era of mega-mergers to fatten the pipeline is over, however. Says Read: “You never say never, but Pfizer has achieved the scale it needs, both in its science and its global reach.”