Pfizer: Making It 'Leaner, Meaner, More Efficient'

When Pfizer (PFE) CEO Jeffrey B. Kindler first met with Corey Goodman about being the head of the pharmaceutical giant's Biotherapeutics & Bioinnovations Center (BBC) based in San Francisco in the summer of 2007, he handed him a big assignment: Kindler wanted Goodman to develop a new model to do research in a more efficient, more entrepreneurial way.

Developing a different model of drug development is crucial to Pfizer's future. Over the past decade, the percentage of drugs developed by the pharmaceutical industry that actually make it to market has dropped from 10% to a mere 5%. Pfizer, like other pharmaceutical companies, can't afford for such a low success rate to continue over the long term.

Goodman wanted to create an environment that would nurture the same type of innovative spirit that exists at biotechs such as Genentech (DNA). To do this, he broke up his research center into smaller groups of scientists and gave them more responsibility. Instead of handing off drugs when they went into clinical trials, scientists would continue to oversee them. That gave them a greater sense of ownership than they had in the past.

Recently, Pfizer has reorganized its entire research group and even its business units in a similar manner to Goodman's research center. The goal is to capture the same innovative spirit. BusinessWeek's Emily Thornton recently spoke to Goodman about Pfizer's transformation. Below are edited excerpts from their conversation:

What initially sparked the shakeup of the way research is conducted at Pfizer?

It wasn't done with a recession in mind. It was done looking at inefficiencies. Looking at how much it costs to bring drugs into the clinic. We were looking at the notion of these large research sites the pharmaceutical companies have, and we were asking ourselves how can we bring in some of the models from the biotech world. We not only built the model in [our research center]. But we adapted that model to the overall global research effort.

It's the right model for the industry. It also happens to be a great model when one is going into financial instability and a recession because it allows you to keep your eye on innovation and drug discovery in these small, very efficient units. It's this whole notion that people have more accountability and more ownership of what they're doing if they're working in small groups where the people who are functioning as the chief scientific officers are accountable from the earliest stages of discovery all the way to taking those drug candidates into the clinic and showing that the mechanism works in humans.

This was how we wanted to make Pfizer leaner, meaner, more efficient, more entrepreneurial, and have people have more accountability for what they're doing. [Our] goal, of course, is getting more drugs into the marketplace for patients and bringing in more revenues for shareholders.

How different is this from the way Pfizer operated in the past?

[In the past], you would have a very large research and development group where the research groups would hand things over to the development people right when things first went into humans. Then when things would make it through the clinic, that's when it would be handed off to the commercial group.

I understand that Pfizer's business units are also now being organized in the same manner as your center. Is that right?

Now the commercial group is taking the responsibility back at the beginning of the pivotal clinical trials. It's broken up into smaller business units, each of which is focused on certain types of patients and certain types of diseases. That way, for instance, the oncology unit is completely focused. They have outside experts. They have outside advisers.

They work with the doctors to figure out what patients need so they can make the right decisions about what kinds of drugs they should really be bringing into [later trials] that will really have a major impact on human health. Even a company as large as Pfizer has to decide where to place its bets. And what you look at is where there are huge medical needs and large market opportunities. That will have both a large impact on health and on shareholder value. At the same time, you're looking scientifically and asking where you think there will be the kinds of mechanisms where you think you can actually move the needle and make a difference. We want to make drugs that will have a major impact on human health.

What changes have you noticed since this reorganization began?

The group that has been working in this model the longest is my division. A year later, it's clear the degree of productivity is extremely high. It's higher than what you've seen in the pharmaceutical industry before. We're very excited about some of the new drugs. And the best is yet to come. It's giving people a sense of identity. A sense of their own culture, a sense that they can make decisions locally. That really sets people free in terms of getting the creative juices going, and that's the model I think big pharma is going to have to turn to in the future to be more efficient and more innovative.

The way you'll be able to judge Pfizer's model is by asking: Have more drugs that are going into the clinic making it to the marketplace? We've got to lower attrition to save costs and get more drugs to the market. We have to be smarter about how we do that. The pharma industry can't go forward with this much attrition and this much money being spent.

Before it's here, it's on the Bloomberg Terminal.