Pfizer Guts R&D – Questions Arise

Pfizer Guts R&D – Questions Arise

July 7th, 2011 // 12:38 pm @


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 .

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” .

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 .

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.”

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