Pfizer Continues Transformation; Stakes Future on New Direction

By Matthew Mahady
Published: Monday, May 24, 2010
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Several months ago, Physicians’ Financial News covered Pfizer Inc’s aggressive move into the oncology market and the strategic and tactical refocus that accompanied its paradigm-changing shift in priorities. Pfizer took several early initial steps in this direction, which included

• Forming a specific oncology department;

• Creating new positions and filling them with various industry experts with decades of collective oncology expertise;

• Recommitting to oncology R&D;

• Streamlining company operations to prioritize oncology and a few other key disease states;

• Rechanneling resources into oncology;

• Signing in-licensing deals to purchase the rights to oncology drugs and drug candidates; and

• Pursuing acquisitions and collaborative agreements that would strengthen Pfizer’s oncology marketplace position.

Since then, Pfizer has continued its profound efforts to reorganize in earnest pursuit of a larger berth in the cancer marketplace. In September 2008, Pfizer announced that it is abandoning early stage research on heart drugs as part of its strategy to narrow its focus to ailments such as cancer, where the opportunities for profit are greatest. The move raised some eyebrows on Wall Street: It is one thing for a new company to rebrand and change direction, but the New York City-based Pfizer is the largest drug-maker in the world and a household name. When asked about the changes, a Pfizer spokesperson explained that the company is being proactive about repositioning itself, expanding its outlook to include the future business landscape as well as the present one. Pfizer “is in a rush” to develop new medications to compensate for the expected loss in revenue when its blockbuster cholesterol pill Lipitor (atorvastatin calcium) loses patent protection in 2011. A quarter of Pfizer’s revenue last year came from sales of Lipitor, which reached $12.7 billion.

In making this transition, the company plans to sell or share rights to at least 11 medications in the early testing stages for disease states the company feels are no longer profitable enough, according to Martin Mackay, president of Pfizer’s Global Research & Development division. This includes treatments for heart failure, high cholesterol, and obesity. Ultimately, Pfizer plans to curtail early stage research on anemia, all forms of heart disease, bone health, liver disease, muscle disease, and some osteoarthritis compounds. This intensified focus on oncology and other targeted disease states will not affect drugs in the last of 3 stages of testing prior to submission for FDA approval, however.

The company will instead pursue remedies for higher-yield disease states such as cancer, chronic pain, and schizophrenia. Jeffrey Kindler, CEO, Pfizer, affirmed this shift in a March 2008 interview with the Boston Globe, stating that Pfizer would place more focus on developing drugs to treat cancer and pain. In October 2008, Mr. Mackay elaborated, explaining to the Boston Globe, “These are the disease areas with a higher medical need where the science is really breaking. From an opportunistic point of view, we see greater opportunity to fight cancer.” Pfizer’s research budget of ~$7.2 billion is unlikely to change next year, Mr. Mackay disclosed, although the allocation of that budget is likely to change significantly.

Prior to the September announcement, Pfizer shares had dropped 19% in 2008, compared with a 16% decline for the Standard & Poor’s 500 Pharmaceutical Index. On the news of Pfizer’s organizational overhaul and strategic shift, its stock rose 4.5% in a single day. Clearly, investors approve of the plan.

Moving into the Unknown

By halting its heart-disease research, Pfizer abandons the area of medicine that propelled its rise. In 2000, Pfizer acquired Lipitor from Warner Lambert Co, when the drug generated less than $1 billion in annual sales. Pfizer quickly transformed Lipitor into the best-selling pill in history. Sales of Lipitor have slumped since 2006, however, when generic versions of a similar drug (Merck’s Zocor [simvastatin]), hit the market.

Drugs for cancer and pain typically are more profitable because drug makers can charge higher prices and there is less competition. Currently, about 22% of Pfizer’s research funding goes toward cancer, but this proportion is expected to increase significantly over the next several years.

Pfizer reported that the number of projects in final human tests has doubled since March 2008—faster than projected—to 25. Pfizer added just one wholly new compound, the drug CP-751871, which is in the testing stages as an agent to treat lung cancer. The remaining increase in projects constitutes new uses of drugs already in late-stage testing or on the market. Mr. Mackay cautioned that though things were going well, Pfizer “clearly [has] a lot more to do” to secure FDA approval to sell the new drugs.

Components of Reorganization

Pfizer began reorganizing its research division in 2007, after halting development on its most promising experimental drug, the cholesterol pill torcetrapib. Torcetrapib had been expected to reap more than $13 billion in annual sales before disappointing trial results caused Pfizer to pull the plug on the product.

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