As the dust settles following news of Pfizer's R&D site closures, it seems it is not the only company feeling the need for a reshuffle. Roche has just announced plans to increase its investment in R&D and implement a new research model focused on five 'disease biology' sites. Pfizer, meanwhile, will now conduct its research at four main sites covering specific therapeutic areas. Both companies are doing this because they recognize that to achieve better growth in light of pending patent expirations, they must feed their pipelines with many new compounds.
Companies have traditionally been tempted to go for the quick-fix option to improve their pipeline by acquiring smaller companies or merging. Mergers can provide a boost in portfolio size and an opportunity to make some changes, says Paul Herrling, Head of Corporate Research at Novartis and part of the team that successfully merged Ciba–Geigy and Sandoz Pharma. Done well, he says, you can use the merger energies to make some revolutionary changes in your organization. But done badly, this short-term shot in the arm comes at a price, and that price is confused and demotivated scientists and a downturn in productivity.
"M&As are unsustainable unless companies can restructure wisely from within and cut the fat quickly," says Nipon Das, President and Managing Director of Billinge Group, "but few companies have the courage to tell their investors and that they are too big and bloated to meet expectations. Size has not necessarily been associated with greater productivity." (FIG. 1).
Figure 1 | Economies of scale?
Size has not stopped Pfizer, the world's largest pharma company, from scoring an above average number of new drug approvals compared with its competitors (measured as FDA-approved New Medical Entities). But the industry as a whole needs to generate many more new drugs in the next few years to sustain growth and backfill patent losses. BMS, Bristol–Myers Squibb; GSK, GlaxoSmithKline. *Includes Pharmacia portfolio. ‡Drug approvals before merger.
The multiple mergers that created Pfizer, currently the world's largest pharma company, certainly created challenges from an R&D perspective. Following two acquisitions in 5 years, Pfizer ended up conducting R&D at 25 laboratories in 10 countries, splitting therapeutic areas between sites.
"That buys you diversity of thought and a small competitive element," says Martin Mackay, Pfizer's Senior Vice President of Worldwide Research and Technology, "but in the end the coordination is just too difficult."
The company's solution was to close several of its R&D and manufacturing sites — including its very successful research laboratory, Ann Arbor in Michigan, USA — to reduce costs spent on 'bricks and mortar' and to better use the scale of the company. Mackay believes that the therapeutic area structure is the way to do that, because it allows proximity to the patient.
Pfizer is not the first to opt for such a model. In the years following the merger between GlaxoWellcome and SmithKline Beecham, the resulting company GlaxoSmithKline (GSK) reorganized its R&D section into Centres of Excellence for Drug Discovery (CEDD), each focusing on specific therapeutic areas, with a view to recapitulating the energy and creative environment of a small biotech company. Pfizer's version will combine therapeutic areas with specific Centers of Emphasis, which focus on key platforms such as high-throughput screening.
"It will allow us to run these platforms using the best expertise and the newest technology with greater efficiency," Mackay explains, "and it will free up funds to meet an absolute need to finance the company's drug pipeline."
In the current climate, with pricing pressures, patent expiries and the challenges of developing innovative, superior medicines, many companies could probably also benefit from scrutinizing their own processes instead of relying on mergers.
"The trend to merge can't go on forever. Companies must make sure their R&D groups are discovering enough drugs internally," says Bob Ruffolo, President of R&D at Wyeth. Ruffolo experienced the merger that led to the formation of GSK and was appointed as a 'CEDD-Head', having been a proponent of the new research structure that was introduced during his time there. But he is now less concerned about structure than he is about management, and says that many different structures can work just fine, but only if people are committed to that structure and the company has good governance.
Good management will be crucial to the success of Roche's new R&D venture, says Jonathan Knowles, Head of Global Research at Roche and one of several executives charged with overseeing the implementation of their model. They plan to introduce a new position — Head of Clinical Research and Exploratory Development — that will be entirely dedicated to experimental research within all stages of a drug's life cycle. The intention, says Knowles, is to ensure that there are better interfaces between each stage of drug development but also between the company's drugs and diagnostics sections. Clearly, this position will require superb leadership. "It's very easy to focus on people's technical expertise, but we need to find and promote individuals with both."
Knowles believes that Roche is the first company to create a senior executive position with responsibility for experimental science and innovation that is not directly related to progression of a specific project. A recent article in The Scientist, written by an anonymous pharmaceutical R&D executive discussing the mismanagement of pharmaceutical innovation, highlighted the lack of such an approach in current models of R&D management, lamenting that: "No company has really begun to consider development as a place for innovation and creativity." Maybe Roche's strategy will prove that this is the way forward, by encouraging innovation within company walls.
Knowles is certainly optimistic about its success. He envisages that the benefits from their reorganization, planned for July this year, will be seen within a couple of months, although it will be a year before they get everything running smoothly.
Indeed, it can take a long time to know whether a new strategy is working, says Ismail Kola, Senior Vice President of Research at Merck, who in 2004 wrote an article high-lighting several areas in which the productivity gap could be filled (Kola, I. & Landis, J., Nature Rev. Drug. Disc. 3, 711–716; 2004). "[Productivity] is a lagging indicator, so you won't know whether these changes have been successful for some years." In the meantime, Kola thinks it's likely that companies will still acquire compounds and new technologies by in-licensing, and that we will possibly see more mergers. But he warns that mergers are not a long-term solution. "Industry has to address the core fundamental issues long-term."
Pfizer is already thinking long-term, as Mackay believes that the real test will not be their initial target of four new internal products a year by 2011 (the year that the patent for the blockbuster drug Lipitor (atorvastatin) expires) but will be the company's performance in the years following that. "In any one year, a company can have four launches, as we did last year," he says, "but the challenge is to do it on a consistent basis, and that's what we're really driving towards."
