Pfizer: A Pure Power Play For Innovative Pharma
By Wayne Koberstein, Executive Editor, Life Science Leader
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A show of hands, please. How many of you reading this know about Pfizer’s split into several separate pharmaceutical businesses? Just in case you missed it, on Jan. 1, 2014, Pfizer formally divided into two separate business units that together possess three different “operating segment” groups. One business unit, Innovative Products, consists of two groups: the new Global Innovative Pharma (GIP) and Global Vaccines, Oncology, and Consumer Healthcare (VOC). The other unit, Established Products, contains the third group: Global Established Pharma (GEP). Significantly, the GIP business, headed by president Geno Germano, has innovation written right into its name.
“Innovative Pharma” spotlights an area of Pfizer long obscured by a drumbeat of major acquisitions that brought with them many of the company’s leading products, along with the inevitable challenges of integrating the acquired R&D operations. To outsiders, it has often looked like Pfizer, in turning again and again to M&A for new products, had virtually forfeited its own ability to innovate.
Actually, the company discovered, developed, or co-developed more than half of its current top drugs and three of its last five approved drugs. But the acquisitions tended to mask those accomplishments and amplify the contribution of acquired companies and their products. The new business groups clearly put the emphasis back on the company as an innovator.
“We wanted to create two businesses that would be market leaders in their respective categories,” says Germano. “One business would be among the industry’s most innovative pharmaceutical companies in certain therapeutic areas, and the other would be an established products business, with sterile injectibles, biosimilars, and emerging markets as growth engines.”
Lead To Innovate
GIP, in particular, is the nexus of pharmaceutical innovation for Pfizer outside vaccines and oncology drugs, at least in “post-PoC” or late-stage development. Germano has global P&L responsibility for the GIP group, which will develop new drugs exclusively in the cardiovascular/ metabolic, neuroscience/pain, inflammation/ immunology, and rare-disease therapeutic areas (TAs). He says the GIP segment is strategically focused on developing, registering, and commercializing “value-creating” medicines capable of giving the company front positions in those areas.
“Our goal is to achieve leadership in each of our therapeutic categories,” he says. “That is a key strategic imperative for us. By doing so, we believe we can generate superior results for the business and put it in a strong competitive position.”
A team Germano co-chairs with Mikael Dolsten, head of worldwide R&D, coordinates decisions and capital allocation for research and development across the entire enterprise, he explains. “As the business-unit head, I am responsible for recommending whether to invest in the late-stage development for particular drugs, and I have a team that conducts the late-stage development.”
Pfizer’s portfolio has grown with the company over time. Now number one to four in the industry depending on the ranking parameter, the company was only in the mid-20s when I first visited its headquarters in 1987. Many of its current products have lost their exclusivity, however, and require much different management than newer products with their exclusivity still intact. Exclusivity status — having it or having lost it — is thus the essential dividing line between products assigned to either the GIP or GEP group.
“Before and after exclusivity, products have different levels of emphasis and priority for different stakeholders,” says Germano. “Pricing and contracting strategies differ, as do operations and cost structures. We realized that, to optimize the overall business for the whole company, we should develop separate divisions for the post-loss-of-exclusivity (post-LOE) products — about a $25 billion business — and the innovative pharma business, which involves the traditional drug development, registration, and introduction of new products, and where you invest heavily in science, building relationships with key opinion leaders, communication, and education.”
GIP, like all of the segment groups, operates as an independent business with reporting of separate quarterly financials under Pfizer, though not further “externalized” on the stock market or with its own company brand. The quarterly reporting should give more transparency to the performance of the business units, according to Germano.
“One of the challenges Pfizer had was not always getting full recognition for each of the components of our business. There was one great big giant Pfizer with one number as its performance metric, and you could not really see what was going on inside. We now report to the street on the relative performance of each business, so we can engage in much deeper discussions with the investors on the future of the individual businesses. We have operated in this structure for a little over a year, and we have made significant progress in launching new products, advancing the pipeline, building commercial presence in key geographies, and managing cost structure.”
Strategic partnership is still a core leverage-producer in GIP efforts to translate advanced science and technologies into new medicines, as Germano says: “We actively look to establish alliances and partnerships to develop therapeutics, expand disease biology understanding, and identify biomarkers in our areas of focus.”
Triangulate Need, Skills, Science
Germano emphasizes that the therapeutic areas Pfizer has targeted for innovation are not random choices. Beginning several years ago, he says the company refined its R&D strategy to focus on therapeutic areas where it saw the triple conjunction of patients’ unmet need, internal capabilities and talent, and the likelihood of scientific breakthroughs. Within those areas, however, each project must stand or fall on its own.
“We built multiple tools and metrics to help us objectively evaluate projects going through development,” he adds. “We can compare them to each other in level of risk, potential value generation over time, and, of course, cost of development. Those tools helped us value the portfolio and determine which assets to take forward and which ones to discontinue or externalize in some way.”
The handoff from early R&D to post- PoC development presents another useful filter in the process, in Germano’s view. “This organizational structure has introduced a dynamic that compels more engagement across the R&D business divide. It creates a point of tension and challenge that drives the research teams to communicate with the business teams, and vice versa. We together want to aim for a compound that will have the best potential for success from early stage research to development and registration.”
Germano believes the reformed R&D is working out well, and he has the evidence to back him up. Pfizer has achieved 16 new product approvals in the past four years, and more than 20 positive PoC candidates, resulting in 21 Phase 3 program starts. “We’ve actually had a period of greater productivity than we’ve seen in a long time at Pfizer.”
He is particularly excited about the “important breakthroughs” he sees among the recent launches, such as the oncology drug, a first-in-class cyclin-dependent kinase 4/6 (CDK 4/6) inhibitor, FDA-approved for first-line treatment of a certain breast-cancer segment. He also lauds the company’s introduction of a new mechanism to address rheumatoid arthritis, Janus kinase (JAK) inhibition, with the drug Xeljanz (tofacitinib), and he salutes the vaccines division for developing the first meningococcal B vaccine in the United States.
With what seems like a conscious intent to move beyond the legacy of company-product acquisitions, Pfizer has formalized its “pure play” in pharma R&D, seeking to create an “engine of sustainable innovation” (ESI). “We want a consistent flow of new products,” Germano says. “We don’t want just to buy a product or a company with products that may yield a success now and then, almost at random. When a major product loses exclusivity, we lose an enormous amount of revenue all at once. We can’t make that up in the same year, even with the launch of a new product. We need to have already introduced several new products during the previous two or three years, so we can absorb these LOEs and continuously grow the company.”
Invent In 3D
Beyond putting out a string of new products, or as an integral part of it, Germano believes GIP must cultivate innovative ideas and practices at every level of the organization, not only in R&D. He has established incentives and recognition activities to encourage all employees in the group to think creatively about their jobs, responsibilities, and methods. From such “aspirational thinking” will hopefully spring cultural change. “I’m trying to create a culture where every single one of my colleagues thinks of themselves as an innovator,” he says.
One training program encourages employees to propose “Dare to Try” projects to address particular challenges of operating in their country or region. Variations in the adoption of new healthcare technologies and delivery methods, use of Big Data, and payer models are among many factors that demand more creative solutions.
The initiatives have ranged from innovative, outcomes-based contracting to making clinical trials more accessible by recruiting through retail pharmacy. The leadership team also takes on specific projects, particularly in the IT/digital arena, experimenting with meeting customer needs through crowd sourcing, social media, and other emerging options. In addition to annual awards associated with such projects, an innovation fund supplies financial support for the top projects recognized as creating an advantage for the business in the market.
As a result of ideas generated through the incentives, he says, “We have funded projects that probably would not be funded in an ordinary business — not only in the development of new products, which are critical to our success, but also the adoption of new business models and tools to communicate with key stakeholders. So the concept of innovation is bigger than just R&D for us.”
There is also more to R&D than new compounds. Clinical trials have also become open ground for innovative treatment. Germano describes how his group may choose traditional versus adaptive designs for particular trials:
“If we are in a leadership position, perhaps as a first-in-class, we might take a more methodical approach to make sure we get it all right. If we’re in a race with another company, however, we might look for ways we can be more creative in approaching development to give us a leg up. In any case, we stimulate our development teams to stretch their thinking and look for new, creative ways to achieve better outcomes.”
Pfizer, like many Big Pharmas, keeps refining its relations with external research partners in academia and among small-to-large companies. Pfizer’s Centers for Therapeutic Innovation (CTI), with four locations around the world, coordinate the academic relationships, region by region. (See also my Life Science Leader July 2012 article “The New Pfizer Research Strategy: Openness And Collaboration Replace The Old Imperial Model.”) The company has built a team of business-development experts who can talk through the science with academic or small-company researchers, a venture-capital group to finance start-ups and early research projects, and major partnerships with established companies.
Culturally, people in small, entrepreneurial companies tend to look at Big Pharma business-development bureaucracies as towers of risk avoidance. In their view, big companies leave it to the small ones to take on the hard risk of innovation. But Germano jumps at the chance to counter that perception.
“I believe it is a myth that big companies avoid risk, and one that is not accurate at all,” he says. “In fact, in bigger companies where there are more substantial resources available, we have a portfolio of risk. We invest in some very early, very high-risk-taking scientific endeavors, not only through partnerships, but also in-house. We are involved in gene therapy, CAR T-cell technology, and immuno-oncology, for example. We are looking at novel therapeutic approaches to neuroscience, one of the most high-risk areas of research today. In Alzheimer’s disease, where there have not been very many real breakthroughs, we are there. We’re involved in discoveries, in development, and in investments.
Germano also disputes the risk-taking stereotype of small enterprises: “While there are small companies that take a lot of risk, some small companies take relatively little risk by focusing on an incremental innovation or small variations on existing technology.”
But one reasonable risk-limiting device is to take on the biggest challenges in the areas where you are most capable of doing so. Germano observes that Pfizer has been a diverse business, marketing and developing products in almost every area at one time or another. In his view, with the areas of focus well-defined, the company is free to compete at its best and possibly lead in each of those areas.
“Creating leadership in specific categories drives much of our thinking today,” he says. “In those areas, we can be at the forefront of science and with patient care, we can work together in a bigger and stronger way with partners, and we can participate in the ecosystem of care. I see our future moving in that direction where we not only have industry-leading products, but we have deep relationships, deep understanding of patient needs, a total commitment to those areas, and we realize the benefits of that in our own productivity, our ability to provide strong shareholder returns, and our success in building a growing enterprise over the long term.”
Many of us who have had the luck, and the longevity, to observe Pfizer’s rise to the upper ranks would like to believe it has now found a new path — one of innovation inspired from within rather than primarily purchased from without. The R&D reforms began a few years back, followed by the reorganization into GIP, VOC, and GEP, may have irrevocably committed the company to the innovative path in qualitative and quantitative ways by easing its reliance on the acquisition of mature products. Still, we have the luxury of being observers. Germano and the GIP team, along with the other segment groups, must make it happen. Good thing they seem off to a good start.
Health & Value — Look In, Look Out
Besides heading Pfizer’s Global Innovative Pharma Business, (GIP), Geno Germano has another key responsibility — managing the company’s Global Health and Value function — created, the company says, “to demonstrate the value of medicines using real-world data focused on ways to improve patient access and manage patient costs.” The group works with regulators and payers internationally, and, it is probably fair to say, it signals a growing industry awareness and even acceptance of value-based approaches to resolving the tug of war between innovation and reimbursement.
"Global Health and Value is all about fostering understanding of the value of the drugs we have in development and in the marketplace — the role they play in managing care for patients and delivering value to payers, whether that is a government or an insurance company. There are more healthcare systems now at risk for providing care to populations, and if you’re at risk, you want to know you’re getting good value for your money. So it is imperative for us to have the capabilities to demonstrate value, and this is a key area for us to continue focusing on.
It will be a continuous process to work with regulators and to advance regulatory processes and again, make it easier to bring new innovations to patients, but we have seen a lot of progress. The 21st Century Cures legislation that’s going through the legislative process today includes provisions for incremental funding for NIH and our industry, and Pfizer has been very supportive of this effort by Fred Upton and Diana DeGette and with the 21st Century Cures Act.
On the other hand, at Pfizer we have taken up the issue of corporate tax and how it influences American companies disproportionately compared to companies domiciled in lower tax jurisdictions in countries with territorial tax systems. It is a factor in the competitiveness of American companies and the country as a whole that we have to be cognizant of, and we are actively supportive of measures that would make the U.S. corporate tax system more competitive on a global basis.
On the payer side globally, financing healthcare, including medicines, is an enormous challenge. People are living longer, and they are experiencing more difficult healthcare problems. We’ve made a lot of progress on the easy ones, so now we have new and bigger problems we have to solve. So it is imperative for our industry to be effective at describing, articulating, and supporting the value of the products we bring to patients."
GENO GERMANO
Group President of Global Innovative Pharma Business