Pfizer Restructuring a Boon to CMOs and CROs - Pharmaceutical Technology

Latest Issue
PharmTech

Latest Issue
PharmTech Europe

Pfizer Restructuring a Boon to CMOs and CROs
As big pharmaceutical companies restructure and reevaluate the way they do business, contract research and manufacturing organizations could reap greater financial rewards.


Pharmaceutical Technology



Jim Miller
Executives of contract research and manufacturing organizations (CROs and CMOs) are undoubtedly licking their chops over the prospective flood of business opportunities with Pfizer, Inc. (New York, NY). The opportunities are expected to arise from Pfizer's decision, announced by new CEO Jeffrey Kindler, to close down or sell five R&D sites and three manufacturing facilities and outsource more of the activities conducted at those sites. Given that in 2006 Pfizer spent nearly $7.5 billion on R&D and a similar amount on cost of goods, even a small incremental increase in the share going to contract services would be a bonanza for the pharmaceutical services industry. In fact, the plan calls for Pfizer to increase its outsourced manufacturing activity from 15% of requirements today to 30% in the next few years.

Taken in total, Kindler's plan for fixing Pfizer amounts to a wholesale overhaul of the traditional Big Pharma business model. It entails a focus on costs that has been unusual for Big Pharma, albeit standard practice for most major industries. Consider these quotes from the Jan. 22 meeting where the Pfizer senior executive team unveiled their plan for Wall Street analysts:

  • ". . . establishing a lower, more flexible cost base";
  • ". . . establish a more flexible cost structure that can be modulated depending on our needs and opportunities at any given time";
  • ". . . maintaining a flat R&D budget" while tripling the number of Phase III candidates by 2009;
  • ". . . no-growth R&D budget environment";
  • ". . . a culture of productivity and continuous improvement and continuous increases in efficiency";
  • ". . . major development sites in Mumbai and Shanghai."




Those statements suggest that the CMOs and CROs that benefit from Pfizer's increased outsourcing activity are really going to have to work to maintain the business and keep it profitable. Clearly, Pfizer will be looking for more than just vendors: it will be looking for partners to help remake its R&D processes and manufacturing operations. The partnership role will require service providers to examine their own cost structures and business practices to find opportunities to continually deliver cost savings and performance improvements. Doing so will be wrenching for many service providers, who have become accustomed to the traditional Big Pharma way of doing business and have been quite profitable operating that way.

Consider a traditional practice such as "take-or-pay" contracts, which obligate a customer to pay for capacity regardless of whether the capacity is used. These have long been standard practice in the pharmaceutical outsourcing industry, especially for services in which capacity is viewed as being tight, and they are quite popular today in the preclinical toxicology segment. Nonetheless, take-or-pay deals would seem to be contrary to Pfizer's objective of keeping costs flexible. How will service providers balance their own needs to maintain capacity utilization against Pfizer's needs to keep costs flexible?

Pfizer's insistence on maintaining flat R&D expenditures while increasing the number of development projects will challenge CROs and CMOs even further. Profit margins will undoubtedly come under pressure, especially as the company explores sourcing options in Asia and as it insists on continuous improvement in pricing and performance each year. Those pressures also will force service providers to manage their businesses more effectively and also may lead to a rush of innovation as companies seek to squeeze costs out of the development process.


ADVERTISEMENT

blog comments powered by Disqus
LCGC E-mail Newsletters

Subscribe: Click to learn more about the newsletter
| Weekly
| Monthly
|Monthly
| Weekly

Survey
What role should the US government play in the current Ebola outbreak?
Finance development of drugs to treat/prevent disease.
Oversee medical treatment of patients in the US.
Provide treatment for patients globally.
All of the above.
No government involvement in patient treatment or drug development.
Finance development of drugs to treat/prevent disease.
27%
Oversee medical treatment of patients in the US.
12%
Provide treatment for patients globally.
8%
All of the above.
46%
No government involvement in patient treatment or drug development.
7%
Jim Miller Outsourcing Outlook Jim MillerCMO Industry Thins Out
Cynthia Challener, PhD Ingredients Insider Cynthia ChallenerFluorination Remains Key Challenge in API Synthesis
Marilyn E. Morris Guest EditorialMarilyn E. MorrisBolstering Graduate Education and Research Programs
Jill Wechsler Regulatory Watch Jill Wechsler Biopharma Manufacturers Respond to Ebola Crisis
Sean Milmo European Regulatory WatchSean MilmoHarmonizing Marketing Approval of Generic Drugs in Europe
Seven Steps to Solving Tabletting and Tooling ProblemsStep 1: Clean
Legislators Urge Added Incentives for Ebola Drug Development
FDA Reorganization to Promote Drug Quality
FDA Readies Quality Metrics Measures
New FDA Team to Spur Modern Drug Manufacturing
Source: Pharmaceutical Technology,
Click here