Pfizer pushes forward with R&D externalisation

The initiative is one of the many the world's number one drug firm is taking as part of a drive to develop "innovative alliances"​ to cut costs as well as secure external sources of revenue and supplement its pipeline. A start-up venture called Fabrus, led by Vaughn Smider, an assistant professor at The Scripps Research Institute in La Jolla, California will be the first to occupy space at Pfizer's new 'incubator' centre, situated near by. Fabrus will work to develop novel antibody libraries, and ways to screen them against biological targets. The technology will be tested on targets in some of Pfizer's 11 disease areas, of which oncology, diabetes, and neurological disorders are a particular future focus. Although stressing that the majority of its pipeline drugs will continue to consist of small molecules, the firm said it was exploring biological targets because it believes large molecules offer "significant, promising R&D opportunities that we need to pursue and we are intent on doing so". ​ In total, Pfizer will invest $10m (€7.2m) a year to support life science start-ups based in the incubator and said it "continues to review research proposals and expects other occupants to move to the facility in the near future".​ The chosen companies will receive Pfizer's support at the centre for two years, at the end of which, Pfizer has an option to acquire the company and its technologies, otherwise, the companies may then spin out as an independent enterprise. "We have expanded our efforts in securing early-stage product candidates and technology,"​ the firm said. Pfizer has been reaching outside the company more and more of late, in a range of different ways, in a bid to establish a lower and more flexible cost base and create a smaller, more focused, and accountable operating structure, with maximising revenues as the desired outcome. Pfizer's revenues have been slipping of late - its second quarter results announced this week showed a six per cent decline in revenues and an 18 per cent increase in cost of sales, primarily because two of it its key products, Zoloft and Norvasc, have lost patent exclusivity and its number one seller Lipitor is experiencing intense market competition. Meanwhile, Lipitor will also soon loose patent exclusivity and its anticipated blockbuster, Exubera, has continued to disappoint. Commenting on its externalisation plans, Pfizer CEO Jeffrey Kindler said in an analyst call: "We knew that the first thing we needed to do was make some basic changes in the way that we operate in order to put ourselves in the best position to succeed". ​ "Changing our culture to one that has a complete commitment to engaging collaboratively with the people outside our walls [is] critical to our success." ​ In regard to R&D, Kindler said the firm has "held the R&D budget steady, …despite the fact that we are reducing costs significantly in other parts of the organisation." ​ However, he said the firm has "shifted significant spending from bricks and mortar and administrative costs to our essential mission: science, and the discovery and development of drugs… and is committed to simplify R&D both in terms of our footprint and our organizational structures." ​ "Our future success will be created in our laboratories and in the laboratories outside our company with whom we collaborate through alliances, licenses, acquisitions or other arrangements,"​ he added. This movement was initiated in January, when Pfizer announced plans to close five R&D sites and relocate its projects amongst remaining facilities as well as external sites. To date, two-thirds of the projects that are moving between sites have been transferred, the remainder will be transferred by the end of this year, Kindler confirmed in the analyst call. Furthermore, the firm said it will "continue to outsource where it makes sense".​ As part of this, Pfizer is stepping up its focus and investments in emerging markets in Europe and Asia. Last month, for example, the company announced it will plough $300m into South Korean research and development over the next five years - the largest single investment in South Korea by a foreign company - while it's CEO made an unusual visit to North Korea to explore opportunities there. Meanwhile, Pfizer has previously indicated that its manufacturing operations are also earmarked for a particular increase in outsourcing activity, especially to lower cost destinations. Specifically, it plans to reduce its number of manufacturing sites from 93 to 48 by the end of 2008. In an update given by Kindler this week, he said: "We currently outsource the manufacture of approximately 17 per cent of our products on a cost basis and plan to increase this substantially by 2010". ​ In addition, IT outsourcing is being widely embraced by the firm. All of Pfizer's data management is now outsourced, along with many other related functions such as data entry, monitoring, statistics and medical writing. The firm recently partnered with a single service provider, Eliassen, under a functional service provider (FSP) model - where a handful of niche IT vendors are working for Pfizer, a dramatic consolidation from the previous number of 150. "By consolidating 11 third-party providers and reducing labour cost, we expect to generate considerable annual savings and higher quality services,"​ said the firm. Pfizer is not unique in its externalisation plans. Many of the world's pharma companies are increasing outsourcing in an attempt to reign-in spiralling drug development costs.