Identify several companies that have demonstrated strategic thinking about issues that are similar to those faced by Pfizer Inc.
Provide an overview of the issues, identify a total of five different strategies utilized by those companies to address them, and discuss the outcomes.
Based on the five strategies, explain how you would adopt them in your selected organization to address the issues you identified.
Environmental Analysis:
It appears the Pharmaceutical industry is going through tough times and the big pharmaceutical manufacturers like Pfizer are passing through an era of extreme regulatory and compliance pressures from the regulatory authorities, pressure to reduce drug costs, threat from generic drug manufacturers due to patent expiry of blockbuster drugs and increasing demand and pressure from the consumers to come up with new and innovative drugs rapidly. The population today needs new exotic drugs. Counterfeiting and Piracy are rampant throughout global supply chains and it is very hard to track back and find out where they came from, or who made them. It costs an average of $800 million to bring a drug to market, and legislatures are considering reducing patent protection (Pfizer, 2006).
Pfizer’s situation is no different in these times. Some of the key issues faced by Pfizer today are:
1. Significant revenue reduction due to patent loss
2. Lipitor’s dominance is under threat and a potential weakness to Pfizer
3. Illegal/counterfeit drugs
4. FDA stringency (particularly in response to Vioxx trials)
5. Drug prices
6. Antibiotic drug resistance
7. The end of blockbuster revenue (and perhaps more personalized medicines – unlikely in the near future)
8. Further mergers and alliances
More investors and analysts argue that while the drug company should continue to plow money into new-drug development, the company needs to aggressively reduce marketing and other costs and return greater amounts of cash to shareholders through a higher dividend.
In these tough times, Process Analytical Technique or PAT, which is an FDA initiative, is all set to change the picture of pharmaceutical organizations. Even though it may not resolve all the problems for companies like Pfizer, PAT can surely bring the much needed improvement in manufacturing efficiency, cycle times and relationship with regulatory authorities. Pfizer has been a pioneer and leader in terms of PAT implementation and is a step ahead in this regard as compared to its peers. However, there has been a continuous effort from Pfizer and other industry experts to develop Standard PAT software to enhance the benefits and performance of PAT software. The primary reason for the slow development of PAT is the lack of common standards and companies like Pfizer are trying to overcome this problem by working closely with industry experts, end users and software vendors (Pfizer, 2006).
The Remote Environment:
Social Environment:
The U.S. Government’s pressure for reducing prices will mount and with enactment of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (which went into effect in 2006) regarding prescription drug benefits for Medicare beneficiaries expands access to medicines that patients need. While expanded access may potentially result in increased sales of the products, such increases may be offset by increased pricing pressures due to the enhanced purchasing power of the private sector providers that will negotiate on behalf of Medicare beneficiaries in the future.
Political Environment:
With more and more countries adopting to cooperate with U.S. to augment their economies there is positive atmosphere. This coupled with Companies presence in almost world around and having manufacturing facilities in more than 79 countries gives it leverage to tackle political environment. Hostility in some countries to U.S. intervention in Iraq is the only negative factor but it should not have much impact on long term expansion plans in other countries.
Technological Environment:
The situation is quite challenging here, at home abroad more and more companies are coming in domain of Research based drug development. Therefore the environment will force constant refining of the process and making more productive. The emerging Cos. of India and China Supported by local Govt. funded Universities and Research Institutions will definitely impact the scene in long run. Short term Co. can remain ahead but in long run greater synergies between the teams, constant innovations will be the key.
Economic Environment:
There are some uncertainties about U.S. economy but the dollar continue to remain strong and economy continue to grow, there is a positive environment. Worldwide there is strong growth phase and especially emerging economies such as India China, Russia and Brazil etc. are doing very good and this will help the company to expand it operations outside U.S. and pursue it long term plans.
Competitive Analysis:
The Pharmabiz study of financial performances of top 15 international pharmaceutical companies has revealed some disturbing trends in this sector. The study covered operations of Pfizer, Sanofi-Aventis, GSK, AstraZeneca, Johnson & Johnson, Merck, Roche, Novartis and 7 others during 2005. Aggregate sales of pharmaceutical products of these 15 companies increased by 2.1% from 303 billion dollars in 2004 to 309 billion dollars in 2005. The net profit, at the same time, registered a 7.9% growth at 75 billion dollars from 70 billion dollars in the previous year. As per the study although Pfizer, Sanofi-Aventis and GSK remained as the top three companies in terms of Pharma sales, all three reported negative growth in sales during 2005. The sales of the companies declined, Pfizer declined by 4.1%, Sanofi-Aventis by 5.9% and GSK by 2.5%. Merck and Bristol-Myers are the other two companies reported a decline in growth. Three relatively smaller players namely Amgen, Abbott Labs and AstraZeneca, however, reported a double digit growth during 2005 with Amgen recording the highest growth rate of 20.5%.
The action above reflects shrinking sales of some of the top brand companies in the US market. Pfizer's own sale in the US market fell by 11.8% to 23.44 billion dollars in 2005 from 26.58 billion. Sanofi-Aventis reported a 5.3% drop in sales in the US market while GSK sales fell by 3.5% during 2005. Drop in sales of three top Pharma companies in the world's largest market is a matter of concern for them with continuing stiff competition from generics and increasing expiration of patents. The Pharma companies are taking this threat from the generic players quite seriously by spending more on R&D. Eli Lilly stood out as the largest spender of R&D in 2005 with its spending of 20.7% of gross turnover. Amgen, another relatively smaller player among the 15, has spent 18.6% of its turnover on R&D. On the other hand, Pfizer’s R&D expenditure declined by 3.1% to 7.44 billion dollars in 2005 from 7.68 billion. Merck also reduced its R&D spend to 3.84 billion dollars in 2005 from 4 billion.
Growing generic competition and the need to spend more on R&D are hitting the profit growth of top companies. Top companies like Pfizer, Roche and Merck thus reported major setbacks during 2005. Pfizer's net profit declined by 28.8% and Merck's net profit declined by 20.3% (McKinnell 2006).
Within the biologics segment, monoclonal antibodies (mAbs) will act as the strongest driver of growth out to 2010, recording an absolute annual sales increase of $18 billion, equal to a CAGR of 26.2% (McKinnell 2006).
A number of competitive factors are combining to stimulate stronger growth for biologics, and mAbs in particular, versus small molecules. These include exposure to generic competition, access to biologic drug technology suppliers and drug pricing leverage with healthcare providers. Roche will record the strongest year-on-year sales growth out to 2010(McKinnell 2006). This performance will be driven by the company’s strong presence in the biologics market and the mAb market in particular. It is however evident other players within Big Pharma have sought to replicate Roche’s strategic move into biologics. Abbott, Johnson & Johnson and Wyeth are among those forecast to record strong sales growth out to 2010 via biologic drugs.
In contrast, a number of players are forecast to generate no sales growth from biologics in 2010, instead relying on revenues from small molecule product sales (McKinnell 2006). Among these players are AstraZeneca and Merck & Co. which, tellingly, have both made recent bids to acquire biologic drug development companies.
Novartis, which is forecast to record the second strongest growth rate within Big Pharma out to 2010, actually has minimal interest in the biologics market. However, the company has made a radical decision (within the traditional parameters of Big Pharma business etiquette) to enter the generics market and has positioned itself as a strong contender to enter the emerging bio-similar market.
Pharmaceutical companies are increasingly looking to retain their internal focus on research and development (R&D) and marketing while outsourcing their manufacturing processes, thus fueling a growing demand for the manufacturing capacities of contract manufacturing organizations (CMOs). This trend will drive a doubling in revenues in the pharmaceutical contract manufacturing sector from $12.38 billion to $25.70 billion, according to a report from consulting firm Frost & Sullivan.
As more pharmaceutical companies lose patents on blockbuster drugs, they're undercutting the price of their own products to stay competitive. Pfizer plans to fight back by selling its own generic version of Zoloft as well as the name brand. Merck is trying a similar tactic with Zocor, by slashing prices for large insurers.
Throughout history, companies have sought wider uses for niche products. On the other hand, taking a product into a narrower market is a road less traveled. Yet Aspreva Pharmaceuticals Corp. is following precisely that strategy. The Victoria, B.C. based company licenses existing drugs and develops them for the treatment of rare diseases. The founders hope that by focusing on rare diseases as a group, they can yield cures that wouldn't be commercially viable if developed and tested separately. Aspreva's business model attempts to target drugs already on the market. A large pharmaceutical company may not attempt to develop all the potential applications of its drugs. There is where Aspreva comes in. With its narrower focus and smaller size, it can create extra development pipelines for drugs owned by larger companies. Aspreva's future depends on showing potential partners that it can get regulatory approval to treat other diseases for the drugs it wants to license. The firm is negotiating licensing deals with other pharmaceutical and biotech companies (Mirasol, 2006).
Technological Innovations by Top Competitors:
Major pharmaceutical manufacturers have announced large-scale pilot programs for item-level product tagging. They see clear advantages in thwarting counterfeiting and therefore boosting revenue by moving to item-level tagging. GlaxoSmithKline will be putting RFID tags on bottles of Trizivir, a medicine used to treat HIV (Mohan, 2006). Trizivir is on the FDA's list of most-commonly counterfeited drugs. These and similar RFID programs represent manufacturers' attempts to stay ahead of pending U.S. legislation to mandate item-level tagging in the pharmaceutical industry. Pfizer has also initiated RFID pilot program for Viagra.
Customer Needs and Desires:
With the availability of information on the Internet and in other forms of media, patients are becoming better informed about pharmaceutical products, increasing the importance of consumer-oriented marketing strategies, including advertising. Therefore, in addition to investing more in R&D, pharmaceutical companies are also investing more in marketing to increase sales of new and existing drugs. In fact, it is estimated that the industry's marketing and administration expenses are now generally more than twice those of research and development (Mirasol, 2006). The face of the customer is fundamentally changing for drug manufacturers like Pfizer.
A startling report of this was described in a recent New York Times article: “For a sizable group of people in their 20's and 30's, deciding on their own what drugs to take—in particular, stimulants, antidepressants and other psychiatric medications—is becoming the norm. Confident of their abilities and often skeptical of psychiatrist's expertise, they choose to rely on their own research and each other's experience in treating problems like depression….A medical degree, in their view, is useful but not essential”. This phenomenon, the article suggested, is “driven by familiarity” with the drugs.
Further, the key trend developing is a better understanding of opportunities and limits of the role of patients as consumers in driving prescription drug use. There are a few aspects to this. One is the choice the consumer makes in terms of what brands he chooses to purchase. The second is the role that the consumer plays in compliance; that is, deciding to continue to take the drug. The third element is the limit of consumerism. The industry is starting to realize that the consumer’s ability to synthesize medical information and make an informed choice about medications is limited, and that there is the potential for negative side effects of over-exposure to information. Helping consumers cut through information overload and become true long-term customers is a big opportunity for industry leaders.
In the past, people were patients; that is, largely deferential to physicians. Now many people are actively engaged in consuming their health care products. Ultimately, what pharmaceutical companies want are customer relationships: a committed, long-term relationship in which the parties exchange information and experiences.
With the transformation of the patient to consumer, completely new targets open up. When patients were not engaged in their own health, there was no point in advertising to them because they were not going to go and ask for a specific brand or medication. The patient as consumer allows pharmaceutical companies to market differently, to different people, and with different methods to influence brand choice.
Companies that are more successful at staying ahead are trying to get inside the psyche of the consumer, trying to figure out where the barriers are and what the drivers are, trying to understand how they can position their offer so that it really connects with consumers they hope to turn into customers. The smarter companies are taking a hard look at the suitability of investing in direct consumer campaigns, or in any sort of communication to patients, and asking: “How big is this market? How receptive are they to a relationship to a pharmaceutical company? How do they feel about medications? How can I target and communicate with sufferers in a way that changes how they act? (Glenn & Gordon, 2002, p.17).”
Shortcomings and Opportunities:
One of the major shortcomings for pharmaceutical companies is their high cost structure and the intense pressure to reduce the cost of drugs. This is an opportunity in disguise in the sense that is driving the pharmaceutical companies like Pfizer to radically transform and improve their manufacturing productivity and operations by implementing new technologies and tools such as Process Analytical Technique (PAT), which greatly enhances the manufacturing productivity and changes the whole structure of a pharmaceutical firm. Thus, this shortcoming becomes an asset as firms resort to better and improved technological innovations to sustain in the competitive marketplace.
Corporate Culture and Technology:
Throughout the $418 billion pharmaceutical industry, money-making drugs such as Eli Lilly's Prozac, Aventis's Allegra and Pfizer's Zoloft are going off patent, meaning the huge profits they have been generating will diminish. At the same time, masses of new data are piling up from the decoding of the human genome. In order to make sense of all this information and reduce the time and money it takes to bring drugs to market, pharmaceutical companies are introducing new technologies ranging from the automated screening of potential compounds by the thousands to software that speeds the process of synthesizing and then testing the most promising chemical compounds. But exploiting the full potential of these new tools requires a fundamental shift in the way Big Pharma R&D works. Pharmaceutical companies like Pfizer have to make huge shift in their corporate culture.
The challenge facing the pharmaceutical industry is fairly straightforward. For years, biologists, chemists and clinicians worked in relative isolation. Integration did not occur among humans, let alone on a systems level. There was so much focus on a specific project, a specific compound, a specific target. Each person was intensely focused on his own part of the value chain.
Meanwhile, mega-mergers have created enormous global drug conglomerates and even more disjointed R&D cultures, aggravating the problem at a time when shortening research cycles has become ever more a priority. As big Pharma makes the big move from a bench-based environment of beakers and Bunsen burners and scientists working in isolation to a collaborative environment of digitized data and automated processes, the CIO finds himself at the hot center of change. And the ability to manage that change coolly will be the critical factor in his success—or lack thereof (Johnson & Overby, 2005, p. 176).
In order to assess Pfizer’s readiness with respect to technology related changes, let us examine some of the salient features of its vision and values, as depicted on its corporate website:
“We are deeply committed to meeting the needs of our customers, and we constantly focus on customer satisfaction.”
“Innovation is the key to improving health and sustaining Pfizer's growth and profitability. Innovation is the key to improving health and sustaining Pfizer's growth and profitability. The quest for innovative solutions should invigorate all of our core businesses and pervade the Pfizer community worldwide. In our drive to innovate, we support well-conceived risk-taking and understand that it will not always lead to success.”
“We know that to be a successful company we must work together, frequently transcending organizational and geographical boundaries to meet the changing needs of our customers.”
These statements strongly reflect the focus of the company on attaining customer satisfaction and show its commitment with respect to make innovative changes in order to meeting changing customer needs and wants. Thus, it is sage presume that Pfizer’s corporate culture will be ready to adapt to technological changes, given that it leads to significant improvement in customer satisfaction and quality. Pfizer will not shy to experiment on new and improved technologies that can provide a huge impetus to its global R&D efforts for developing new and innovative products for improving the health of the people.
Pfizer’s investments in R&D are fairly large as compared to other players in the pharmaceutical industry, which provides another strong support to the fact that Pfizer is not afraid of innovation and risk.
Reference
Glenn, J.C., & Gordon, T.J. (2002). Creating a better world: 15 Global Challenges.
Foresight, 4(5), 15-37
Johnson, M., & Overby, D.R. (2005, December). Studies on depth-of-field effects in microscopy supported by numerical simulations. Journal of Microscopy, 220(3), 176
McKinnell, H. (2006). Pfizer’s Puzzle. Fortune, 153(7), 152-156. Retrieved October 19, 2007, from ProQuest database.
Mirasol, F. (2006). Pfizer On Track with Six Drugs in 2006. Wall Street Journal-Eastern Edition, 247(53), 19. Retrieved October 19, 2007 from ProQuest database.
Mohan, S. (2006). Pfizer Fights Counterfeiters. CIO Insight, 64, 32-33.
Pfizer Inc. (2006). About Pfizer- Mission Statement, Retrieved October 17, 2007, from
https://www.pfizer.com/pfizer/are/mn_about_mission.jsp
Pfizer Inc. (2006). Retrieved October 17, 2007 from https://www.pfizer.com