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Leaner Pfizer Positioned to Boost R&D Output

If it's true that busy hands are happy hands, then the management team at Pfizer Inc. (NYSE:PFE) must be ecstatic.

In just the past few months, the company has:

  • Agreed to spin off Upjohn, the manufacturer of Pfizer's drugs that no longer enjoy patent protection, and combine the unit with Mylan (NASDAQ:MYL), a U.K-based generic company.
  • Acquired Array to boost its biotech pipeline in a deal valued at about $11.4 billion.
  • Announced it is investing $500 million in a gene therapy manufacturing plant in North Carolina to complement money it has already socked into other facilities aimed at producing genetic cures.
  • Closed its joint venture with GlaxoSmithKline PLC (NYSE:GSK) to marry the consumer products businesses of the companies. The deal will create the world's largest over-the-counter business in the world. Pfizer will own 32% of the company, while Glaxo holds the remaining 68%.



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These moves will make Pfizer a leaner company, trimming its annual revenues by more than 40% to about $40 billion. The goal is to enable the pharma giant to put more marketing muscle behind its newer drugs and accelerate the speed that pipeline treatments get approved.

Clearly, Pfizer has been busy. Of course, as famed UCLA basketball coach John Wooden said, "Never confuse activity with achievement." Evidently, investors have taken Wooden's view to heart. In the past two months, Pfizer shares have dropped about 14%.

The decline is attributable, at least in part, to Pfizer sales missing expectations in the second quarter, though adjusted earnings per share topped the consensus. For the full year, the company said it expects revenue of $50.5 billion to $52.5 billion versus the prior forecast of $52 billion to $54 billion. Over the same period, adjusted earnings are projected to come in at $2.76 to $2.86 per share, compared to the previous range of $2.83 to $2.93.

Like all drug companies--especially the industry giants--Pfizer needs a productive research and development program to drive growth. The company is confident its recent moves will go a long way toward achieving that goal. STAT News reported last week that Albert Bourla, who took over as CEO in January, told analysts on a conference call that Pfizer will be a very different company, one that is even better equipped to fulfill its purpose of bringing to market "breakthroughs that change patients' lives."

The person responsible for leading the research and development effort is Chief Scientific Officer Mikael Dolsten, who is serving under his third Pfizer CEO. The company's research productivity has improved under Dolsten, according to Mike Rea, the chief executive of consulting firm Idea Pharma. Pfizer has moved up to fourth place on his firm's Pharmaceutical Innovation Index this year.

But according to one measure, Pfizer's research and development productivity lags behind other members of big oharma.

In the same STAT article, Bernard Munos, a former Eli Lilly (LLY) executive and current head of a consultancy called InnoThink, said that in the pre-Dolsten days between 1999 and 2008, 11 Pfizer molecules reached the U.S. market as medicines. During the time Dolsten has headed research and development, that number improved 18% to 13.

That is way behind some of Pfizer competitors. According to Munos' data, the top 13 drug giants recorded an improvement of more than 100% in the number of new drugs they brought to market between those two periods. Approvals at Sanofi (NASDAQ:SNY) jumped 200% and AstraZeneca (NYSE:AZN) saw an increase of 300%. But those figures have to be put in proper perspective because both companies started with only three new drugs between 1999 and 2008. Pfizer's count was the second-highest in the group over that period, after Novartis (NYSE:NVS).

Disclosure: The author holds no positions in any of the stocks mentioned in this article.

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This article first appeared on GuruFocus.