Tuesday, 8 February 2011

As Pfizer closes down its R&D site in Sandwich, what does this say about the future of Big Pharma?

By James Mittra

Pfizer’s recent announcement that it will close its major R&D site at Sandwich is a clear blow both to the regional economy and the broader UK research base, but the decision also illustrates the continuing tumult within Big Pharma. Companies continue to experiment with large scale merger and acquisition activity and “R&D rationalisations” as they try to deal with deeper challenges of blockbuster innovation; including low productivity; high regulatory hurdles; the financial markets’ demand for sustainable growth strategies and the ‘patent cliff’ that most multinationals are facing in the next couple of years.

The announcement of the closure of the Sandwich lab comes just 3 months after Pfizer acquired Wyeth in a cash and stock merger worth around $68bn. Back in early 2009, when this deal was taking shape, the rationale was that Pfizer could diversify its business in preparation for the loss of a key patent on its blockbuster product Lipitor.  Pfizer announced at the time that it would need to cut 10% of the work force and close 5 factories after the merger (Times Online ‘Pfizer to merge with Wyeth in $68bn Deal’, January 26, 2010).

Major restructuring programmes are common after any large-scale merger, so in many ways it is unsurprising that Pfizer is closing down some facilities. However, questions still need to be asked about the sustainability of further industry mergers.

Our past research on Big Pharma mergers showed that such strategies tend to represent a defensive response to internal weakness in a company, such as an empty drug pipeline or, as in the case of Pfizer, potential loss of major patents. However, while mergers can bring short term benefits to a company in difficulty, industry representatives that we interviewed all strongly argued that the industry was operating in an unsustainable manner.

Yet, large scale mergers are continuing, and with them will predictably come the closure of key R&D facilities and loss of jobs. And we continue to ask the question: Is the Big Pharma model sustainable and, if not, what is there to replace it?

1. Tait, Joyce and Mittra, James (2004) 'Industry Challenges',Chemistry and Industry, 6 December, 2004, No. 23, p. 24
2. Times Online ‘Pfizer to merge with Wyeth in $68bn Deal’, January 26, 2010).
3. Mittra, James (2007) 'Life Science Innovation and the Re-structuring of the Pharmaceutical Sector: Mergers, Acquisitions and Strategic Alliances', Technology Analysis and Strategic Management, Vol.19, Issue 3, pp. 279-301
4. Mittra, James (2006) 'The Socio-Political Economy of Pharmaceutical Mergers: A Case study of Sanofi and Aventis', Technology Analysis and Strategic Management, Vol.18, Issue 5, pp. 473-496


Jen Foley said...

Regarding "high regulatory hurdles": would low ones be smarter or would low ones amount to removing some layers of regulaton?

Jen Foley said...

James Mittra:
I think the move towards smarter regulation, rather than simply lowering standards for safety and efficacy, would be beneficial, as Joyce Tait et al argue for in the following piece: 'The Case for Smart Regulation', Innogen Policy Briefing [http://www.genomicsnetwork.ac.uk/media/AGLS2%20-%20The%20Case%20for%20Smart%20Regulation.pdf]

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