The Fall of Pfizer: How Big is Too Big for Pharma Innovation?

8/29/11Follow @xconomy

There are big companies out there—Apple, Google, Amazon—that most people today would consider innovative developers of new products. But can a company that seeks to create new drugs get too big to innovate? Is there something about life sciences that requires it to stay small if it wants to create?

The question has been on my mind for a while, but especially over the past few weeks since I read a riveting piece of journalism called “Inside Pfizer’s Palace Coup” by Fortune. This is basically a Shakespearean tragedy of mismanagement at the world’s biggest drug company. Some of these insights have been reported before in other places. But if you care about innovation in life sciences, and wonder why it’s been stagnant despite billions and billions in investment, this is a must-read.

Fortune‘s August cover story describes in detail how former CEO Jeff Kindler was under enormous pressure to lift the company’s earnings and stock price. When the company failed to come up with a follow-on hit to its $10 billion a year cholesterol-lowering drug, and the R&D pipeline didn’t deliver another option, Kindler felt compelled to grow top-line quarterly revenues through the $68 billion acquisition of Wyeth. That created huge organizational headaches that go with integrating teams of more than 100,000 employees around the world. Then there was what Fortune called “micro-micro management,” combined with crippling indecisiveness, second-guessing, messy office politics, and on and on.

There were so many layers of dysfunction in this story, I decided to ask a couple of biotech leaders for their own take on what was wrong. I got some fast, and eager replies when seeking comment, so this story clearly hit a nerve. Josh Boger, the founder and former CEO of Cambridge, MA-based Vertex Pharmaceuticals (NASDAQ: VRTX), tapped out a lengthy reply on his iPad while he was apparently relaxing in the South Pacific.

Here’s what he wrote, when asked if Pfizer got too big to innovate:

“I am a devout believer that size per se has nothing to do with innovation or its absence. Bell Labs was highly innovative for decades as part of one of the world’s largest companies. Merck was highly innovative from about 1950-1990. The key is culture, and you can throw away an innovative culture when you are small or you can drive it away when big. There are certain well-greased decline paths that larger companies often take that lead to stifling of innovation, but these are not inevitable. What the excellent and groundbreaking Pfizer article makes clear is that the arrogant and ignorant mismanagement of the motivations and rewards of the top leadership was at the core of Pfizer’s decline. It wasn’t about the failure of thousands but the failure of a few. Once low emotional intelligence takes hold in the executive suite, value destruction follows. Too often shareholders and advisors ignore or deprioritize the kind of values-based culture in which innovation thrives. They over-control and over-measure and reward the wrong behaviors in favor of short-term objectives. This is the cause of innovation decline, not bigness.”

Kleanthis Xanthopoulos, the CEO of San Diego-based Regulus Therapeutics, and an Xconomist, brought up some similar themes about the cultural problems … Next Page »

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