Wednesday, March 19, 2008

CFOs: Agents for Change?

I'm not convinced. Last year saw an unprecedented five new CFOs among the top drug firms-- at Pfizer (Frank D'Amelio), AstraZeneca (Simon Lowth), Wyeth (Greg Norden), Amgen (Robert Bradway) and Merck (Peter Kellogg). This re-shuffle led to the question, posed during a panel at Windhover's Pharmaceutical Strategic Outlook meeting in New York City today, as to whether these money-men were going to be the drivers of (let's face it, necessary) change at Big Pharma.

Peter Kellogg joined Merck in June 2007 following stints in Big Biotech -- at Biogen Idec--and in the consumer industry, at Pepsi, before that. What has he brought across from those sectors? Well, the biotech experience allowed him, he said, to slip easily into the mega-dealmaking/collaborative culture that Merck has been touting for some years now, and the Pepsi learnings were useful in re-engineering cost structures (common in all Big Pharma these days).

But Kellogg's most radical predictions were more collaborations (especially risk- and cost-sharing ones) and more shrinking SG&A costs. Will Merck shrink so much as to become virtual? "No, that would be too extreme," he said. But the share of overall R&D spend on internal infrastructure will decline in favor of external collaborations, and even then total spend will grow only in the mid-single digits. "We will bring in more from the outside, and we'll be smarter about where we run our trials, and where to find patients."

The other CFO-panelist, Genzyme's Mike Wyzga, claims this Big Biotech's already applying lessons from his previous life in the software industry, where winning companies like Microsoft looked beyond the ten year horizon to figure out how to grow. "From mid-07 we stopped giving quarterly guidance, and instead we predicted 20% in average compound earnings growth out to 2011," Wyzga explained. That, he argues, shifted the company's outlook – and to some extent, the outlook of its investors -- beyond the next decade, as Microsoft did. "That's how you build continued sustainable growth."

Genzyme can already reasonably lay claim to some fairly radical moves, not least those creative financial engineering experiments that stretch back to the company’s earliest years. When Wyzga arrived a decade ago, Genzyme had four separately-listed tracking stocks, seven joint ventures, and 50% of a joint venture with spin-off Genzyme Transgenics (now GTC Biotherapeutics.) So for Genzyme, adapting to the future means maintaining that creativity and flexibility, while at the same time growing larger—closer in size to a mid-sized or even large pharma. There'll be no return to tracking stocks, Wyzga predicted. "Instead, we're creative in how we put deals together."

Evolutionary change, then, not revolutionary; and this driven as much by the dealmaking teams, it seems, as the bean-counters. Indeed, the boldest signs of Big Pharma change in today's PSO sessions were probably from Jim Cornelius, Bristol's CEO. In describing this once-big-but-now-midsized pharma's planned metamorphosis into a next-generation biopharma firm, he talked openly about shrinkage--the 50% cut in sales force that's already happened since 2000, and the further 15% planned reductions over the next three years. "Our total sales force for our recently-launched breast cancer drug Ixempra is 125," he stated. Compare that with the 1500-strong Plavix sales force--which, incidentally, may be out of a job by the end of 2011 when generics hit.

Perhaps this in itself--pharma talking about down-sizing rather than merger-mediated upsizing--is transformation enough.

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