Pfizer may have won over shareholders with its recent decision to pare back R&D spending, but it could be shortchanging them in the long run, Pfizer’s former research chief told Reuters.
Pfizer said in February it would cut its planned 2012 research spending by one-fourth, laying off more than 2,000 researchers.
John LaMattina, who led Pfizer's research organization from 2004 to 2007, told Reuters he was surprised by Pfizer's planned cuts. Trimmed down to $6.5 billion to $7 billion, Pfizer's research budget will represent around 10% to 11% of its estimated 2012 revenue.
"That's a pretty low percentage for the largest pharmaceutical company in the world," said LaMattina, now senior partner at healthcare venture capital firm PureTech Ventures.
"This industry historically has spent anywhere from 15 to 20% of top-line sales in R&D," he said. "It's their lifeblood. If you don't have new products, you don't have a business anymore."
Pfizer shares rose when it announced the research cuts, which helped support its 2012 profit forecast, along with a $5 billion stock buyback. LaMattina noted that shortly after, Merck shares fell when its CEO said the company would refuse to take a hatchet to its research budget.
"In the short term, I guess that's OK in terms of delivering for shareholders. But four, five, 10 years out, I'm not sure that is going to be a very good position to be in," said LaMattina, who worked at Pfizer for 30 years, beginning as a chemist in the labs. He retired in 2007.
LaMattina contrasted Pfizer with Eli Lilly’s CEO John Lechleiter, who last week vowed continued research spending and questioned cutbacks by rivals. Despite big research budgets, companies including Pfizer and Lilly have struggled to develop enough successful new products as their best-selling ones lose patent protection, leading some companies to decrease spending. The global drug industry cut research spending for the first time ever in 2010 after decades of increases, according to Thomson Reuters data released last week.
In recent years, he said, development costs have risen because of trial requirements from both regulators wanting more safety and efficacy data and healthcare payors seeking evidence they should pay for these new products.
The spate of mergers has also disrupted pharmaceutical research efforts, he said. Even when cost cuts are not a major driver, said LaMattina, deals can be problematic as the combined entities determine which scientists will work on various research projects.
"I don't think people have recognized the impact that has had on R&D organizations and R&D productivity," he said. "When you have just about every company in the industry doing this, that really jolts the situation quite a bit."