An analysis of order qualifiers and order winners of the operational strategy of Pfizer Inc.

Worlds’ leading pharmaceutical manufacturer

A report prepared by

Dr Amit Roy

Contents

1.0 Executive Summary 4

2.0 Background 5

3.0 Key Financial information 5 4.0 Order Qualifiers and Order Winners 6 4.0.1 Safe clinical trials and drug delivery methods to objects 6 4.0.2 Health and safety standards 7 4.0.3 License to manufacture 7 4.0.4 Off license manufacturing 7 4.0.5 License to distribute the products in a specific regions 7 4.0.6 Quality of products 7 4.0.7 Cost 8 4.0.8 Supply chain 8 4.0.9 Capacity 8 4.0.10 Innovation 8 4.0.11 Market offering 9 4.0.12 Human resources 9 4.0 Pfizer’s broad order winners and operational strategy 9 4.1.13 Improving the Performance of the Innovative Core 9 4.1.14 Engine for Sustainable Innovation 10 4.1.15 Making the Right Capital Allocation Decisions 14 4.1.16 Earning Respect from Society 15 4.1.17 Creating an Ownership Culture 16 4.1.18 Corporate Governance 17
5.0 Conclusion 17
6.0 References 18
1.0 Executive Summary

This report investigates the operational strategy of Pfizer, world’s leading pharmaceutical company in terms of their order qualifiers and order winners. The objective of this work is to: * Evaluate the order qualifiers and the specific order winners in the pharmaceutical industry sector. * Evaluate how these order winners are met by Pfizer by giving evidence of their business model and operations strategy through discussing features such as process design, quality, cost, supply chain, capacity, innovation, market offering, network architecture, technology and / or human resources. This report is started with a brief background about Pfizer and their financial strength to highlight their leading position in the world-stage of pharmaceutical industry. There is a specific analysis about various order qualifiers and order winners for example, quality of products, innovation, cost, capacity, supply chain, distribution, targeting, servitisation, customisation, externalisation, third party acquisition, licensing, off-licensing. However Pfizer has summarised all their order winners under some broad and more meaningful categories. These are improving the performance of the innovative core of their operation; creating an engine for sustainable innovation, making the right capital allocation decisions, earning respect from society, creating an ownership culture and corporate governance.

2.0 Background

Pfizer is a leading pharmaceutical company, operating in 180 countries worldwide. In the UK, Pfizer has its business headquarters in Surrey and is a major supplier of medicines to the National Health Service, UK. Pfizer takes social responsibility as the world’s leading biopharmaceutical company and they collaborate with health care providers, governments and local communities to support and expand access to reliable, affordable health care around the world. Pfizer’s diversified global health care portfolio includes human and animal biologic and small molecule medicines and vaccines, as well as many of the world’s best-known consumer products.
This report reviews the global and broader aspect Pfizer in the world stage [1]. They work closely together to help people and animals live longer and healthier lives. In the UK Pfizer has broad divisions:

* Pharmaceutical Business – Established Products, Oncology, Primary Care and Specialty Care * Diversified Business – Nutrition, Consumer Healthcare and Animal Health * R&D * Manufacturing & Distribution

3.0 Key Financial information
Pfizer has met all financial targets in 2011 as per their 2012 annual report. This was possible by improving the performance of their innovative core, making the right capital allocation decisions, earning respect from society, and continuing to promote an ownership culture of confidence and trust. They have revenues of over $67 billion in 2011 in the challenging economic times in contrast with $67 billion in 2010. They also made substantial progress in the nonfinancial performance indicators, including access to medicines, environmental stewardship and other measures of their social responsibility.
Table 1: Summary of Key Financial Information 2011.

4.0 Order Qualifiers and Order Winners 4.0.1 Safe clinical trials and drug delivery methods to objects
Often the new development of drugs and its delivery method goes hand in hand together which is followed by strictly regulated and safe clinical trials. The safe clinical trial is a prerequisite to get approval of a drug as the order qualifier however if the drug delivery method is much simpler than current method, it can be considered as order winner. For example the use of nano-technology for efficient and targeted drug delivery to the affected zone of the body could be seen as an innovative order winner.

4.0.2 Health and safety standards
Different health and safety standard are in place in different countries and regions. This is an order qualifier to meet these standards be able to sell the products in respective geographic areas.

4.0.3 License to manufacture
A valid license or intellectual property to manufacture in respective geographical regions of the pharmaceutical products is another essential order qualifier.

4.0.4 Off license manufacturing
The sub-license to manufacture the products under the background license is another element of order qualifier. Pfizer has several manufacturing plants in the world where they have sub-licensed to external partners to manufacturer in local markets and they retain royalty payment and others commercial benefits.

4.0.5 License to distribute the products in a specific regions
License to distribute the products to the stakeholders or end user is another commercial order qualifiers.

4.0.6 Quality of products
This is an essential order qualifier to meet the minimum quality standard to sell products. The high quality products may also be considered as order winners. For example Paracetamol tablets are sold by all major retailers under their own respective brand names at a much lower cost than some Paracetamol tablets are sold at a much higher price. A lot of customer still buys those high quality higher priced Paracetamol tablets. This relates to the target customers, servitisation and meeting their expected level of satisfaction by improving the quality beyond the minimum threshold level as an order winner.

4.0.7 Cost
This is primarily an order winner for their target customers. Higher priced products can be an order winner for their added value for money for different targeted customer base. Pfizer has many local manufacturer and they are continually acquiring more and more smaller companies as described in section 4.2.3 (i.e. Making the Right Capital Allocation Decisions).

4.0.8 Supply chain
An efficient supply chain and operational management is a key order winner to deliver medicines to the end customer at the right time at a right price for its effective cycle life. The supply chain could also be integrated with the off-license and license to manufacture and license to distribute in a specific region.

4.0.9 Capacity
This is a certainly an order winner for Pfizer as they have the capacity , for example, finance, physical infrastructure, people, network architecture, distribution channels, marketing force, customer relations, and their existing reputation is a big order winner.

4.0.10 Innovation
Pfizer is an innovative world leading company and that has been their one of the biggest order winners to leapfrog the competition in terms of new drug discoveries, pricing, operation, marketing, servitisation, targeting and social responsibility.

4.0.11 Market offering
Pfizer’s diversified global health care portfolio includes human and animal biologic and small molecule medicines and vaccines, and many of the world's best-known consumer-products.

4.0.12 Human resources
One of the strength Pfizer has their dedicated innovative human resources, which is certainly an order winner in winning the competition and maintaining their world leading role.

4.0 Pfizer’s broad order winners and operational strategy
Pfizer’s success is historically deep rooted to date in their progress they make in their following imperatives in broad terms under which several specific order winners exist as evident in their annual report 2012, [2]. * Improving the Performance of the Innovative Core * Engine for Sustainable Innovation * Making the Right Capital Allocation Decisions * Earning Respect From Society * Creating an Ownership Culture * Corporate Governance

4.1.1 Improving the Performance of the Innovative Core (order winner)
In 2011 Pfizer reduced their adjusted R&D spending by nearly $1 billion compared with 2010 and embarked on a series of actions designed to increase their probability of success and help them deliver more differentiated products in segmented areas of high unmet medical need and on a smaller and more flexible cost base as customisation and servitisation. These actions are represented as the specific order winners fuelling their growth and ensuring future success. * Narrowing their therapeutic areas of focus, * Improving their ability to identify failures earlier in the research cycle, * Advancing the most promising compounds in their pipeline, * Investing in their R&D network and the capabilities needed to drive sustainable bio-medical innovation. 4.1.2 Engine for Sustainable Innovation (order winner)
Pfizer have launched a new multiyear effort to accelerate their R&D strategy and create an Engine for Sustainable Innovation (ESI). This is a major new initiative as a significant order winning factor going forward in the future to maintain competitive advantage in the world stage. Pfizer has responded to today's bio-pharmaceutical R&D challenges with a rigorous strategy to drive steady progress towards three horizons which are the specific ingredients of this order winner. * Delivering the portfolio, * Innovating new capabilities, * Creating the R&D ecosystem of the future.
In 2011, Pfizer made significant changes in their R&D model with an objective: * To accelerate the implementation of this sustainable Innovation strategy, * Create an ongoing flow of important medicines and vaccines, * Improve return on invested capital.
These changes reflect their commitment to the following. * Greater Focus: Strengthening their scientific core and focusing on areas of greatest medical and commercial potential. * Strategic Externalisation: Forging novel partnerships to access the best science and focus internal activities on those driving competitive advantage for Pfizer. * Differentiated Innovation: Positioning strategically for breakthrough innovation by developing the approach and the culture to deliver the most important medicines and vaccines, with a special focus on Precision Medicine R&D—an approach to discovering and developing medicines and vaccines that deliver superior outcomes for patients, by integrating clinical and molecular information to understand the biological basis of disease.
Sustainable Innovation programme: Pfizer has developed a plan to implement their sustainable innovation programme. * Focused areas: Pfizer selected the research areas where they can deliver the greatest medical and commercial impact. * Prioritisation: They honed and prioritised their programs and portfolio. * Infrastructural advantage: They shifted their site network to more closely align with key hubs for science and technology, putting them in closer contact with leading biomedical research institutions and providing access to a deep talent base in the life sciences. * External R&D: They established new models to access the best external science and technology, and created novel and flexible partnerships to externalise R&D services that can be done by specialised service providers enabling Pfizer to focus internal resources on the highest value activities. * Efficiency: In making these changes, they reduced both their research site footprint and the number of vendors who provide services.

These changes are helping Pfizer improve their performance as an innovator, while reducing the cost base from which they develop and deliver differentiated medicines and vaccines. Pfizer’s ESI programme (Engine for Sustainable Innovation) reset their R&D investments in a careful manner, to create a higher return platform from which they can grow further. Improving R&D return is a priority for the entire industry to sustain an innovative biopharmaceutical R&D model. Pfizer is looking for paradigm shift in their approach to create more value. Therefore Pfizer is looking ahead and considering shifting from a "high volume" R&D approach that was the industry paradigm for several decades to a more selective approach now in which they can strive to increase their value of every activity they undertake, reduce the cost of failures and increase their probability of success. That's a shift from pursuing high volume, to seeking to deliver high value. With biomedical innovation at the core, everything they do is centered on inventing and delivering the novel medicines and vaccines that people need as per Pfizer’s CEO’s letter to the stakeholders in 2012.

Critical analysis: This is not an uncommon scenario among many industry sectors where existing industry leaders are looking to undertake more valued added R&D to mitigate against their competition. Therefore it can also be interpreted and evidenced that Pfizer is facing growing economic competition their comfort zone, and therefore they are being proactive to look for better ways of doing things to retain their position. It is anticipated there will be significant competition for Pfizer because their competitors are adopting the similar high value added R&D approach too. The author of this report has reviewed the key financial performance of various companies e.g. Dr Reddy’s Laboratory, an Indian pharmaceutical company, with much smaller $2 billion revenue, with 30% annual growth rate, but whose economic performance has been significantly better as shown below, than Pfizer in terms of earning per shares and rate of growth of market capture in recent times. There are few other companies who are capturing market share from big companies including Pfizer both in the developing and the developed world.

Figure 1 Key Financial Information of Dr Reddy’s Laboratory, 2012

Pfizer has a significant resource capability and they could capitalise on their strong presence in 180 countries. Although Pfizer is a global company but they face competition in the regional market from their global peers or smaller, regional fast growing innovative companies. Therefore Pfizer could innovate their operation in respective countries to customise their offering to the end users to beat their regional competition. This will also require for them to embrace the regional culture in their respective markets to beat their regional competitors which is often a challenge in itself for large global corporates whose success is built on a proven successful culture and difficult to change or adapt. 4.1.3 Making the Right Capital Allocation Decisions (order winner)
In 2011, Pfizer reduced their operating expenses and took several steps to allocate capital in ways that resulted in greater shareholder value. They returned more than $15 billion in capital to shareholders through dividend payments of over $6 billion and stock repurchases of approximately $9 billion, which is a significant success story.
They continued to pursue business development opportunities by: * Forming external collaborations to leverage their core capabilities, * Building on their portfolio * Strengthen their geographic presence.
Acquisition and alliance:
Zhejiang Hisun Pharmaceuticals in China: signed a framework agreement with to establish a joint venture in the branded generics area.
Shanghai Pharma: a memorandum of understanding to explore potential business opportunities in China.
King Pharmaceuticals, Inc.: They acquisition of which strengthened their pain portfolio.
Icagen, Inc.: acquistion of this firm specializing in new pathways for the treatment of pain.
Alacer Corp. and the Ferrosan Holding A/S: By the acquisitions of consumer healthcare business, they expanded the portfolio of Pfizer Consumer Healthcare's brands and entered new markets.
During 2011, they embarked upon a rigorous process to look at the long-term value-creation potential of all of their businesses. After completing this process, they determined that their Animal Health and Nutrition businesses are distinct enough from their core businesses that their value may not be fully realized within Pfizer and, therefore, may best be optimized outside. They are currently exploring strategic alternatives, including a full or partial separation of each of these businesses from Pfizer through a spin-off, sale or other transaction about which an announcement will be made during July 2012 to July 2013.
4.1.4 Earning Respect from Society
Pfizer operates in a global society that gives them a license to operate. That license is rooted in the respect and trust they earn. Pfizer strive for society's respect and trust in a number of ways. * The effort begins with listening to and learning from their customers and other stakeholders. * Learn from quantitative and qualitative research, * Appreciate customer’s need to access the information that will help them live longer, healthier and happier lives. * In 2011, Pfizer took new approaches to connect us with customers by senior medical officials. For example, their Chief Medical Officer, Dr. Freda Lewis-Hall, shared health and medical information in ways that encourage people to take charge of their health care, especially in areas such as stroke prevention, smoking cessation and the early diagnosis of cancer. * Continue to support patient-access programs such as Pfizer Helpful Answers—a U.S. initiative that provides their medicines for free or at a savings to uninsured and underinsured patients who qualify. In the last five years alone, Pfizer has helped 3.8 million patients receive more than 40 million Pfizer prescriptions through the program. * Globally, they have extended their long-term commitments to help nations achieve the UN Millennium Development Goals, particularly in health care. * They continue to work to support the global elimination of blinding trachoma by donating their oral antibiotic, Zithromax. * Pfizer joined an innovative partnership of public and private organizations led by the Bill & Melinda Gates Foundation that includes a consortium of global pharmaceutical companies in a new, coordinated effort to accelerate progress toward eliminating or controlling 10 neglected tropical diseases by the end of the decade. * Pfizer launched the Re:Search partnership, through the World Intellectual Property Organization, to speed up progress in finding treatments and cures for neglected tropical diseases that now affect more than 1 billion people. * During 2011, we maintained leadership in disclosing their interactions with health care providers in the U.S. and further improved Pfizer’s speed in posting clinical trial results online. * Pfizer further advanced their environmental stewardship in 2011 by making continued progress in energy efficiency, greenhouse-gas reduction, water conservation and the management of waste. * Pfizer engages vigorously in public policy discussion to help make certain that their innovation serves patients today—and tomorrow. * Continue to assess and update their internal standards for a variety of business practices to help ensure compliance with all relevant laws and regulations in the markets in which they operate.
4.1.5 Creating an Ownership Culture (order winner)
- Pfizer utilise their talents, experiences and abilities of their staff to navigate multiple forces of change while keeping a focus on their commitment,
- More innovative and entrepreneurial,
- Ongoing success requires us to be faster, proactive,
- Understand the business,
- Seize opportunities to make an impact,
- Take personal accountability,
- Set of behaviors that will drive value throughout the company.
- Evolving culture: In 2011, Pfizer engaged with leaders across the business and sought the candid input of approximately 11,000 colleagues globally. They concluded they need a culture of thoughtful risk takers, deliver on their commitments, treat each other with trust and respect and work with integrity each and every day. Developing this ownership culture will be key to their success. 4.1.6 Corporate Governance (Order winner)

Good governance remains a critical component of their corporate culture. Place great value on stakeholders and outreach activities helping to identify mutual perspectives and goals and have helped to implement changes in their governance and related practices.

5.0 Conclusion
This report investigates the operational strategy of Pfizer, as the world’s leading pharmaceutical company in terms of their order qualifiers and order winners.
Pfizer is a financially strong, socially responsible and innovative company. Pfizer’s success is established on a sound foundation in their essentials practice in broad terms within which several specific order winners exist. These essential practices are improving the performance of the innovative core, engine for sustainable innovation, making the right capital allocation decisions, earning respect from society, creating an ownership culture and corporate governance. The specific order winners in their operational strategy includes, innovative high value market offerings, variety and wide range of products covering a portfolio of human and animal biologic and small molecule medicines and vaccines, as well as many of the world’s best-known consumer products.
They collaborate with health care providers, governments and local communities to support and expand access to reliable, affordable health care around the world. They have the capacity, drive, innovative human resource supported by strong supply chain and distribution network around the world in 180 countries which bring competitive advantages as their order winners. They collaborate with end user, stakeholders, third party business partners to achieve their objectives and deliver goods and services in a targeted and customised fashion which bring another layer of order winners for them.(3198 words).

6.0 References

[1]. http://www.pfizer.co.uk/SITES/UK/ABOUT_US/WHAT_WE_DO_AT_PFIZER/Pages/default.aspx

[2]. http://www.pfizer.com/investors/financial_reports/annual_reports/2011/letter-3.jsp

[3]. A Review of Health Technology Assessment in Australia, http://www.health.gov.au/internet/main/publishing.nsf/Content/htareview-083/$FILE/083_Pfizer%20Australia.pdf

[4]. http://www.pfizer.com/responsibility/grants_contributions/grants_process.jsp

[5]. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a4yV1nYxCGoA

[6]. http://www.corporatewatch.org/?lid=327

[7]. Pfizer Venture Investments (PVI), the venture capital arm of Pfizer, Inc. http://www.pfizer.com/partnering/areas_of_interest/venture_investments.jsp

[8]. "A New Paradigm for Strategic Partnerships" http://www.pfizer.com/news/featured_stories/featured_stories_john_hubbard.jsp

[9]. Our Priorities and Strategies, http://www.pfizer.com/responsibility/protecting_environment/our_priorities_and_strategies.jsp