Good OM Reading : Pfizer–The Inside Story of Revenge, Betrayal, and Power

Fortune’s cover story (Aug.15, 2011) is a wonderfully written article about a dysfunctional pharmaceutical giant, Pfizer, and the palace coup that removed CEO Jeff Kindler last December. The inside view (from 42 interviews over a 4-month period) of a $68 billion company that produced such blockbusters drugs as Lipitor and Viagra is movie material. Once a Wall Street darling and corporate icon, Pfizer has tumbled into disarray, with its stock price sagging from $49 down to $18 today and its pipeline dried up. What went wrong  and how is this an OM topic?

 First, there is the management issue. “Its managers descended into behavior that would do Machiavelli proud. There was the ex-CEO who wouldn’t relinquish his power. There was the HR chief who divided the staff rather than uniting it. There was Kindler himself who agonized over decisions even as he second-guessed everyone else’s actions”, writes Fortune.

The real OM story, though, is R&D and new product development (Ch.5), which is the lifeline of every drug company.With 3 of its biggest drugs about to lose patent protection and face generic competition (Lipitor alone brought in a staggering $12 billion/year and loses its exclusive rights this year), investors wanted to know what Pfizer was going to do to replace them. Its immense R&D budget of $9.4 billion last year produced two major hopes. Both ended in disaster. A cholesterol drug, torcetrapib, cost $890 million to develop and produce. A late trial revealed it increased death rates over control groups– and the drug was killed 2 days later. Exubra, an insulin system, cost a $2.8 billion write-off when unhappy customers  bought only $12 million of the product.

With the business model failing, the R&D budget cut to $7 billion, Pfizer laid off 1,600 researchers at its Groton ,CT, flagship site, fired CEO Kindler and the HR VP (with massive severance packages, of course). The big pharm industry is one that requires excellent management, and I think you will be interested in  reading about what happens without it.