John LaMattina has some advice for Pfizer ($PFE), where he worked for 30 years before retiring as the head of research. Once the pharma giant finishes chopping the R&D budget to around $6.5 billion, he says, Pfizer will only be committing 10% to 11% of its 2012 estimated revenue to R&D. And by shortchanging R&D now to satisfy the short-term profit demands of analysts and investors, he adds, Pfizer will likely be haunted by the anemic funding in years to come.
"This industry historically has spent anywhere from 15% to 20% of top-line sales in R&D," LaMattina told Reuters. "It's their lifeblood. If you don't have new products you don't have a business anymore." Added LaMattina: "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."
These cuts are also coming after years in which development costs spiked due to the increased demands placed on clinical trials from regulators and payers. Actual discovery work, he adds, only accounted for about 15% of the R&D budget.
LaMattina, now a senior partner at PureTech Ventures, is in closer sync with CEOs like John Lechleiter at Eli Lilly, who recently told reporters that cutting the R&D budget is "nuts." And the big mergers of recent years haven't helped the R&D side, he says, noting that even when cost cutting isn't a big priority there's still a significant amount of disruption when the pharma company has to decide which scientist will lead each of its programs.
- here's the story from Reuters