5. Pfizer: R&D gets smaller, simpler and not very exciting

Mikael Dolsten

2013: $6.67B
2012: $7.48B
Change: Down 11%
As a % of revenue: 13% 
Head of R&D: Mikael Dolsten

Pfizer ($PFE) has chopped its R&D budget down to the promised number, carving billions of dollars out of the research budget, but the pharma giant has a long way to go before proving that it can generate the kind of new drug approvals needed to sustain the company's long-term revenue projections. And just when it looked more and more obvious that Pfizer has some serious R&D issues in the wake of its downsizing and a possible company split-up, the Sunday Times broke the story that the pharma giant had offered to buy AstraZeneca ($AZN).

The rest has been an orgy of speculation over the likely fallout on the R&D side if Pfizer prevails in a deal driven primarily by taxes and new revenue numbers..

From an R&D perspective, buying AstraZeneca would amount to a giant leap of faith in a radically new direction--an odd choice for a company that had chosen smaller and simpler as its mantra. AstraZeneca has been on a deal spree for years now, trying to make up for a string of setbacks. With CNS therapies on the ropes, AstraZeneca has been investing heavily in cancer and other diseases. And not everything it's doing would fit neatly into Pfizer's core areas.

Much of Pfizer's R&D operation has been focused on beefing up franchises like Prevnar 13, a big earner for Pfizer. The one novel drug in its pipeline that's stirred some serious excitement among analysts following the company is palbociclib, with Phase II data indicating that this drug could produce the kind of results that might warrant one of those accelerated approvals from the FDA that could put this therapy--already on the breakthrough drug list--on the market well ahead of Phase III completion.

Pfizer, though, has a ways to go before it does something as radical as gamble on an early approval for a drug.

Merck ($MRK) helped lend a little excitement to Pfizer's oncology pipeline with the announcement that it would pair its top-billed immune-oncology drug MK-3475 with Inlyta and PF-2566, which targets the 4-1BB receptor, for multiple cancers. And now Eli Lilly ($LLY) is ready to pay up to $1.8 billion to partner with Pfizer on its high-risk anti-nerve growth factor pain drug tanezumab, if it gets back on track after being derailed years ago by safety issues.

There's also a big investment in a late-stage PCSK9 cholesterol therapy, bococizumab, which entered Phase III in October. That program is running well behind rival therapies at Amgen ($AMGN) and Regeneron ($REGN)/Sanofi ($SNY).

Pfizer won only one new FDA drug approval last year, gaining a green light for Duavee, a marginal new therapy for hot flashes related to menopause. A slate of new drugs was approved in 2012 but failed to produce the kind of revenue that the company needed. Xeljanz in particular has been a disappointment. And just a day before Pfizer released its annual numbers, the company announced that two late-stage studies of dacomitinib, one of its top experimental cancer therapies, had failed to produce significant results for lung cancer. A late-stage SGLT2 diabetes drug--ertugliflozin, partnered with Merck--will face a group of competitors if it is successful.

Pfizer's left holding a mixed bag of experimental therapies, which might explain why some analysts are more focused on whether the pharma giant will split up its business. Pfizer CEO Ian Read has sold off the company's nutrition business and animal health group and followed up with a split of the business into three basic units last summer. Without some real successes in R&D, he may have little choice but to proceed. Right now, though, the spotlioght remains firmly fixed on the proposed megamerger, and where Pfizer might chop next if it suddenly finds itself with a combined operation that eats up more than $11 billion a year.

For more:

Special Reports: Biopharma's Top R&D Spenders of 2012 - Pfizer | Top 15 highest paid biopharma R&D chiefs - Mikael Dolsten | 20 Highest-Paid Biopharma CEOs of 2012 - Ian Read - Pfizer
Say what? Pfizer's $101B buyout pitch to AstraZeneca sparks a megadebate
Pfizer's flagship palbociclib stymies cancer progression but falls short on survival

5. Pfizer: R&D gets smaller, simpler and not very exciting

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