Pfizer’s Future Depends on IT Transformation

With its business model ailing, this pharmaceutical giant tries a new IT formula, including a loyalty discount card, mobile applications aimed at consumers, and a cloud-based tablet CRM system for physicians

Chip-munching, sedentary people have made Pfizer a bundle of money. Lipitor, a drug that lowers cholesterol, ranks as Pfizer’s top-selling pill for 12 years running. A blockbuster among blockbusters, Lipitor brought in $10.7 billion, or 16 percent, of the company’s $67.8 billion in revenues last year.

This month, though, Pfizer loses a crucial patent protection on Lipitor and, with it, the exclusive right to make and sell the drug. Competitors are ready to swoop in with generic versions and swoop out with many billions of dollars.

In the next four years, patents on six other key Pfizer medicines are due to expire. Viagra, the drug of choice for treating erectile dysfunction, is another huge product for Pfizer. The company went to court this summer to fight for control of it after a challenge from a generics maker. To Pfizer’s relief, a judge ruled that a key Viagra patent is valid until 2019.

Still, Pfizer knows it can’t rely on super pills alone to stay vital. In the past few years, it has conducted large cost-cutting projects, including shrinking its workforce by tens of thousands and its research budget by billions. Slashing operations costs means that patent expirations won’t be such a blow, relatively speaking.

But the company also seeks new sources of business that will produce reliable sales for decades. Key to the plan is cultivating relationships with individual patients, especially in emerging markets such as Brazil, China and India. By helping people work with their doctors and pharmacies to manage lifelong conditions such as arthritis and hypertension, Pfizer hopes to nurture lifelong customers. Hunting blockbusters remains important for Pfizer, but holding the hands of individual patients is a growing strategy for the company.

The pharmaceutical industry at large faces similar challenges, resulting in layoffs, mergers and R&D cutbacks, plus acquisitions of generics and biotechnology companies, all in an effort at reinvention, says Erik Gordon, an assistant professor of business at the University of Michigan. “Relying on blockbusters, you make a zillion bucks and you spent a zillion bucks. When it disappears to generics, you have to change what you’re doing,” Gordon says. “The industry is facing desperation.”

At Pfizer, IT underpins several critical projects, including a loyalty discount card, mobile applications aimed at consumers, and a cloud-based tablet CRM system for physicians. “We couldn’t spread ideas like this without information technology,” says Susan Silbermann, Pfizer’s regional president for Latin America emerging markets.

While IT must play a big part in any business model shift, according to Gordon, many pharmaceutical companies have historically treated IT as a support service, rather than a strategic asset. “Dead weight costs,” as he puts it.

Pfizer’s IT group itself is coping with immense pressure. Cost-cutting efforts aside, CIO Jeff Keisling is reorganizing his staff to emphasize a commercially driven business mind-set. “It’s a more difficult job to do when you’re faced with being measured as a business contributor,” he says. This is especially so as Pfizer works through the technological and political problems of pushing new ideas in places where people don’t know where they’ll be able to make their next Internet connection.

Time for Fresh Ideas

Keisling’s path to becoming CIO of one of the biggest pharmaceutical companies in the world was an unusual one. In 2009, Pfizer spent $68 billion to buy rival Wyeth, largely for its R&D pipeline. Keisling had spent nine years at Wyeth, four as CIO.

At the time of the merger, Pfizer’s IT leadership was in a holding pattern. Rich Nossek, head of shared infrastructure, was serving as interim CIO while the company looked for a successor to Walt Hauck, who left in 2008. (See a timeline of major events at Pfizer: "Challenging Times for Pfizer.") During the Wyeth deal, Pfizer offered Keisling the job, an uncommon instance of an acquired company’s CIO getting that position at the acquiring company.

Keisling brought with him ideas for reorganizing IT to emphasize business skills, and for using the integration of Wyeth and Pfizer as a catalyst for transforming corporate technology at both companies.

He sought, for example, to create new hybrid business-technology manager positions in the high ranks of each business unit. He had used such staff to good effect at Wyeth, keeping IT involved in shaping plans for new projects, he says. “On the Pfizer side, that was not consistent. It existed in some places, but in others it did not,” he says.

Now business technology leaders, as the position is called, are part of the leadership committees of each of Pfizer’s nine business units. Some of these managers’ compensation is contingent on their reaching sales, customer-acquisition and other business targets.

IT is also involved in hiring key non-IT executives. For example, Keisling recently interviewed a candidate for a clinical role, asking about his views on using analytics to drive precision medicine tailored to ever-more-detailed sets of patient and disease data. As CIO, he says, “I’m a stakeholder in that, so I wanted to know.”

Cross-pollinating IT and non-IT roles makes new business ideas possible, says Umair Haque, an economist and director of the Havas Media Lab. Each side learns from the other. IT, he says, “is no longer about driving efficiencies. It’s reimagining how consumers and companies are able to connect and relate.” IT can’t do that until CIOs plant their people in the departments and ad hoc groups where new business is dreamed up.

And new business is what Pfizer’s after.

Next: Open Innovation

Pfizer has cut more than 49,000 workers from its ranks since it started major cost cutting in 2005; it employed 110,600 as of late last year. Meanwhile, senior leaders continue their controversial plan to cut research and development budgets by up to $3 billion, to $6.5 billion to $7 billion, by the end of 2012. With fewer people and less money to spend on research, Pfizer has begun using a virtual R&D system that uses cloud computing and software-as-a-service collaboration and analytics systems to work with more than 500 R&D organizations outside the company.

As the blockbuster business model becomes less tenable, the pharmaceutical industry in general has grown more receptive to working with outside scientists, Keisling says. It’s more difficult and expensive to come up with a juggernaut drug on your own now, he says. “That innovation cycle has not proved to be as effective as it used to be. IT now plays such a critical role in this new open innovation.”

To win customers, especially in emerging markets, Pfizer has launched eCard—a program that gives patients cards that track when they use Pfizer-partnered pharmacies to refill prescriptions for chronic conditions. ECard, which this year won a CIO 100 award for outstanding business innovation through IT, essentially lets Pfizer give patients discounts on medications and information about treatments and care in exchange for data about customers and their habits. The concept is old hat in retail and other industries, but new in pharmaceuticals. “This gives customers knowledge about [Pfizer] products and financial value, but also gets us closer to understanding what customer needs are,” Keisling says.

For example, Pfizer can analyze data gathered by the eCard program to learn about how, say, changing the price of particular drugs in particular geographies affects sales and patient compliance. Real data, Keisling says, is better than focus groups and other traditional marketing mechanisms for forecasting.

The card was tested in the Philippines in 2009 and now is available in 15 other markets, including China. One thing Pfizer has learned is that patients with eCards follow their medication regimens better than those without the card. That’s good for Pfizer, too, Silbermann says. “Better adherence rates [have] business results.” She declined to specify any new revenue or profits attributable to eCard.

An emerging market encompasses more than a growing geography. It also refers to a kind of customer—no matter where he lives—willing to form a relationship with a company.

Some companies—even large, ponderous ones—are beginning to figure this out, says Haque, the economist. To appeal to relationship-oriented markets, companies have to do more than sell them products, he says. They must provide information that customers either can’t get elsewhere or can’t get in quite the same manner.

For example, it’s valuable to someone training for a marathon to track how many miles she runs every day. Nike offers a chip that, when inserted in sneakers, tracks mileage and variables such as stride and gait, and that can, by using analytics and social media, suggest improvements. “Being experts at using IT to deliver stuff to consumers only goes so far,” says Haque. The businesses that thrive will develop information-based products that benefit people in personal terms, he says.

“Real value is when people realize tangible, lasting gains. The smartest way to sell more sneakers or more anything is to help people use sneakers or anything in a more productive way.”

Pfizer sees its eCard and mobile applications this way. These IT-based products are intended to get individuals more involved in their own care, so they don’t feel sidelined in the decision-making process by the medical experts who treat them. Texting reminders to take medicine or suggesting an infant vaccination schedule improves peoples’ health, Silbermann says. “We can make sure patients feel they’re part of their own medical situation.”

Entering Emerging Markets

Conventional wisdom has it that China, with its huge population and growing wealth, is the It Spot for future business. The growth is startling. In 2007, when urban areas were ranked by gross domestic product, eight of the top 50 were in Asia, says consultancy McKinsey. By 2025, that number will climb to 20 of 50, McKinsey predicts. According to consultancy IMS Institute for Healthcare Informatics, China spent $41 billion on medicines last year, and that’s expected to almost triple by 2015, to at least $115 billion. Pfizer wants to be ready to earn large chunks of that money.

But the best way for IT to support ambitious business plans in emerging markets is different from the best way to do so at home, says Bobby Cameron, a principal analyst in IT leadership at Forrester Research.

Hiring local rather than shipping in staff from the United States helps ensure a more stable office, Cameron says. Doing so is relatively simple when you’re looking for coders, network engineers and other hands-on IT professionals, which are usually plentiful in China. Managers, however, are not, he says. And a dearth of managers with a capitalist perspective may bog down work at the local office. He suggests working with local universities to find graduate students or professors who may have the perspective and experience needed.

Keisling has hired locally in China. Hiring employees who know the nuances of how local business is done and how best to relate to colleagues has resulted in a turnover of less than 5 percent among his China staff, he says.

Regular contact with U.S. headquarters managers, he says, also helps. Keisling keeps an office at the old Pfizer campus in Collegeville, Penn., where there are about 4,000 employees. He regularly commutes to Pfizer headquarters in New York and does frequent telepresence calls with staff worldwide. Communication is crucial in times of flux, he says. “These people feel associated with the [overall] business at the local level—that they’re not just a support function but feel like they’re going to help that business in China grow in double digits.”

The Transformation Ahead

Pfizer plans to expand its eCard program in China and other burgeoning markets in 2012. One key goal is to mitigate the loss of exclusivity on its blockbuster drugs. In the Philippines, for example, when Pfizer lost patent protection on a hypertension medication, sales of the product actually increased 34 percent because loyal cardholders stuck with it. And when a competing company heavily marketed a generic version of the drug there, Pfizer dropped its price for eCard holders and sales increased again.

But the eCard and mobile apps alone can’t replace the billions a blockbuster drug no longer produces, says the University of Michigan’s Gordon. One obstacle is that the governments in emerging markets often dictate what companies can charge for medications, and that price is usually low, especially compared to the prices drugs can command in the free-market United States, he says.

Ian Read, who was appointed Pfizer CEO last December, has spent his first year telling Wall Street analysts a bit of what they want to hear: He is considering spinning off or selling outright several business units, such as animal health products. Cost-cutting typically raises stock prices, but it can lower employee morale, Gordon points out. “If you’re in a company where you don’t know if you’re going to have a job in six months, [you] are distracted,” he says. That’s not the best mind-set for doing the tough transformation work required.

Still, Keisling is optimistic, focused on what IT can contribute. One key project is to simplify processes globally to continue to cut operations costs, including moving to single instances of ERP, human resources, manufacturing and logistics software across the company. Pfizer, he says, will gain “agility through integration and simplification.” That is, unifying technology standards and inserting his people into business units will, he hopes, infuse IT into conversations about new business ideas from the start. One example: a new portal that scientists inside and outside of Pfizer use to share medical images and biological information. Previously, gathering and packaging that data would take up to a month. Now it’s done in three to five minutes, he says. Using IT to speed up discovery and drug development can only improve Pfizer’s competitive position, he says. “What motivates people is to feel like they are part of the answer, no matter what the challenge is.”

Of course, the company hasn’t given up on blockbuster drugs. Pfizer hopes Xalkori, a new lung cancer medication approved in August, will go big.

Follow Senior Editor Kim S. Nash on Twitter: @knash99.

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Copyright © 2011 IDG Communications, Inc.

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