Rightsizing Pfizer

By the end of 2008, Anthony J. Maddaluna thought he had Pfizer sorted out. The senior vice president for strategy and supply network transformation at the world’s largest drug company had wrestled the manufacturing base from nearly 100 plants worldwide down to 42. More important, in consolidating assets after Pfizer’s acquisitions of Warner-Lambert in 2000 and Pharmacia in 2003, he had established what he calls “a really cost-competitive strategic supply network” consisting of internal and external manufacturing and logistics operations.

By January 2009, however, Maddaluna was staring down the barrel of another megamerger, one that would bring the plant count back up to 79. With the acquisition of Wyeth, completed late last year, Maddaluna is now working to incorporate large biopharmaceutical plants into his network. He is also recalculating the balance of Pfizer’s in-house and outsourced manufacturing of active pharmaceutical ingredients (APIs) and intermediates.

Maddaluna comes across as a hands-on manager. At the start of an hour-long interview in one of Pfizer’s New York City buildings, he hops on the conference room table to fix a ceiling-mounted projector that he will use to dominate most of the hour with an information-packed slide presentation. He also has a sense of irony, pointing out how Pfizer outbid American Home Products, which later changed its name to Wyeth, for Warner-Lambert, largely to get the rights to the cholesterol-lowering drug Lipitor.

“In fact, we are sitting in the old American Home Products headquarters building,” Maddaluna says, noting that Pfizer bought the building, around the corner from its main office, four years ago. “We have brought together four major drug companies, each with a unique approach to operations,” he says. His slide presentation includes organization charts and world maps that illustrate a complex and progressively tightening supply network.

Further plant consolidation will pose a challenge, however, in that Wyeth is bringing in some fundamentally new kinds of manufacturing, Maddaluna says. “Of the new Wyeth plants, 60% are nonoverlapping with Pfizer’s,” he says. “This includes nutrition, consumer health, biopharma, and vaccines. It’s not like we added another quarter to the size of what we were already doing. A lot of new capabilities came in.” He notes, for example, that buying Wyeth quadrupled biopharmaceutical production to 20% of Pfizer’s manufacturing base.

Pfizer is currently three months into what Mad­da­luna conceives as a three- to six-month evaluation of postmerger manufacturing assets. Further consolidation will certainly follow, although he will not estimate how many plants will be closed. Separately, the company is reevaluating outsourcing—a manufacturing strategy for which there is little overlap between Pfizer, which favors in-house production of patented APIs, and Wyeth, which outsourced all of its APIs.

“We think that Pfizer benefits from internal manufacturing,” Maddaluna says, emphasizing the continuum from laboratory to supply chain. “There is a core process that stretches from pharma science and research to technology and regulatory support to product support. The bottom line is that we are still developing, making, and selling products. And the processes around those products in a regulated business are fairly consistent.”

Still, he now sees Pfizer as “a perfect API laboratory” where the company is studying Wyeth’s approach to outsourcing. “We are looking at all the good things—how they managed intellectual property, where they went for supply,” he says. “We are considering what we want to do—whether we want to go to a different contractor base or whether we want to bring things into our internal API network.”

Although Wyeth did a lot of outsourcing, Maddaluna says, its contractor pool was relatively conservative—a short roster of suppliers based in the U.S. and Europe. He says he is not holding the outsourcing review to the same timetable as the site overview. Overall, he estimates that Pfizer will increase its outsourcing of APIs and intermediates from about 24% of its products currently to something like 28% in the next few years.

API manufacturers will be watching Pfizer closely as it sorts out its manufacturing base and makes decisions on sourcing. However, executives say they have no extreme anxiety about doing business with the drug major.

“Everyone is looking to see what strategy they will pursue,” says the head of one major European API contractor who asked for anonymity. “Pfizer will likely continue to manufacture patented APIs. They have plants available. But they will push to outsource intermediates. They would like to control it all, but I don’t think that’s unique. Everybody is doing that.”

Meanwhile, Pfizer has decided to adopt Wyeth’s approach to information technology in managing the supply chain. The big drug firm will be installing an SAP enterprise resource planning system, Maddaluna says, abandoning plans to install an Oracle-based business software system. He notes that Pfizer recently hired its first chief information officer, Jeffrey Keisling.

As decisions are made, Maddaluna will continue to maintain a network of in-house and third-party supply-chain operations. He notes, for example, that of the company’s 156 logistics centers worldwide, 98 are operated under contract. API suppliers, he says, seem willing to adapt to a more comprehensive supply-chain service, stretching from product development to commercialization. “The API suppliers are smart. They are moving in this direction,” he says. “They want to be able to be with you early on in development and then work with you through to the product.”

And supply-chain considerations, he says, will play a central role in business development going forward. “We’ll get involved in due diligence,” Maddaluna says of Pfizer’s manufacturing operation. “This could involve product licensing or small acquisitions. I don’t think we’ll do another Wyeth acquisition. At least I hope not this week.”