Pfizer Pharmaceuticals Ltd

For the longest timer, Pfizer has banked on the strategy of building product portfolio to maintain their presence in the pharmaceutical market. However, the strategy has proven to be unsustainable over the last few years due to factors beyond the company’s control. The expiry of drug manufacturing patent is one such factor. Under such circumstance, Pfizer has two options: either to acquire growth or change the business model. Supposing Pfizer adopts the second option of changing its business model, then the company’s initial business model be changed in light of the new business environment.

One change in the business model would include collaborations with other manufacturers and especially those that manufacture generic pharmaceuticals. This would ensure that they are guaranteed of profits of small scale margins to cushion the company from collapse. Moreover, the company would have to separate its operations based on the various functions in the organization. For instance, innovative products would be one function while value products would fall under a different function.

In light of the new growth strategy, Pfizer would need to contract other companies to help in nits research and development functions as well as manufacturing and sales and marketing functions. In so doing, the company would have to lay off some of its workers to and bank on outsourcing to meet the different needs in the three functions. The benefit of outsourcing is that it frees up capital that can be in turn used to invest in other more pressing functions. The assets that will no longer be in use can be sold off and the money channeled to research and development.

In the new growth strategy, Pfizer will have to acquire new skills necessary for the company’s growth. The company would for instance need new specialists that deal with prevention of diseases rather than on the cure. In this respect, the company would require to hire new specialists with skills in preventive medicine. The company will also need new skills in the supply chain management for the different functions. This is in addition to the skills in marketing the different products. Moreover, the company would require skills in market research to identify the new trends in the business of pharmaceuticals. Such trends could include personalized treatment. The company will also require new skills in the newly created functions. The innovative product function would require skilled therapists and skills in cardiovascular and neuroscience. Of course the acquisition of these skills has a cost implication that has to be borne by the company.

The supply chain will also be affected in some way. For instance, the different functions will need to have to order the different materials on their own and through different channels. The material flow from the suppliers will need to be received by the respective areas of production. This means that every function will receive distinct materials for their processes. Materials will also flow from one function to the other, in case the company procures as a whole. The information flow between the different functions will also be increased owing to the need for cooperation. Moreover, the finances will also flow increasingly from the financial management arm to the different functions.

Although buying growth is a viable strategy in the growth of pharmaceutical companies, it is shrouded with numerous risks and is usually a preserve of the mighty. The first risk is that the acquisition may not be profitable and may fail to bring the required returns. The risk is particularly high because of the large amount of money involved in the transactions. Another risk is that the company may have little control over the quality of the products that the new company has in the market. In this regard, the acquiring company risks tarnishing its name in the scenario that the products are of poor quality. For instance, Pfizer tested a new product on more than 15000 people only for the product to kill many patients. The result was that the product had to be stopped thereby incurring heavy losses on Pfizer.  The other risk is the risk of incurring huge debts through borrowing to finance the acquisitions. The debt to equity ratio has been estimated to have increased owing to the large acquisitions that happened in the pharmaceutical industry. The risks mentioned above are rare in organic growth strategies because the business controls most of the internalities.

Despite the Animal Health division at Pfizer being very successful, the company decided to spin it off in 2013. The spin off was a divesture aimed at freeing cash to be used in other functions. Moreover, the fact that the Animal Health division was growing in r4evenue and capital meant that it needed a special type of management to keep it afloat. All the other divisions in the company dealt with human health and so Pfizer envisioned that separating the two entities would be the best decision. It is clear that Pfizer’s intention of spinning off the division was to raise capital as evidenced by the high valuation that it acquired. At a valuation of 12 billion US dollars, Zoetis – the new company – had the largest LPO after Facebook. The spin off was part of a restructuring that also saw the company separate its functions into three units. Purely, the decision was driven by a change in the growth strategy of the company.

In the future, pharmaceutical companies will need to come up with new business models that are in sync with the new trends. The companies will need to realign their manufacturing to focus on preventive medicine as opposed to curative medicine. This change will be driven by an increase in the health-consciousness of many individuals and the need to prevent diseases before they occur. In future, the world may witness the emergence of more immunizations for common diseases and therefore a need to venture in preventive medicine (Scherer, pp 1314). In addition, the pharmaceutical companies may need to avail personalized treatment. This would require the business model to shift such that each patient can be diagnosed for the specific diseases before being given medicine. Moreover, the pharmaceutical companies may, in future, need to incorporate flexible pricing that is dependent on the particular patient to incorporate all patients. Currently, most of the ‘large-pharma’ companies have a market in the developed world so they might need to tone down to attract the developing markets.

Pfizer’s business model would have to shift or at least change to incorporate such emerging trends. In view of the same, the company would need to form mergers and collaborations with manufacturers of generic medicine to attract low end customers and tap into the market of the developing world. Moreover, acquisitions would be necessary in order to acquire favorable tax regimes in the other countries. In addition, the company’s model would need to change to cater for personalized treatment of customers.


Works cited

Scherer, Frederic M. “The pharmaceutical industry.” Handbook of health economics 1 (2000): 1297-1336.


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