Over the past ten years, Pfizer’s annual revenue dropped from $61 billion to $42 billion in 2020, due primarily to divesting consumer healthcare and key drugs going off-patent (e.g., Viagra and Lyrica). During this period, total operating costs were cut accordingly from $31 billion to $23 billion, which included R&D spending going from $8 to $9 billion. Pfizer also bought back $60 billion of its stock. Given this good financial management while revenue shrank, earnings per share actually increased from $1.21 to $1.71. On the other hand, Pfizer’s stock price only grew +21%, while the S&P-500 was up +88%.
The CEO of Pfizer was only in the job for 15 months when Covid-19 hit in early 2020. Here we are one year later, and Pfizer has on the market an industry leading vaccine with 90%+ effectiveness. The CEO was interviewed recently by Fortune and talked about the three big, gutsy decisions had to make to pull this off. Here are the principles he followed and the resulting decisions:
- On an Important Effort, Don’t Doom It by Under-Supporting It – In early March of 2020, the CEO made a near-instant decision to put $2 billion of Pfizer’s money into a project to develop a highly effective vaccine. It was a huge bet, equal to almost 25% of the annual R&D budget. His comment was: “There are not many companies that have the end-to-end capabilities in vaccines that Pfizer has- ones that can start from early research and go all the way to not only manufacturing but also distribution.”
- Put Top People on the Effort, Quickly Evaluate Options, Then Promptly Decide on a Plan – The head of vaccine research was put in charge of the project. The team assembled by the leader reviewed with the CEO the approaches used in other Pfizer vaccine efforts, along with other options, one being mRNA, which they selected. Messenger RNA, called mRNA, is a molecule of RNA which triggers the immune system to neutralize the Covid -19 virus. As the CEO said: “While it is true that there had never been a vaccine made before using mRNA technology, we were confident it would work, and it would also enable us to scale up quickly once developed.”
- Cut Out Bureaucracy and Streamline Decision Making – Here is what the CEO said during his interview with Fortune: “Within a massive company like Pfizer we have a lot of bureaucracy. I was betting that I would take control, so as the ultimate decision maker I would waive all bureaucracy. My message to the team was: You talk to me directly. I’m replacing all governing bodies. I’m making the decisions.” Clearly what he did really worked, given the record speed of development.
Another key decision the CEO made to streamline the effort was to refuse all government money. His thinking was as follows: “When the government offer came, I thought about what would happen if we took the money, because taking it was the easiest thing to do. I realized that if the government gives you money, there is no way they will not want a seat at the table. They will be asking: how are you going to do it and why, how is the money being spent, give us a report regularly.” He wanted no part of that.
I am sure the Pfizer CEO is noting the success of how all this went, and how it can be applied to give a major kick-start to a new phase of growth for the company. What a great case study to learn from!