Wednesday, April 10, 2013

Organizational Agility in Pharmaceutical Companies


From last week’s readings, we learnt that organizational agility is a very important factor for an organization’s long-term and short-term success in volatile economic environments. Mkinsey Quartly’s article Competing Through Organizational Agility divides agility into three different braches – strategic agility, operational agility and portfolio agility. An organization can be an expertise in  one of these branches, but this article suggest utilizing or integrating  more than one of these organizational strategies to be successful in harsh economic environments.
The pharmaceutical industry is in a crisis for getting drugs approvals by the FDA. Though there has been a increased expenditure in R&D, fewer and fewer drugs are being approved due to FDA stringent policies. The major biotech-pharma companies are losing millions of dollars from unsuccessful R&D efforts and as result it is putting huge stress on the marketing, distribution, sales and other back-end  functions. The biotech-pharma industry needs to find a way to mitigate the risks involved in R&D so they can continue their other business functions properly.
Resulting from this external influence, the biotech-pharma industry is splitting into two types of business models. Companies that focus strictly on R&D and license out their product and technology and companies that focus on marketing, sales and distribution to the proper health care professions. The companies in the latter are usually the giant pharma companies, which integrate new products into their portfolio through M&A or licensing from the R&D organizations. These companies have all the resources to deliver the product to the customers, which usually R&D organizations do not have. The time has come for the giants of the biotech-pharma to change their current strategies of in-house development and focus on strategic agility to find new upcoming opportunities and portfolio agility to allocate sufficient resources to successfully integrate the new company or product line into the parent company.
In 2003, Pfizer acquired Pharmacia Corporation for a massive $60 billion deal. Pharmacia Corporation had initially acquired a drug discovery company called Sugen. For Pfizer, Pharmacia was an attractive acquisition because of their product pipeline. Eventually, Sugen’s platform technology help develop a block buster drug called Sunitinib. Sugen’s technology was not the only value asset in Pharmacia, they also manufacturer of the Nicorette gum smokers use to help them quit, the Rogaine baldness treatment and Luden's throat drops. These products would give Pfizer access to the consumer markets directly and would diversify their product portfolio. The strategic agility of Pfizer enable to pick out an unique opportunity of acquiring Pharmacia. These types of deals in the multi-billion range was very rare in the pharmaceutical industry in the early 2000s and Pfizer took a great risk in this process. But, this turned out to be a bold move because they were acquiring Sugent mainly to bolster their drug discovery activities, but also to diversify into a totally different market that is new to the parent company.This acquisition turned out to be very successful for both companies and they currently are investing $7.1 billion every year for R&D.
There were still many hurdles both companies had to overcome before they became the biggest R&D entity in the game. M&A deals can take very long and have many detailed aspects which need to be completed and agreed upon both parties. Keeping morality is difficult in these type of situations because employees have time to search for another job. In another McKinsey Quarterly report written by Herrmann and et al describes the aspects of leadership for successful growth strategy. One of the aspect of increased growth and revenue is team leadership and how agile a leader can be in responding to volatile  environments. Great leadership plays a key role for an organization's portfolio agility because changes in working environments can cause friction with the employees. Leaders should keep their team focused on work and try to keep the working environment as stable as it was before. Pfizer and Pharmacia needed good leaders to make sure this acquisition will proceed successfully and ensure the commitment of their employees. 
Reallocating employees, resources, business units and taking difficult decisions for the larger interest are all part of portfolio agility. Pharmacia was very different from Pfizer and Pfizer's best option was to maintain the target company's completely to adversely effecting its innovativeness. To successfully accomplish this, Pfizer's portfolio agility was in test. Pfizer did not integrate this company into the parent company, but made organization changes by taking back the cost and make it more efficient by aligning it more to its own protocols. Pfizer made this organization much more lean and funded its R&D operations to get the maximum return on it. This acquisitions resulted in 300 people losing their job, but those were one of the many difficult decisions Pfizer had to make. Pharmacia operated in cooperation with Pfizer and shares their name with Pfizer for their R&D operations. Pfizer-Pharmacia is recognized as a top tier R&D institute and it is successfully marketing many drugs even with FDA's pressure. 
Pfizer's acquisition of Pharmacia demonstrates the strategic and portfolio agility required for a organization to have to execute a successful joining of two companies. Under the mix of organizational agility, team leadership is a significant player to smoothen out any disturbance in the working environment and among the employees. I would like to ask the class, was it worth firing 300 employees  during merger or could that of been avoided with better portfolio agility? Would you say that the success of the acquisition was dependent more on strategic agility or operational agility? How did the FDA influence the change in organizational attitude for M&A?

References

Oberst, Jacqueline Ruttimann. "Navigating Biotech/Pharma Mergers and Acquisitions."Science Careers. Science AAAS, 8 June 2012. Web. 10 Apr. 2013.

HB Newspaper. "PFIZER, PHARMACIA DRUG FIRMS WILL MERGE: SPINOFF OF MONSANTO WILL TAKE PLACE BEFORE DEAL, PHARMACIA SAYS." Business Information, News, and Reports. HB Newspaper, 16 July 2002. Web. 10 Apr. 2013.

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