Yesterday, Pfizer announced that it was abandoning new projects in cardiovascular disease. This was about as expected as Federal Express investing in horse-based shipping routes.

Then GSK leaked word it was cutting 850 jobs, or 6 percent of its R&D headcount, in the wake of an arrival of a new CEO, Andrew Witty, and the quiet departures of no fewer than three heads of key therapeutic areas.

The New York company put a brave face on the move. “We are making significant operational improvements and driving our strategies to accelerate development, refocus investments and further improve execution, including trial design and cycle times,” said Martin Mackay, president of Pfizer global research. We doubt many facts to substantiate that statement will ever be provided, but it sounds brilliant in the press release.

Moving That Needle

Trouble is, it’s tough to grow a company with, say, $48 billion (Pfizer) or $42 billion (GSK) in revenues. Such elephants need plenty of hay to maintain their size, much less expand. Both companies know that getting what were once known as “blockbusters” through the regulatory process looks problematic now. The ability to accelerate sales once a drug has been approved is even less clear. All of this does not augur well for the overall industry clinical development market over the long term.

Pfizer’s stock has dropped 61 percent since 2000, from $46 to $18. GSK shares have dropped 40 percent since 1998, from $75 to $45. These remain great firms. But investors have learned to ignore their hopeful pronouncements.

To a large degree, the optimal size of a pharmaceutical company is murky. The supposed synergies of the jumbo-sized firms have never materialized. Pfizer’s purchases of Pharmacia and Warner Lambert, heralded at the time, now seem to have caused significant indigestion. One massive Pfizer research facility in Michigan has been mothballed. Glaxo, too, has grown huge through acquisitions. But the go-it-alone strategies of Lilly and Merck (with a scant $20 and $25 billion in annual revenues respectively) now seem more sustainable. 

Slimming Down

So far, Pfizer has not quantified any reductions in its $8 billion R&D spend. But with Glaxo paring its science budget, it’s reasonable to assume some sort of pullback on basic discovery and clinical development. It’s a question of how much, and when, and whether the cuts are made to operations in the U.S. or the U.K., and not only at the world’s two largest biomedical research firms.

The conventional wisdom is that the hunt for new compounds will oblige companies of all sizes to continue to spend freely on R&D, both in the lab and the clinic. The conventional wisdom holds that IT or outsourcing or some other fairy dust sprinkled by a consultant will help shave costs and introduce new efficiencies. By tapping into software, or contract research, or genomics, or adaptive trials, it is said, the life sciences will bring its intellectual resources to bear and once again deliver medicines that change millions of lives. We agree with that scenario. But we think it may take 10 years to appear. Or twenty.

Heavy Baggage

Inside the industry, there is no urgency. Zero. None. People do their jobs, and do them well, but have learned not to rock the boat. It’s how things are.

Outside the industry, there is no understanding to change the situation inside the industry. On Wall Street, in Washington, there is insufficient appreciation of the cultural baggage inside the life sciences. Without that knowledge, we’re afraid, different laws or regulations to make drug discovery easier and faster are just not in the cards.

Here’s the situation. At most companies, exquisitely specialized processes and ways of working have congealed and fossilized. These processes make sense. They are good processes. Nothing wrong with them on an individual basis. But taken together, the processes are an impediment to transformative change. Indeed, they may make transformative change impossible.

High Wind Warning

Let’s review some history. Transformative change never made it to the U.S. steel industry. It died. Transformative change never made it to the airline industry. It is wounded. Transformative change never came to Detroit’s car manufacturers. They are currently hobbling around Washington on their knees, begging for billions.

Drug and biotech companies are in a similar predicament. They have so many entrenched process silos, so many pivotal areas of domain expertise, that knocking them down (or connecting them) is not plausible. Here’s the rub. There is not one type of person—biologist, chemist, pharmacist, physician, marketer, lawyer, clin ops, data manager—with the necessary knowledge to retool the silos. So the indusry may be stuck with its fossilized processes forever. As investors figure that out, they may flee biopharmaceutical companies of all sizes, not just mammoth ones.

One plausible scenario is that nothing much will change. Revenues will continue to slide. Reorganizations will continue to be triumphantly announced. New executives will continue to offer revised strategic roadmaps at 18-month intervals. That’s long enough for people to forget the last bold roadmap, but soon enough to convince someone there is still some forward momentum for the next bold roadmap.

For companies supporting clinical trials, it seems an opportune time to batten down the hatches. To begin preparations for a tropical storm. It might be a year or two away. There has been no cessation in the growth of clinical projects. But some leveling off seems likely. At some point, with fewer trials to bestow, sponsors will face even more painful economic constraints, and even more closely scrutinize the past performance of all suppliers supporting what is likely to be a smaller global research enterprise after 2008.