Newsmakers: PGM After Wyeth
Q&A with Tony Maddaluna of Pfizer Global Manufacturing
By Gil Y. Roth
I last spoke with Anthony J. Maddaluna in spring of 2008. Our conversation about Pfizer Global Manufacturing and its years-long process of rationalizing its manufacturing network was published in that year’s Top Pharma report. I was impressed by the work that went into shrinking the network from more than 100 sites down to 42. Then, in the beginning of 2009, Pfizer announced plans to acquire Wyeth, both cementing its position as the world’s largest pharma company and giving Tony a whole new network to integrate.
In February 2010, three months after the merger was completed, Tony and I sat down again to talk about the integration of Wyeth, the new shape of the company’s supply network, and how Pfizer has revised its past targets for outsourcing manufacturing. The company promised the street a plan for optimizing its structure within six months of closing, so I thought it best to let him get back to work.—GYR
Contract Pharma: Tell me about the “new Pfizer” and how Pfizer Global Manufacturing (PGM) fits in.
Its colleagues in Singapore helped Pfizer re-engineer
a "green" approach to manufacture gabapentin, while allowing the site to improve efficiency and cost savings.
Photo courtesy of Pfizer Global Manufacturing
Tony Maddaluna:The “new,” post-Wyeth PGM is the result of Pfizer’s largest, but certainly not its first, supply network integration. In addition to bringing complimentary and supporting capabilities to Pfizer, Wyeth brings expertise in biologics and vaccines, along with nutrition and consumer product capability. Having been privileged to lead PGM’s integration planning process, as well as the integration process, for more than nine months now, I strongly feel that Wyeth is an excellent fit in terms of aligning with the goals for what we see as the “new PGM.”
It’s important to remember that before Wyeth, PGM had successfully integrated the supply networks of Pharmacia and Warner-Lambert. In order for these or any previous integration processes to succeed, our strategy had to recognize that Pharmacia’s and Warner-Lambert’s manufacturing networks were designed to fulfill product demand profiles that were unique to Pfizer (as these integration processes unfolded). Also like Wyeth, both Pharmacia and Warner-Lambert had absorbed a number of companies before their acquisition by Pfizer.
In total, more than 25 companies make up today’s PGM supply network. Looked at from that perspective, our supply network is an industry-leading, highly synergistic blend of four big pharmas — Pfizer, Warner-Lambert, Pharmacia and now Wyeth — each with unique operational structures and approaches to market access, product launch, market supply, and so on.
What does the “new PGM” look like? For one, we’re rethinking what PGM does and where PGM needs to be to achieve our overall strategic transformational goal: to be an integrated internal and external global supply network and a fast, flexible and innovative supply solutions provider. We’re evolving away from a “just supply” mindset and toward a “supply solutions provider” mindset; we’re moving away from a “contract manufacturing” mindset and toward an “external supply partnership” mindset.
Pre-Wyeth, PGM operations consisted of roughly 1/3 Pfizer, 1/3 Warner-Lambert, and 1/3 Pharmacia. Moving forward with the integration of Wyeth, we feel that we have the right mix of internal and external suppliers to extend that successful track record. Stepping back and looking at everything we’ve accomplished to date, we’ve essentially implemented a “virtual co-manufacturing” approach by combining and consolidating global operations.
CP: How do you mean?
TM: Let’s say you have four companies that want to combine their manufacturing assets into an optimized supply network to fully leverage their combined expertise. One way to do it is to spin off all the manufacturing and put it into a new legal entity. While this is not what actually happened, by incorporating Warner-Lambert, then Pharmacia, and now Wyeth into Pfizer, we have accomplished this virtually.
Putting this virtual manufacturing concept in perspective, when you and I last spoke [May 2008], we had moved from 100+ internal to Pfizer plants down to 42. We have now added 36 plants with the Wyeth acquisition for a total of 78.
Unlike Pharmacia and Warner-Lambert, however, our initial analysis shows that 60% of Wyeth’s sites serve non-overlap businesses (Bios/ Vaccines, Consumer, and Nutrition). By comparison, acquired facilities resulting from these and previous large-scale integrations overlapped with existing Pfizer sites.
CP: How many facilities are you looking to pare down to?
TM: We don’t have a target number of facilities. We are looking at the entire combined network and are performing a number of different fact-based studies focused on both technology and business needs. We have a directional target for synergies in terms of dollars, but it does not equate to a number of sites.
CP: What’s the evaluation process like? How do you decide which facilities stay or go this time around?
TM: As mentioned, we are currently conducting an overall plant network strategy study, consisting of multiple parallel studies across technologies (solids, aseptic, and API) and business units’ needs. A major difference this time out is in the API area. Wyeth outsourced a majority of its API, so we have to decide how we’re going to leverage the external supply base in combination with our internal network. We’re exploring some very good business practices that were in place in Wyeth’s model, how they were executed, and looking for the best combination to deliver maximum value.
n terms of timing, we have public commitments to make recommendations for our supply network optimization within three to six months of deal close. We’re around the three-month mark right now [February, 2010] since the acquisition was finalized. We recognize that we need to do things more efficiently than we have in with past integration processes, but we will not sacrifice the high quality of our analysis for the sake of speed. I believe that we have the proven, thorough and deliberately analytical processes in place to do it right in every regard.
CP: Unlike Pfizer’s previous two mega-deals — Warner-Lambert (Lipitor) and Pharmacia (Celebrex/Bextra) — this wasn’t tied to a co-promoted drug. Does this impact the integration process?
Pfizer's site in Andover, MA, is one of the company's hubs for BioTherapeutics R&D activities.
Photo courtesy of Pfizer Global Manufacturing
TM: It’s interesting, because Wyeth was not a strategic acquisition in that respect, but they were very much in tune with Pfizer’s strategy. Wyeth is a great fit with Pfizer’s strategies in terms of bringing capabilities in the Bio/Vaccine, Consumer and Nutrition business areas, as well as enhancing our portfolio in Established Products and Emerging Markets.
CP: How did you react when you first heard about the acquisition, given that you’d spent much of the past decade helping lead PGM through two earlier large-scale acquisitions?
TM: I wasn’t surprised, given my role in representing PGM’s role specific to strategic Pfizer initiatives. The need for agile adaptation to change is given in our industry today. Companies that fail to recognize the need for change fall behind. The unknown, at least in the very beginning phases of the integration process, was the scope and scale of change.
I view maintaining the integrity of the integration planning process as my most important role in leading this ongoing effort. I knew that if we could do that, we’d have a good end product and be able to operate as one company on “Day 1,” shorthand for the first business day following the close of the deal. (Prior to Day 1, Pfizer and Wyeth were required to operate as two separate and competing entities.)
I believe that we accomplished these goals; from Day 1 we have had a very smooth transition, without supply or organizational upsets.
As senior vice president, Strategy and Supply Network Transformation for Pfizer Global Manufacturing (PGM), a division of Pfizer Inc, Tony Maddaluna has overall responsibility for PGM’s supply network transformation strategy. Under Tony’s leadership, PGM will focus on plant network strategy, capturing global advantage, agile/lean operations, business process redesign, technology and innovation, and other enterprise-wide initiatives.
CP: How difficult was it, compared to the previous deals? What challenges come to mind?
TM: Among the most important things we did at the very front end was organize 15 key sub-teams — operations, quality, engineering, procurement and others — while coordinating with a Pfizer-wide Program Management Office (PMO). Each of our PGM sub-teams worked closely with their Wyeth counterparts. On the manufacturing side, we went in with high-level data, and drilling down to plant level was an essential component of our fact-based integration process.
Prior to Day 1, the integration process was focused on getting the most thorough level of data. It was about following the process and looking for synergies among our combined operations. We did a top-down look and a bottom-up look. The sub-teams met weekly, and that allowed us to keep pace with each other and see how the larger organization was coming together.
I think the biggest challenge was getting the vital and thoroughly comprehensive data that was needed to inform and advance the ongoing integration process. Another challenge was balancing the need to operate as two separate and competing companies with that of developing a complete picture of what needed to happen up to and beyond Day 1.
CP: Were there any significant clashes in culture?
TM: On the contrary, the cultural synergies were evident from our first meeting together. We had a manufacturing breakout session with different groups from each company, and by the close of the morning session, it would have been difficult if not impossible for anyone from the outside to walk into that room and tell the Pfizer colleagues from Wyeth colleagues. That’s how similar the cultures were throughout the integration planning process. For example, Wyeth had already been working on optimizing their supply network. They were organized a little differently than we were, but they have the same values we do. This was very good cultural fit from the start.
CP: Obviously, adding Wyeth’s biologics capabilities was a big part of this deal. How has that progressed?
TM: Very well, because we set it up as a separate operating unit, and we have a legacy Wyeth person running that unit. Retaining Wyeth talent was very important in all areas. We also added a large — and vitally important — cold chain shipping operation from Wyeth, which we are integrating into our logistics network.
CP: What best practices have you picked up from Wyeth?
TM: Wyeth brought several best practices. Without getting into the details of what they were — some were in supply chain, some operations — we’ve incorporated pieces or all of them into the new organizational structure.
CP: How has Pfizer’s outsourcing target (30% based on cost) changed? You mentioned bringing in-house some of the API work that Wyeth previously outsourced.
TM: In Established Products and Emerging Markets, we’ve brought in a lot of non-Pfizer molecules. Generally, we’re bringing them in with external manufacturing. We haven’t moved any non-Pfizer molecules into our plants. That’s part of how we’re growing our external network.
The base of external manufacturing is getting bigger, and that changes the dollar value of what’s internal and what’s external. Officially, we’re at 23%, on a cost of goods sold (COGS) basis. In the next three to four years, we think that’ll get to around 28%. Of course, because of the increase in our cost base with the combined organizations, on an absolute dollar basis that number is now twice what it was in the past.
CP: So that 23% count would include things like Pfizer’s Aurobindo deal, where it’s licensing in products manufactured by another company?
TM: Yes. It’s on a cost of goods sold basis.
CP: What’s your perspective on the health of the CMO industry?
TM: Just as biopharma companies are in transition, CMOs also have changing business models. If you look at our spend on external manufacturing, we have several large partners. We have very healthy relationships with those partners; there’s a lot of back-and-forth. I think in the smaller space, you’ll see who can compete effectively and survive in this tough economic environment.
We have to look at the financial health of all our partners, and that was especially true during the crisis. We haven’t had any major problems. We weren’t cut short by anyone going out of business.
One thing I’ve noticed is that a lot of CMOs are doing their best to get into the development space, because it helps them lock in clients going forward.
CP: Let me ask you one of the existential questions that’s cropped up over Contract Pharma’s first decade: Why should a top pharma company have internal manufacturing?
TM: I believe that there needs to be an optimal mix of internal and external supply. Our internal plants are focused on co-developing and launching new products jointly with Research, improving processes to extract value throughout the product lifecycle, and ensuring quality and compliance. In addition, where we have the capability to perform difficult processes or have unique technologies, we can support business goals better than third parties can. Finally, there is often a need for a manufacturing presence to gain access in a given country.
The business model of the past has been described as “make what you sell, sell what you make.” Frankly, this outdated model is a non-starter against the backdrop of today’s global pharmaceutical industry, where ensuring the optimum level of internal capabilities is imperative.
There are common, core processes that comprise at least 30% of what we do: method development, technical support for regulatory, all the product-focused things that go across business unit lines. A key advantage to having an internal global supply organization is our ability to leverage this across Pfizer’s Business Unit continuum.
CP: How has your role changed since we spoke in 2008?
TM: As I mentioned earlier, my role has increased in scope. If anything, the group that I lead, Strategy & Supply Network Transformation, has greater responsibilities. We created a council for internal product sourcing to handle product moves from plant to plant. The strategy component borders on what’s happening outside of Pfizer, and what we’re doing internally, too.
More business development work is occurring, and the process of developing our parallel plant network strategies is moving forward. Because I was privileged to lead the integration, I am able to see the big picture in terms of how it’s all coming together, and that insight gives me a very good feel for where we need to go.
CP: How would you sum up the “new PGM?”
TM: “Fast, Flexible and Innovative,” “Commercially Focused,” and “Network Driven.” The global pharmaceutical industry is evolving at the speed of change. It’s no longer just about “supply,” it’s about “supply solutions.” All pharma companies are in the same boat: overcapacity is a given throughout our industry. How do we best optimize to compete? There’s more interest in co-manufacturing, but will it become anything? It’s very difficult to do, but certainly more companies are talking about it.
A key strategic consideration is this: Looking at our Established Products portfolio, can we compete with the big generics players? We believe that we can by transforming into a globally competitive internal/external supply network able to deliver our value proposition — best cost, best quality and reliable supply — to all our business partners.
Our purpose is totally aligned with Pfizer’s mission: Working together for a healthier world. PGM supplies quality products for a healthier world — it says a lot in a few words and I am proud to have a part in improving the world’s well-being.