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Pfizer patent attorney may have won the 2004 World Series of Poker, but his Connecticut-based Global R&D facilities colleagues work best when their hand is showing to everyone at the table.
That’s why they travelled the world to assess their assets firsthand following the 2002 announcement of their pending acquisition of Pharmacia. While biotech snares the headlines with its investor-driven research spending, pharmaceutical leaders like Pfizer continue to fund their own R&D. For 2004, the company expects revenues of approximately US$54 billion and plans to pour $7.9 billion into research and development. Crucial to that enterprise is the trimming of real estate and facilities costs, with as much of the savings as possible directed toward the science itself.
Such attention is evident in the company’s other business units. Pfizer’s $400-million, 1,000-job HQ move to New York City (where it was born 155 years ago) is well under way, and the mapping out of minute details in the renovation of the main building for that project has shaved 9 percent from the company’s overall construction costs. Meanwhile, manufacturing moves in Europe, Puerto Rico and the U.S. have been designed to minimize waste and maximize the assets.
After being named to the Dow Jones Index on April 1, 2004, the company held its annual shareholder meetings later that month in St. Louis, Mo., where a major $100-million expansion of its large-molecule discovery and development operation was announced earlier this year.
“America has the chance to reform its healthcare and to make its medical research industry the job creation machine of the 21st century,” said Dr. Hank McKinnell, the Pfizer CEO who also serves as chairman of The Business Roundtable, an association of chief executives from 150 large companies.
For now though, consolidation and efficiency are the R&D work space bywords. In early June 2004, Site Selection Managing Editor Adam Bruns interviewed two leaders in the company’s Global R&D Operations unit: Paul Begin, vice president, Pfizer Global Research and Development (PGRD), Global Operations, and Dr. Sean Nugent, senior director, global strategic facilities planning, PGRD Global Operations. (Nugent is a member of the Industrial Asset Management Council.)
They began by describing their roles within the company’s larger framework.
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PAUL E. BEGIN, P.E.
TITLE: Vice President, Pfizer Global Research and Development, Global Operations RESPONSIBILITIES: Provides leadership and oversight for facilities management at 13 different Pfizer sites and locations spanning six different countries. His responsibilities include business critical functions such as operations management, environmental health and safety, strategic facilities planning and engineering. BACKGROUND: Bachelor’s degree in Civil and Structural Engineering from the University of Maryland, College Park. MBA degree from Rensselaer Polytechnic. Licensed Professional Engineer in State of Connecticut. Began his career in 1981 as a project engineer for the Pfizer Manufacturing Division in Groton, Conn. Oversaw successful integration of the facilities management functions at the diverse sites acquired as part of Pfizer’s strategic merger activities. |
Paul Begin: Pfizer is run by separate business units and they’re semi-autonomous. The philosophy is to have small center functions at our HQ in New York for things like strategy, support and compliance. Then the business needs and the execution are primarily the responsibilities of each of the business units – manufacturing, marketing and sales, consumer products, animal health and human health R&D, which is where Sean and I are involved.
While we are responsible for functions at all of our R&D sites, we also coordinate quite closely with our corporate counterparts, to make sure what we’re doing is aligned with corporate strategy. Then we’re leveraging their expertise in certain areas, and they have a chance to advise us at the right point in time. But we do that more through relationships rather than any kind of reporting relationships organizationally.
Sean Nugent: My responsibilities along the lines of global strategic facilities planning for PGRD encompass four major buckets. First is strategic planning from a portfolio perspective. We also work very closely with the finance organization, in the capital panning process, execution and approval process.
I work closely with our sites and our lines, to understand what their needs are and test it along the way, and as the requests come forward, make sure it’s in line with and consistent with approved planning. And that things that are identified make sense not only from a facilities perspective but are in alignment with what the line needs and the business needs.
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SEAN T. NUGENT, Ph.D.
TITLE: Senior Director, Global Strategic Facilities Planning RESPONSIBILITIES: Responsible for PGRD’s global strategic facilities planning organization; developing both tactical and strategic scenarios which are aligned with business goals and strategies for both lines and sites; development, implementation and execution of PGRD’s facilities capital planning process. BACKGROUND: Ph.D. in organic chemistry from the University of California, Santa Barbara. He has worked in the research world for over 21 years, including time with Monsanto, Searle, Pharmacia and now Pfizer. A bench researcher in his early years, he also led a chemical development organization for Searle. He has been involved in the development and launch of a number of new products, including Celebrex. He has also been a lecturer at Washington University in St. Louis, and an adjunct professor at North Carolina State University in Raleigh. |
A third bucket is best practices and guidelines for what is a global organization. So from a facilities perspective, how do we use our space? What kind of space do we have? And how do we make it flexible, so that we don’t go from one site to another and they’re all unique entities? Then, what are the space guidelines in terms of utilization? What sort of office space should we provide for people, what sort of laboratory space should we provide for chemists vs. biologists?
The fourth bucket, which in many respects speaks to my background, is what I would call the customer relationship management role. I have a Ph.D. in organic chemistry, and have been in the lab or managing a scientific group for 21 years. From that experience I have a unique perspective on what the business does, what the business is thinking and what the business’s needs might really be. Prior to joining Paul here in Pfizer, I spent two and a half years with Pharmacia in a strategic facilities planning role, beginning to understand the facilities side of the pharmaceutical business. I’m now able to speak to both ends of that spectrum, and act as a facilitator across that boundary.
Begin: One evolution of these roles is from where we have been a kind of service provider, providing the real estate and facilities solutions that the customers are asking for, to where, in this business climate, we need to be challenging everything that we do. With Sean’s background, he’s a more credible challenger of the scientific requests, and in many cases is able to offer different solutions, because of his background, than what we were able to do before.
Site Selection: Could you illustrate that point with an example?
Nugent: Like a number of other companies, we’re looking at how we’re using newer technology like high-throughput screening to facilitate our discovery process. We’ve had a number of requests from scientific lines for new space, and laboratory environment space is not cheap, it’s expensive. So how does the request make sense vs. what they already have, and do you really have to modify space because of the kind of technologies they’re bringing forward? With my background, knowing what the kind of technologies were, we could get to the reasonable adjustment for the space to allow the scientists to conduct the work they need to do – not slow down the work, not get in the way of it, but ensure that we’re coming from an operational efficiency perspective rather than a customer delight perspective.
SS: There was an article yesterday in the New York Times about people learning to live with less space in an office environment. What observations would you make in terms of the space needs of a chemist or biologist?
Begin: In general, in the pharmaceutical industry, there’s a tremendous increase in automated equipment, robotics and things of that sort. And they don’t necessarily fit into traditional laboratory space where you have benches and hoods. It’s really about how you use that space and reconfigure it to accommodate this new technology, so that we’re not building new buildings or expanding space we have, but using the space we have more efficiently.
Nugent: Another evolution we see is you used to make the assumption there were so many scientists working every day in the main body of the laboratory, where you’d expect to see benches and hoods. As it turns out, the science is about managing the data that comes out of these experiments. We’ve found – as I think many other companies have – that the space requirements for offices for scientists is as important, if not more important, now to provide adequately, and less so for the actual laboratory space, where we’re seeing automation occur.
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SS: If you were at a table with your corporate real estate counterparts at other pharmaceutical firms, what issues would surface as the most pressing?
Begin: As it turns out, we actually were at a table recently with our counterparts. Pfizer hosted an event to do some benchmarking in this area. [Representatives from eight pharmaceutical firms attended, in March 2004.] Most people are facing similar issues and challenges. We’ve moved from a period of time when there was significant internal growth – at Pfizer there was an era when we were growing by about 15 percent a year in terms of head count and budgets. That really required significant capital spending, and you could see that in terms of major building programs going on throughout our sites.
That has changed quite a bit. We’ve been through two major acquisitions recently, followed by site and facility rationalizations. I found that most of the other companies are obviously recognizing that the business environment has changed, the growth scenario has changed, and many of us are focused on issues of trying to reduce the impact of depreciation from our building phases, and trying to figure out how to reduce our operating costs, so that more money can be channeled into R&D efforts. Many of them are also, like us, looking at ways to trim what was being referred to as “real estate overhang.” Instead of always looking to have more space than you need so you can be ready for that next growth spurt, it was now to trim and thrift up that real estate portfolio to minimize the depreciation and carrying-cost impacts.
SS: Characterize how R&D corporate real estate has contributed to Pfizer’s better-than-expected synergies and consolidation savings in the wake of the Pharmacia acquisition.
Begin: I think we actually played a significant role in helping to achieve the rapid integration, which then had an impact on our better-than-expected synergies savings. My organization is Global Operations, and we were actually first on the ground at all of the Pharmacia sites, as the merger had been announced but before the deal had closed. Most of the information we were collecting was not of a competitive nature, so there was not a business risk of exchanging information prior to a deal actually closing. That “early on the ground” role we played helped us understand the facilities, sites and capabilities of the Pharmacia organization, so that once the deal closed, it allowed us to more rapidly come to site decisions.
SS: What kind of timeline was involved in putting that team together, and how many staff members were involved?
Begin: In the R&D organization, we had established some broader acquisition/integration teams, and I ended up leading the one around facilities and real estate. I then formed a cross-functional team of about 10 people made up of people from strategic planning, some external consultants, finance, and it was made up of people from Pfizer and Pharmacia. We went pretty hard at it for about six months from the time the merger was announced until prior to close, traveling to all of the sites, collecting a database of all the facilities and their capabilities and their condition.
Sean: I was on the Pharmacia side when that occurred. We started our first tours at the end of August, and we had actually done the majority of the sites by November.
Begin: Interestingly, although this was clearly an acquisition and not a merger, as it turns out, 50 percent of my current leadership team are legacy Pharmacia, and 50 percent are legacy Pfizer. I think that mixing and diversity of the two companies has proved to be very helpful to us in terms of achieving our operational and savings objectives. That was not a conscious goal, it was something based on ensuring I had the best talent in the best positions – that’s the way it just worked out, and it’s turned out to be a huge benefit.
SS: I know your firm is still completing integration related to the acquisition of Pharmacia. But when there is a large merger like that of Sanofi Aventis earlier this year, does their own integration process present a possible opportunity as a source of good facility locations and the good talent that sometimes comes with them, even though that merger has been touted by the French government as designed to compete with Pfizer?
Begin: Following the Pharmacia acquisition, we’re trying to go from 26 R&D sites down to 14, so right now we’re in the process of exiting 5 million sq. ft. [464,500 sq.m.] of facilities, which is about 26 percent of our facility portfolio. So actually I’m looking to unload facilities as opposed to taking advantage of some that other companies are trying to exit. Between Pfizer and Pharmacia, we gained a lot of very good high-quality assets, which has helped us to reduce our going-forward capital spending. In terms of people, I couldn’t speak to whether there is anything being taken advantage of in terms of talent.
SS: How do you prefer to outsource real estate functions? And going back to what you said about technology’s impact, since so much importance is shifting to office and working the data, does that affect what functions you choose to outsource as well?
Begin: I’m answering in the context of not just strategic planning, but really site operations. In general, like all companies, we use a mix of internal and external resources. All internal or all external is a mistake. I think a mix is in fact the right answer. We need to leverage our external providers in a variety of areas. But there is tremendous value in having Pfizer colleagues focusing on managing this part of the business. It’s that link between a Pfizer manager in the R&D business and the real estate functions that I think is a source of competitive advantage.
Nugent: To your question on the relationship between office space and laboratory space that’s more highly technology-driven, it’s important to understand that while the scientists might have more heads-down time, thinking and reviewing data, in fact the instruments pulling together all that data are in the adjacent laboratory space. So it’s not like you would think of traditional administrative officing, where you could do that remotely. They still have a definite need to be adjacent to the equipment they’re using.
SS: Give me an idea of how many countries you visited in 2003, and how many miles you logged.
Begin: As colleagues of different companies pre-merger, Sean and I were joined at the hip for many months. I counted eight countries we visited, but probably three times each – the U.K., France, Canada, Germany, Italy, Singapore, Japan, and several locations around the United States. It’s one thing to see the data on paper, to see a site plan and how many buildings there are, but there is just huge value in walking the sites, touring the buildings and meeting the people in them. There were so many things we learned about the sites and facilities by walking them that you just can’t capture on paper.
Nugent: I estimate we travelled somewhere between 80,000 and 100,000 miles [128,720 and 160,900 km.] in the course of that year.
SS: How does your department work with such individuals as Dr. Corr [Pfizer senior vice president of science and technology] and Dr. LaMattina [Pfizer president of global research and development] in bringing concrete form to realignments like last October’s formation of the Human Healthcare division?
Begin: One of the interesting things coming out of the Pharmacia acquisition was that for a period of time I was reporting directly to Dr. Corr. I think that really speaks to something unique to Pfizer. To have the head of operations report to the head of R&D signifies that there is recognized value in ensuring that the site, facilities and real estate component should be integral and coordinated with overall R&D decision-making. As the realignment occurred, I now sit on the research leadership team, which I think is different from what you’d find in other pharmaceutical companies. I like to think that’s because we bring some business acumen, and we’re able to contribute to research decision-making by ensuring the decisions are taken with any facilities and real estate implications [in mind].
Nugent: Even in the business lines leads and the site heads for PGRD, it’s very much an open-door policy with global operations. I have the opportunity to meet with them regularly, schedule meetings with them, and have a lot of different discussions around topics that are clearly important to their organizations.
SS: You have already spoken to the importance of literal physical proximity, with the equipment right next door. Taking that to the next stage, describe how your work facilitates proximity between R&D and manufacturing.
Begin: You’re right, an interaction between R&D and manufacturing is important. Where we find that really makes sense from a physical standpoint is when we get into our late-stage clinical supplies manufacturing, which is pretty much our crossover between R&D and manufacturing. In all cases now, our R&D phase-3 material manufacturing capabilities are located within a manufacturing site. That not only allows us to leverage the support services, material flow and so forth along with manufacturing, but it also facilitates the knowledge and tech transfer that needs to go along with the transfer from R&D into the manufacturing phase.
Nugent: Another area where we’re seeing a lot of activity is what I’d call the back-integration of manufacturing into R&D. We’re developing manufacturing processes that are already beginning to mimic what would be in a manufacturing site early on in the R&D world. Our opportunity here is again from my experience. I led a development organization that took products to the marketplace, and now I’m able to work with our R&D colleagues and the manufacturing folks to bridge that gap.
SS: In a recent St. Louis newspaper article discussing Pfizer’s expansion in Chesterfield, Mo., there is an implication that Pfizer pulled out of Kalamazoo because of the state’s exclusion of certain Pfizer drugs from its prescription-drug benefit program. Could you characterize how corporate real estate has to walk this minefield in seeking to make the best business case for a facility location decision?
Begin: Clearly we couldn’t continue to fund and operate 26 sites following the Pharmacia acquisition, so we’re really getting down to 14, and even that 14 is a tripling of sites for us in a five-year period. As much as I like to think Global Operations was informative in the process, site decisions were really based on scientific needs, and informed by global operations. We would inform them by letting management know about site expansion capabilities, the asset quality, strategic fit, where we could reduce our capital by keeping one site over another, where we’d have to invest in infrastructure if we kept the site. That data was factored into the decision-making, but my sense was there was a need to consolidate based on clear economic and business reasons.
The next criterion was really around the scientific and therapeutic areas. What science areas do we need to be in, where are the capabilities of those areas, and how do they dovetail with Pfizer’s current therapeutic area mix? Then factoring in some asset decisions, so we knew where we had multiple choices [from which] to pick. Towards the end the business climate was understood, but typically it was not a major factor in site decisions. It’s a major expense to think about relocating simply because of a business climate. I can tell you that as we get into a growth mode again, and think about where our opportunities are to grow and add jobs, business climate would be factored quite heavily.
And just to clarify the statement about “pulling out of Kalamazoo,” I think that’s a bit misleading. One thing I do know about manufacturing is they’re very large in Kalamazoo, and they’ve actually consolidated some things there. What we’ve pulled out of is the discovery/research component of Kalamazoo, and we actually have retained and in some cases are growing the pharmaceutical sciences and worldwide safety sciences R&D functions. And the animal health business has actually grown and consolidated to the Kalamazoo area. So a bit of it has come out, but a lot of it has stayed and in fact increased.
SS: Describe what kind of attention you have to give to facility security in your work, and whether that has become more of an issue than when you started in this business.
Begin: Security is really important to us. There are two or three aspects. One is physical site security. We continually upgrade and increase the technology we use at different sites that were at different stages or readiness. Information protection is an equally important, if not more important, aspect of the security function, making sure the information, knowledge and science – the really critical asset – is in fact protected.
We’re responsible for all of the operations functions at the R&D sites, and what this acquisition has
allowed us to do is for the first time become truly aligned at all of our R&D sites – aligned for maintenance engineering, aligned for project engineering, and aligned for security too. This is resulting in actual implementation – not just sharing – of best practices, across a huge portfolio of facilities and services, which is freeing up more dollars to fund R&D.
