Today one of the world's leading pharmaceutical companies announced it was cutting R&D staff (read article here).   This is a very big deal because pharmaceutical companies rely on new drugs (new innovations) to extend their Success Formulas.  American drug companies rely on big R&D investments, followed by big FDA approval investments.  These big investments are seen as "entry barriers" that smaller companies cannot overcome, and thus provide high profits to the big drug companies.  That's the core of their Success Formulas – which have been huge profit producers for more than 4 decades.

So what does it say when Pfizer lays off R&D workers?  Clearly, there's less faith in the company developing the new products which will pay off.  Thus, the old "entry barrier" is clearly not as valuable as it once was.  But do you think we're on the brink of no new medical solutions? 

Hardly.  Today, genetic drug programs and other solutions are being developed and evaluated at greater numbers than ever.  Only, you don't need a multi-billion dollar R&D center to develop these solutions.  With the explosive knowledge expansion in bio-engineering and nano-technology breakthroughs are happening in universities, university spin-offs and start-ups of former pharmaceutical engineers.  The old approach to disease treatment is reaching diminishing returns, while new approaches (namely genetic drug therapies and mechanical approaches such as nano-tech) are making rapid progress.  The old "S" curve is nearing its peak, while the emerging "S" curve – that started in the 1980s with Genentech – is coming of age and entering the fast upward slope of the new "S" curve. 

But unfortunately, Pfizer, Merck, Bristol Meyers and most other historical drug companies have missed this shift.  They kept investing in the "traditional" (substitite "old") approach even as new approaches showed growing promise.  They kept hiring M.D.s, pharmaceutical Ph.Ds, chemists and biologists.  Meanwhile, bio-engineers and nano-engineers were making faster progress with new approaches.  Of course initially regulators were skeptical of these new approaches, forcing additional testing — and reinforcing sustaining the old Success Formulas in the traditional "drug" companies.  But it was clear to those on the leading edge of medicine that these new approaches were offering all new baselines for improvement, and possibly cures.

Now, Pfizer is (and its dominant competitors, to be sure) are in a tough spot.  They hung on to the old Success Formula a really, really long time.  In fact, almost 3 decades after alternative solutions began showing promise.  Each year, the drugs they had protected by patents (thus proprietary) were coming closer to commercial replication and lower profitability.  But each year, they redoubled their efforts in the traditional approach.  Now, debt is hard to come by – and traditional solutions are even harder.  But they are woefully short on the ability to offer solutions using the latest and greatest technology.

Unlike most companies, drug companies make most of their money from patented products.  That means they make huge profits while there is no competition – but see dramatic (80%+) price erosion within days of losing patent protection.  Thus, more than most companies, they can literally "peer over the edge" into the abyss of decline. 

Pfizer just admitted it is a boat on the upper Niagra, in Canada, looking over the falls.  It stayed way too long on its leisurely approach, and did noy prepare itself for the next step.  On the other side are aggressive new competitors with new technology, new solutions and vastly superior results.  But Pfizer has not prepared to be part of that new marketplace.  So they are cutting specialized scientists in an effort to cut costs and protect profits.  A bit like throwing the elderly overboard as you see your boat approaching the falls in an effort to slow your approach to the brink.

To survive long-term busineses have to evolve to new technologies.  They have to overcome their dedication to old technologies and solutions in order to invest in new approaches.  The have to invest in White Space which brings these new answers to the forefront, and attracts the traditionalists to move into the new market space.  But unfortunately Pfizer has delayed these investments far too long.  Cost cutting cannot save a Pfizer (or Merck, Bristol-Meyers, or Ely Lilly, etc.).  When technology shifts, like it did from typewriters to PCs, the move happens fast and the fortunes of major players can shift dramatically (anyone remember Smith Corolla?).  Pfizer is admitting it's unlikely to make the technology shift, and investors better pay close attention to the other industry leaders. 

There's a new cowboy in town, he's showing he's one heck of a good shot, and it's time to pay close attention.  The old sheriff may be closer to unemployment than he thinks.