Frank D’Amelio has been the CFO of Pfizer for 14 years, but the past 18 months have been like unlike any other. In this episode of the Inside the Strategy Room podcast, he relates how the company teamed up with BioNTech to address the most urgent challenge in recent history: developing a vaccine for COVID-19. The two companies accomplished that feat in record-breaking time, helping to alleviate the biggest global health crisis in living memory. D’Amelio spoke with Rodney Zemmel, global leader of McKinsey Digital, during a virtual event we recently hosted for finance executives. This is an edited transcript of the discussion. For more conversations on the strategy issues that matter, subscribe to the series on your preferred podcast player.
Rodney Zemmel: The world knows the story: eight months from setting the goal to producing a COVID-19 vaccine with 95.6 percent efficacy. What are some of the key decisions that made that possible?
Frank D’Amelio: First and foremost was the absolute dedication of our colleagues. The pandemic starts in March of 2020 and from day one, our manufacturing and R&D employees never missed a beat in terms of getting into the facilities to make the medicines people around the world needed. What we accomplished was a medical miracle. The fastest a vaccine ever produced before took maybe four years. On average, it takes eight to ten years. We did this in eight to nine months.
Part of how and why we did it was a leadership team meeting our CEO, Albert Bourla, held as soon as the pandemic broke. He literally looked at all of us and said, “If not us, who? If we aren’t going to solve this pandemic, who will?” We wanted to create a sense of steadfastness and accountability. We all put our hands together, like a sports team, and said, “OK. We’re all about getting this done.” That was an extraordinary moment and it drove our behavior throughout the process. When people came to me looking for funds, and I’m pretty tough on capital, I never looked at the business case. It was just, “Go. Get it done.” It’s not what I plan to do going forward, but we were in emergency mode, all hands on deck. We put $2 billion of capital at risk. Time was of the essence and when you engage partners, they have opinions and that can slow down the process.
We spent almost $700 million in capital expenditure, but we assumed success from day one. We had weekly COVID meetings and I was in every one of those meetings, so I could see how the trials were progressing. Usually, trials run sequentially in phases, but here we were working in parallel, all phases combined in one. We had lots of interactions with US Food and Drug Administration along the way and every week we were getting patient information and seeing positive leading indicators. By the way, if you get a 70 percent or better overall efficacy for a vaccine, that’s a good result. We got a 95 percent efficacy, so we knocked the cover off the ball in terms of the trial results. I was approving all the spending and, fortunately, that turned out to be a good decision. I would not have looked forward to getting in front of the board and talking about a billion dollars in sunk costs.
I like to use numbers because numbers tell stories. We have been in the vaccine business for 20 years. The vaccine everybody knows is Prevnar, a $5 billion to $6 billion annual franchise. Last year, we made 200 million doses of all our vaccines. This year, which is the first for the COVID-19 vaccine, we will make at least 2.5 billion doses.
Rodney Zemmel: What happened before that if-not-us-who moment that enabled you to commit to this goal and move so quickly?
Frank D’Amelio: When Albert became CEO about two and a half years ago, one of the first things he did was put in place our purpose-driven agenda. Our purpose is delivering breakthroughs that change patients’ lives. Can you think of a bigger breakthrough that would change patients’ lives than developing the COVID-19 vaccine? We have five major objectives within that agenda, including delivering best-in-class science. Whenever Albert gives a presentation to the board or an external group, one of his first couple of slides is about the number of patients we serve. The acute focus on patients is always how we talk about results. Our most important result is the impact we have on patients, and the better we serve patients, the better we serve our shareholders. Operational cause equals financial effect, right?
Additionally, our manufacturing and supply organization had some challenges several years ago and we dramatically improved its productivity and invested in improving some of the infrastructure. We now have 30 metrics for each plant—18 operational and 12 financial. Of course, we added production lines. We have been able to get more runs per week, more yield per run, higher output per yield in terms of the yield quality, so we are humming now in our factory. We also added contract manufacturers and suppliers. We brought some of the key lipids we were getting from suppliers in house. All these things have continued to increase our output.
Of course, in order to add lines, you need space, so we also did a lot of advanced building on medicines with long shelf life for which we know the demand will be there. When you are advance building, you deploy capital to build inventory that you then put on a shelf, so we could free up that space and convert it to a production line that could make a new vaccine. Another step we took as a result of the pandemic is create a lot more redundant manufacturing capability. We have relationships with top contract manufacturers around the world and we leveraged that global network.
We made similar improvements to research and development. If you go back ten or 12 years, our R&D productivity left a lot to be desired. You look at our R&D productivity now and our late-stage pipeline is the best it has been in years. We took a lot of actions to get there: changing the metrics we used to determine compensation, creating centers of excellence, closing R&D facilities that had not created a medicine in a decade, and bringing in some key people from outside the company.
One interesting metric: If you look at our delivery performance on the COVID-19 vaccine, our accuracy is 99.99 percent in getting those vaccines where they need to go and when they need to get there.
Rodney Zemmel: Over the course of the past year, the vaccine has been the only thing people talked about, but it’s far from the only thing Pfizer has been doing. How have you balanced your efforts—whether it was capital, people, or management time—between the vaccine and running the rest of the company?
Frank D’Amelio: One of the privileges of being the CFO of Pfizer is that we are a big company. We generate a lot of free cash flow, so I didn’t have to make capital trade-offs to mobilize around the COVID-19 vaccine. It was an and, not an or. When I looked at the revenue projections for the COVID vaccine this year, it was clear it would translate into an awful lot of operating cash flow that was above and beyond what I had planned for. Our revenues last year were almost $42 billion. In our last earnings call on our COVID revenues for the year, our guidance was $26 billion. This one product, in its first year, already generating $26 billion: just think about that relative to the entire company last year.
Rodney Zemmel: Your COVID-19 vaccine program is a partnership and Pfizer has many other partnerships. What lessons about alliances and deal making can you share from an incredibly fast-moving initiative like this one?
Frank D’Amelio: I often say, many of the best deals are no deal. It’s easy to do deals; it’s hard to do deals that create value for shareholders. In terms of BioNTech, however, one plus one equaled more than two. A good deal is like a good marriage: two people together can accomplish what neither could accomplish on their own. The biggest deal we did in the time I have been here was the $69 billion Wyeth transaction in 2009. The capital markets were imploding so we used our balance sheet as a competitive advantage to get the financing. We raised $23 billion when there were no capital markets. If you think about that transaction, Pfizer and Wyeth together have been able to accomplish what neither could have accomplished on its own.
Now, look at the BioNTech partnership. While BioNTech never manufactured on a large scale, it had a great technology platform. They brought assets to the table that we didn’t have. We brought assets and capabilities to the table that they didn’t have. You see the results in terms of the speed of the vaccine, the volume of the vaccine, the delivery of the vaccine. I don’t think either of us could have accomplished on our own what we accomplished together.
Rodney Zemmel: What role did technology play in that success and how do you see its role evolving over the next few years?
Frank D’Amelio: Digital played a key role. We have been investing significantly in our IT infrastructure for the past decade and we deployed technology throughout manufacturing and in R&D trials. For example, we are using machine learning and artificial intelligence to better identify people who have cardiomyopathy, a difficult condition to diagnose for doctors.
Let me mention the cold chain. We developed thermal shippers for shipping the vaccines. Each is about the size of a suitcase and each tray holds 1,200 doses of the vaccine. We fill the thermal shippers with dry ice and those vaccines will stay good for about 30 days if you renew the dry ice every week. That thermal shipper has GPS technology allowing us to track the container from the time it leaves our site to the time it gets to the vaccination site. If it goes out of safe temperature range, plus or minus 10°, it is on its way back and a new thermal shipper with the vaccines is on its way to the site. This all happens in real time. Remember, we are shipping to individual sites, we are not going through the big distributors, so it is unusually complicated. I can’t imagine doing that without leveraging technology.
Rodney Zemmel: A few months back, everyone was saying that maintaining temperature was the Achilles heel in the strategy and it would destroy the economics. How did you arrive at that solution, recognizing that you didn’t look at business cases during this time?
Frank D’Amelio: To punctuate your point, the cold chain, which everybody was concerned about initially, has been a non-event. What happened is, the manufacturing team working with our pharmaceutical science organization recognized that the vaccine would be a frozen formulation and for it to be effective, it would need to be transported at minus 70 degrees Celsius. The manufacturing team then did what they always do: they get to work. How do you maintain a minus 70-degree temperature for a vaccine that has to get to Alaska, American Samoa, Guam? We quickly realized we needed something durable and the team designed the thermal shipper. When the vaccine site is done with the shipper, we ask for it to be returned because they can be reused. Our return rate is about 75 to 80 percent.
Rodney Zemmel: Let’s turn our lens to the finance function. How did you handle the two jobs of overseeing the delivery of the vaccine and running the rest of the company?
Frank D’Amelio: I have been a CFO now for almost 20 years but leading the finance function during the pandemic was just remarkable. We did things virtually that I wasn’t sure could be done. We can close the books every month and quarter. We can do our earnings calls. We can do our audit committee meetings. We can do our board meetings. We can have our analyst and rating agency and bank meetings. We can have our annual shareholder meetings. Do we want to be virtual in perpetuity? No. But I don’t think we will return to how things were before the pandemic.
All the IT investment we had done over the years served us well during the pandemic. When I came here in 2007, the IT was a mishmash because the company had done a couple of very large acquisitions and none of the systems had been integrated. Fast-forward to today and we have a very integrated systems environment. When we do an acquisition, we bolt the technology in very quickly.
Looking at the future with my CFO hat on, I expect travel and entertainment expenses to come down dramatically. One of the things we have learned is that we don’t need to do all that travel and in a company our size, there is a great deal we can save and drop right to the bottom line by reducing our travel and entertainment. Also, real estate: we will be reevaluating our real estate needs because it’s obvious we don’t need as much space as we have. So there are some permanent changes to how we will deploy capital, where we have opportunities to save real money as a result of what we learned from the pandemic.
Rodney Zemmel: Over the past 18 months, what is the biggest lesson that you have learned as a CFO and a business leader?
Frank D’Amelio: In terms of science, I am absolutely amazed at what can be done. We literally accomplished a medical miracle and I think almost nothing is impossible. It makes me very optimistic about where the puck is going in our industry and what we will be able to do for patients. Our chief scientist, Mikael Dolsten, does not believe that our kids will die from cancer. He thinks they could live a healthy life to the age of 125. When I think about how long we will live versus how long our grandparents lived, what we look like when we are 60 years old versus what they looked like at that age, all the diseases we have already eradicated, and the potential of gene therapy and mRNA technology, I’m just incredibly optimistic about what life will be like for our kids and grandkids.