Reshaped Pfizer plans to fine-tune research spending By Ben Hirschler CAMBRIDGE, England (Reuters) - Nearly three years after a cost-cutting drive that stunned many in the drugs industry, Pfizer Inc's head of research Mikael Dolsten says his scientists are delivering more for less. The ability of the biggest U.S. drugmaker to slash research spending by a fifth without reducing the flow of new drugs has boosted returns on invested capital, been applauded by Wall Street and not gone unnoticed at rivals. Last week, Merck & Co Inc followed a similar path with a plan to cut costs and scrap 8,500 jobs. But Dolsten, 55, Pfizer's quietly spoken president of worldwide research and development (R&D), who has spent 15 of his 25 years in the pharmaceuticals industry working in Europe, is not ready to declare the job finished yet. He intends to fine-tune the company's R&D engine further by a process of "dynamic" shifting of resources to the hottest research areas, which currently include cancer, vaccines and immune system medicines. Reinventing drug discovery and development is not a one-time fix. It is a multi-year journey," he said in an interview at Pfizer's Neusentis drug research unit outside Cambridge, England. After closing numerous research sites and cutting spending in several areas requiring big sales forces, Dolsten said Pfizer now had the right level of R&D spending overall - but it would be adjusted and redeployed as projects waxed and waned. "There is a committed strategic funding for each therapeutic area that gives them critical mass, and then we will move resources as we see the most successful projects need them," he said. In the near-term, we see oncology, vaccines and immunology as three very strong areas ... if great projects arrive, like palbociclib in breast cancer, then we will fund those projects appropriately. Palbociclib, which analysts from JP Morgan and Leerink Swann believe could generate annual sales of $5 billion or more, is arguably Pfizer's most valuable compound in late-stage development and the company has started several new clinical trials to maximize its potential. However, Dolsten said he was also excited about the upside for Pfizer's established Prevnar 13 vaccine - already widely used in children - which may be given as well to prevent pneumonia in adults if clinical tests produce good results. Other big drugmakers have also pruned costs in the face of disappointing R&D returns and shrinking sales, due to patent losses, but Pfizer's cuts have been particularly deep. The line-up of medicines getting priority treatment at Pfizer these days is very different from the past, when sales were dominated by the cholesterol fighter Lipitor, once the world's top-selling drug. Lipitor was a mass-market drug with peak sales of $12 billion a year but its price crashed once the patent expired in 2011 and cheap generic copies flooded the market. Nowadays, the focus is on "precision" drugs targeted at selected groups of patients - and the low-key building housing Neusentis south of Cambridge exemplifies the new slimmed-down Pfizer. One of the drugs being worked on at Neusentis is a novel painkiller inspired by a rare genetic mutation detected among a few families in northern Pakistan who do not feel pain. The drug is being tested in patients with an extremely rare type of neuropathic pain called erythromelalgia. Such medicines, if successful, offer true innovation and can fill a critical market niche - a combination that makes for a compelling value proposition to put to healthcare providers. At the moment, Pfizer is not disclosing just how well its new R&D structure is performing in terms of financial returns, emphasizing instead the progress of the pipeline and its run of recent drug approvals, which include cancer drugs Xalkori, Inlyta and Bosulif, and Xeljanz for rheumatoid arthritis. But Dolsten said he might consider sharing more information about R&D returns in due course. Britain's GlaxoSmithKline Plc is currently the only major drugmaker to report an internal rate of return on R&D investment. It said last year that returns had reached 12 percent, up from 11 percent in 2010, and it was confident of reaching its longer-term 14 percent target. Dolsten said Pfizer's own internal financial measurements had also shown an improvement, although the U.S. company was wary of publishing data prematurely. "If you put metrics on the table too early it may serve your story but I'm not sure if those metrics have meaning," he said. Editing by Jane Merriman