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Pfizer (NYSE:PFE) beat earnings estimates today, reporting EPS of 62 cents excluding one-time items. Analyst consensus was 54 cents per share. Pfizer looks like a value in the context of operating cash flow and dividend yield.

But as with all pharmaceutical companies, the drug development pipeline is the most important aspect of the business. When patents for current drugs expire, it can get ugly - faced with generic competition, sales of the cholesterol-busting statin Lipitor plunged 79% in the quarter.

While Pfizer has many drugs in late-stage trials, including rheumatoid arthritis drug Tofacitinib and atrial fibrillation candidate Eliquis, I am more interested in their new approach to drug development.

One of the major problems Pfizer has faced is clinical trial failure. One such failure hit headlines recently: bapineuzumab, an Alzheimer's drug developed in concert with Johnson & Johnson (NYSE:JNJ) and Elan (NYSE:ELN), showed no benefit over a placebo in Phase III trials.

Pfizer's Jose-Carlos Gutierrez-Ramos, senior VP and head of biotherapeutics R&D, attributes many failures to the lack of knowledge about specific biochemical mechanisms:

The failure rate [of clinical trials] is so high because, in the past, we didn't learn enough about the behavior of the molecules in the context of humans with the disease.

To remedy the problem, Pfizer is partnering with university research scientists who spend their whole lives studying such mechanisms. These scientists have experience with the mechanisms, while Pfizer has experience developing new therapies:

"Pfizer has a lot of experience with new therapies, but they're looking for new targets - the specific mechanism that leads to a disease." - Dr. Xi He, a professor of neurology at Harvard Medical School and research associate at Boston Children's Hospital

Over the past 18 months, Pfizer has initiated collaborations with 21 hospitals and universities. While determining the efficacy of such moves will obviously take time, I think the strategy will pay off for Pfizer over the next decade.

The industry model is shifting. Developing drugs in-house has proven ineffective over the last decade, which has led to a series of expensive acquisitions, like Pfizer's $68B acquisition of Wyeth Pharmaceuticals in 2009. Other pharma companies are switching tactics as well: Novartis (NYSE:NVS) is partnering with biotechs to develop drugs, while Sanofi (NYSE:SNY) is investing in startups. Pfizer isn't alone in partnering with hospitals and universities: both Sanofi and Merck & Co (NYSE:MRK) have also started such partnerships.

Pfizer's low-cost partnerships seem to fit well in their overall cost cutting framework. Determining future revenues and profits is difficult, since blockbuster drugs of the future may be no more than a professor's wild idea right now. Still, with Pfizer shares fairly valued and the potential for future drugs solid, I believe you could do worse than picking up a few shares. By partnering with hospitals and universities, Pfizer's management has proven its commitment to developing safe and innovative drugs.

Source: Pfizer's New Pharma Model

Additional disclosure: I may initiate a long position in PFE over the next 72 hours.