Attack of the Monster Merger - Pharmaceutical Executive

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Attack of the Monster Merger


Pharmaceutical Executive


A Trojan Horse Strategy?

Kindler denies that the Wyeth acquisition is a U-turn in Pfizer strategy, from pure play to diversification. "Decisions that were made in the past were made for the right reasons, and I'm looking at the environment that we're in today and the foreseeable future," Kindler told the Associated Press on February 6.

Pfizer sold its consumer health division, which recorded almost $4 billion in sales in 2005, to Johnson & Johnson in 2006. But despite the phenomenal $16.6 billion price tag, "it's now widely viewed by the marketplace as the worst decision Pfizer ever made," says Leerink Swann analyst Seamus Fernandez. With the Wyeth purchase, Pfizer is back in the OTC game, with a $500 million consumer health division.

The decision to sell was one of the last made by Kindler's predecessor, Hank McKinnell, during a rocky tenure that drove Pfizer's share price from $50 to $30 in six years. Hank McKinnell also set Pfizer on the high-risk, high-margin pure-play path then favored on Wall Street.

Pure play was a peculiar gamble for Pfizer because its drug portfolio and pipeline are 98 percent small-molecule drugs. This made Pfizer a respected leader in the cardiovascular market, but with the advent of cheap knockoffs and the decline of me-toos, small-molecule R&D is no longer a blockbuster, low-hanging-fruit business. Just as the double-digit sales growth in biologics and vaccines is increasingly attractive, so the slow, steady sales growth of OTC products is a valuable asset.

How far Kindler plans to take diversification remains to be seen. He may surprise naysayers by decentralizing authority, slashing bureaucratic layers, and incentivizing the diverse divisions with self-rule. "When Pfizer and Wyeth complete their merger, the new company might look a bit like Johnson & Johnson: a collection of relatively small units working autonomously," wrote Jim Edwards on the BNET blog.

In fact, Kindler's megamerger may be a kind of Trojan horse hiding the building blocks of something transformational: a total healthcare company. The union of Wyeth's comprehensive product portfolio with Pfizer's chemistry-based tradition and commercialization prowess may eventually promise a one-stop shop for the full range of healthcare services. But to deliver on that promise, innovation both within and between the units must be optimized. Horizontal mergers, however, have unfailingly delivered only increased bureaucracy.

To underline the distance Pfizer intends to put between its future and the blockbuster model, Kindler has repeatedly said that "no single product will account for more than 10 percent of the new Pfizer's revenues." Yet at the same time Kindler told PBS's Nightly Business Report, "One of the additional advantages of this deal is it definitively addresses the revenue losses associated with Lipitor." It's hard to square these two statements—nothing in the combined company's portfolio and pipeline looks like it will even come close to erasing that $12.4 billion negative from the P&L sheet.

Datamonitor's Simon King suggests that Kindler is putting all his chips on the Alzheimer's market. "Alzheimer's is the only area where the unmet medical need is so great that Pfizer could emerge with a $10 or even $20 billion product," King says.

FDA has so far approved only five Alzheimer's drugs, none of which appears to reach beyond the symptoms to fix the cause. Aricept, which Pfizer comarkets with Eisai, is No. 1 with $3.4 billion in sales.

Pfizer and Wyeth both have Alzheimer's drugs in Phase III: Bapineuzumab (b-mab), a humanized monoclonal antibody that Wyeth and Elan are codeveloping, and Dimebon, an antihistamine that Pfizer licensed from Medivation. B-mab is the star. Currently in four late-stage trials, it has demonstrated the ability to slow cognitive decline by five points on the standard scale (current drugs score two or three). But the drug works in only one-third of patients—those who lack a specific gene mutation. Dimebon has so far triggered less excitement, despite having a novel dual approach: like b-mab, it busts destructive amyloid clumps, but also displays neuroprotective effects. Neither drug is anything close to a cure.

Development has predictably been slowed by delays related to safety and efficacy. If approved, b-mab could get to market in 2011, Dimebon in 2012—an inconvenient tardiness for Pfizer because generic Aricept is due to flood the market in 2010. According to estimates by Decision Resources, 2014 sales of Dimebon will hit $350 million, while new positive b-mab numbers will revise its previous $200 million sales upward.

Says Simon King: "Pfizer is so strong at marketing that the revenues could be disproportionate to the drug's effects." But will it become a $10 billion cash cow? The odds are against it, but Wyeth's nine early-stage Alzheimer's contenders, added to the four already in Pfizer's pipeline, could position the new company as the leader in this market for a generation to come.


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