Company Analysis - Mergers & Acquisitions
Licensing
Of course, licensing deals are not disappearing altogether. While licensed product sales are expected to contribute 40% towards the total sales for pharma products in 2010 (compared to 20% in 2004), global financial market upheavals have changed things drastically, creating a significant power shift. Big deals for sought-after drugs will always exist, however, the supply of capital funding for biotechs has dwindled, while the largely untouched big pharma companies have remained cash-rich, putting them in the position of being able to license promising targets, drug candidates and whole discovery platforms for far more favourable terms than previously possible. Licensing clearly remains a vital adjunct alongside M&A for sustaining pipelines and profits, only now it is on somewhat different terms.
A powerful driving force behind M&A deals is the ever-increasing pressure on pipelines to produce bigger and better hits. A prime example of this is Pfizer, the number one biopharmaceutical company in the world, based on sales in every major market. Pfizer is maintaining its phenomenal status, reporting revenues of US$48.3 billion in 2008, a plateau from 2007 revenues of US$48.4 billion, though still an impressive figure considering decreased revenues of US$2.6 billion due to loss of patent exclusivity for Norvasc, Zyrtec and Camptosar. But how long can this continue?
Loss of patent exclusivity is by far the biggest challenge Pfizer faces to stay on top. Lipitor (atorvastatin) is a statin originally developed by Warner-Lambert, prior to its acquisition by Pfizer in 2000. Sales of Lipitor reached US$12.9 billion in 2006, remaining steady at US$12.8 billion in 2007. Bearing in mind a 'blockbuster' drug is one achieving US$1 billion worth of sales per year, the staggering success of this drug becomes clear. Lipitor has been responsible for around a quarter of all Pfizer sales, and is the world's biggest-selling drug. Pfizer faces a major crisis in 2010 when it loses patent exclusivity for Lipitor, opening the floodgates to generic competition and massive profit erosion.
Pfizer also has other concerns. The Lipitor follow-up, torcetrapib, was dropped after reaching Phase III trials in atherosclerosis in 2006 due to safety reasons. Norvasc, the antianginal drug and another big seller from Pfizer, is already being hit by generic competition. Patent exclusivity ran out in the EU, the US and Japan in 2007/2008, and will be lost in further territories soon. Pfizer is facing the same issue with Lyrica, the epilepsy therapy and one of Pfizer's most successful pharmaceutical launches. With good returns and further approvals for more indications, it had sales of US$1.8 billion in 2007; however, patent expiry is due in 2013.
With this in mind, Pfizer's pipeline is under close scrutiny to
determine what can fill these upcoming holes in revenue.
According to Pharmaprojects' data, Pfizer currently has an
impressive 201 projects in active drug development. As Graph
1 demonstrates, there is a key issue with this pipeline relating
to the 156 of these which are NCEs, as there is only one
awaiting registration and none currently approved for launch.
A major problem has been the speed of progress through the
pipeline for Pfizer's NCEs. According to Pharmaprojects' data
only 18 NCEs have moved up a clinical stage in the last 12
months. Of these, two were to Phase I development, ten were
to Phase II and only three were to Phase III. Of these three,
esreboxetine entered Phase III development in early 2008,
but had mixed fortunes throughout the year with
discontinuations of neuropathic pain, post-herpetic pain and
diabetic neuropathy trials, leaving it in Phase III development
for fibromyalgia only. Development for this final indication was
eventually terminated just 1 week ago at the time of writing,
on 24 February. In the same announcement, Pfizer also
terminated PD-332334, which targets a calcium channel to
treat generalized anxiety disorder, and was in multiple Phase
III trials which were all initiated in 2008. Of the original three
compounds then, this leaves just CE-224535, a P2X7
antagonist being investigated as an analgesic and
antiarthiritic. This is currently in the Phase II portion of a
Phase II/III trial; however, signs were less than promising
after a Phase II trial in osteoarthritis was previously halted
due to lack of efficacy.
Perhaps to stave off speculation about its future, Pfizer has become increasingly open about its plans, announcing in late 2008 that it was exiting the cardiovascular area. The company is taking a flexible and dynamic approach to pipeline management, aiming to constantly re-evaluate drug potential and make ruthless decisions regarding continued development, before costs and expectations peak. This is not enough, however, to stop the rumour mill. There are still doubts about the potential of Pfizer's pipeline, especially the late stages. Where Lipitor has always proved such an asset for Pfizer, it has inadvertently become something of a handicap. It seems unlikely Pfizer will be able to follow up such a phenomenal drug with anything that can match or exceed it within the near future. Bringing out a slew of hugely successful drugs in a short space of time meant that there would come a time when adequately replacing them all would prove unlikely. The obvious quick fix solution, which is one Pfizer amongst others has relied on in the past, is to bolster its position via acquisitions. Pfizer became the world's largest pharmaceutical company in one fell swoop with the Pharmacia purchase in 2002, massively boosting its pipeline. The drawback to this is the resulting cost and disruption to business. Pfizer's chairman and CEO, Jeffrey Kindler, stated in the 2008 analyst meeting that the Warner-Lambert and Pharmacia acquisitions may have brought benefits, but "took a long time to integrate" and were "extremely disruptive", with the inevitable effect that they "impacted our R&D productivity". Can Pfizer afford the upheaval of another big merger?
In January 2009, following intense speculation, Pfizer
announced it has in fact turned its attentions once again to
mega M&A, with a view to buying Wyeth for US$68billion.
Critics speculate whether another massive acquisition will
actually benefit the pipeline sufficiently; however, Pfizer is
understandably attracted to the many facets of Wyeth's
business, in particular the vaccine and biologic arms. This
includes Enbrel, the leading biotechnology product worldwide.
Wyeth also has a substantial pipeline of 101 active drugs; half
of which are in preclinical trials, with a healthy representation
of clinical stage drugs also (Graph 2). Of significance is the presence of 65 NCEs and 23 biotechnology products. Pfizer
would also replace the consumer health business arm that it
sold to Johnson & Johnson two years ago. A major drawback
would be the upcoming patent expiry of Wyeth's biggest drug,
Effexor XR, but it seems clear that Pfizer is interested in the
portfolio diversification potential of this merger. By February
2009, speculation over this merger declined from the initial
feeding frenzy, although it was noted at this time that it
appears clear of antitrust concerns, and therefore may well go
ahead. So could this signal a wave of consolidation in the
cash-rich pharmaceutical industry, looking to shore up
pipelines in the face of ever more intense generic
competition? The deal, if it does happen, is expected to close
in the 3rd or 4th quarter of 2009. There may yet be
announcements regarding big mergers from Pfizer's
competitors, although it remains to be seen whether this will
be in 2009, or later, once the dust of the merger has settled.
