29 Jan The bumping of Pharma elephants: Pfizer and Wyeth
It seems like we just started the New Year and yet the end of January is already looming. Not that it hasn’t been an active January: new President and Veep, Fiat becoming a major shareholder in Chrysler, and Pfizer once again making a mammoth acquisition!
While everyone knew that Pfizer would have to do something dramatic as it faces the imminent patent cliff of Lipitor, the expectation was a more radical shift into biologics (large molecules), not unlike AstraZeneca’s acquisition of MedImmune which gave it an instant large molecule R&D pipeline and capability.
The macro acquisition of Wyeth for $68 billion, according to the Wall Street Journal, is a bit confounding. Wyeth, itself, faces a patent cliff with key products, but in recent years has made a much larger effort than Pfizer into transforming itself into a biopharmaceutical company with the major acquisition of Genetics Institute in 1997, and a revamping of its vaccine business; it is still heavily based on traditional Pharma development and reliance on small molecules.
Interestingly, back in the 1960s and 1970s, Pfizer was one of the few players in the vaccine business. I can remember as a sales rep for Pfizer in the 1970s selling the polio vaccine to pediatricians.
Pfizer had peeled off its OTC business recently, but is now back in that business once again. Pfizer’s animal healthcare business also just got bigger!
Pfizer will desperately need Wyeth’s $22.8 billion in annual sales and net income of $4.4 billion, as much of its blockbuster drug Lipitor’s sales franchise of $12 billion will disappear over 2010-2011.Wyeth, itself, has near-term exposure to patent expirations with Effexor (2008 sales of $3.9 billion) and Protonix ($.8 billion in 2008).
Pfizer had 2008 sales of $48.4 billion and net income of $8.1 billion and the combined entity will have more than $71.2 billion in 2009 and combined net income $12.5 billion, but major efforts will need to achieve cost-savings in manufacturing, R&D, marketing, management and support areas such as finance, HR, etc. Expect to see major layoffs, and sell-offs of real estate around the world.
Although full-year 2008 worldwide Pharma sales results are not yet available, 12-month results through November, 2008 are, and give some indication of what is happening to the industry. Let’s take a look:
Top Pharma Regional Sales – 2008 (Nov./2008)
- North America, $225.5 billion, +2 percent.
- United States, $208.7 billion, +1 percent.
- Canada, $16.8 billion, +6 percent.
- Europe (top five), $114.6 billion, +1 percent.
- Germany, $35.2 billion, +4 percent.
- France, $30.7 billion, 0 percent.
- UK, $16.0 billion, (2 percent>.
- Italy, $17.2 billion, +1 percent.
- Spain, $15.3 billion, +4 percent.
- Japan, $66.7 billion, +2 percent.
- Australia, $7.9 billion, +10 percent.
- Latin America (top 3), $24.4, +9 percent
- Brazil, $12.5 billion, +11 percent.
- Mexico, $8.6 billion, +2 percent.
- Argentina, $3.2 billion, +22 percent.
Source: IMS Health
Much of the “developed” world exhibited a significant slowdown in sales volume versus the “developing” world which demonstrated much higher growth. If we factor in sales in India and China, not shown above, which most likely had high growth rates, the overall world Pharma market had once again single-digit growth.
According to IMS, the global Pharma market research firm, the leading Pharma companies in sales for the 12-month period ending November, 2008 was:
Interestingly, each of these companies has grown as a result of merger and acquisition and represents an amalgamation of companies. Pfizer is the only one that has kept a single original name in the process.
A logical question is: with this announcement so early in the year, will 2009 be a year of many M&A transactions re-shaping the industry? The answer is a definitive yes! Remember that Novartis already owns 30 percent of the voting shares of Hoffman LaRoche, and Roche, itself, is still trying to complete the acquisition of the 40 percent + of Genentech it doesn’t own and covets. Pfizer’s move will undoubtedly trigger a number of other major acquisitions particularly by companies also line-up in front of the patent expiration cliff.
Drug Patent Expirations in 2008 -2009
|DRUG/BRAND NAME||DRUG/GENERIC NAME||COMPANY||PATENT EXPIRATION|
|Fosamax||Alendronate||Merck||Feb. 6, 2008|
|Camptosar||Irinotecan||Pfizer||Feb. 20, 2008|
|Effexor/XR||Venlafaxine||Wyeth||June 13, 2008|
|Zymar||Gatifloxacin||Allergan||June 25, 2008|
|Dovonex||Calcipotriene||Bristol-Myers Squibb||June 29, 2008|
|Kytril||Granisetron||Roche||June 29, 2008|
|Risperdal||Risperidone||Janssen||June 29, 2008|
|Depakote||Divalproex sodium||Abbott Laboratories||July 29, 2008|
|Advair||Fluticasone and salmeterol||GlaxoSmithKline||Aug. 12, 2008|
|Serevent||Salmeterol||GlaxoSmithKline||Aug. 12, 2008|
|Casodex||Bicalutamide||Bristol-Myers Squibb||Oct. 1, 2008|
|Trusopt||Dorzolamide||Merck||Oct. 28, 2008|
|Zerit||Stavudine||Bristol-Myers Squibb||Dec. 24, 2008|
|Lamictal||Lamotrigine||GlaxoSmithKline||Jan. 22, 2009|
|Vexol||Rimexolone||Alcon Labs||Jan. 22, 2009|
|Avandia||Rosiglitazone||GlaxoSmithKline||Feb. 28, 2009|
|Topamax||Topiramate||Johnson & Johnson||March 26, 2009|
|Glyset||Miglitol||Pfizer||July 27, 2009|
|Acular||Ketorolac tromethamine||Allergan||Nov. 5, 2009|
|Xenical||Orlistat||Roche||Dec. 18, 2009|
|Valtrex||Valacyclovir||GlaxoSmithKline||Dec. 23, 2009|
|Avelox||Moxifloxacin||Bayer||Dec. 30, 2009|
Source: Drug Topics, April 2, 2007.
According to another analysis done by DrugPatentWatch, the following scenario will take place in 2009; this analysis shows GlaxoSmithKline (mentioned twice using also the old SmithKline name) as the most vulnerable company in terms of number of products.
Unfortunately, as estimated by DrugPatentWatch, the situation doesn’t get any better over the next few years, as seen below:
Although we are lacking product sales levels here to quantify the impact of the patent cliff for each company, this analysis is a pretty good indicator of which companies are most vulnerable, most likely precipitating M&A activity.
It is, indeed, going to be an interesting year, and we haven’t even started yet down the road of healthcare reform in the U.S.
See you soon!
Recent articles by Michael Rosen
- Michael Rosen: In 2009, expect a year of transformation in life science
- Michael Rosen: Life science 2008: Where are we? Where are we going?
This article previously appeared in MidwestBusiness.com, and was reprinted with its permission. The article is not meant to be a stock recommendation.
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