R&D Costs of the Pfizer / Wyeth Deal

We’re seeing an example right now of one of the big costs of a drug company acquisition. While the Pfizer (PFE)/Wyeth (WYE) deal winds along, with all the regulatory and financial details being slowly worked out, what happens in the R&D organizations?

Well, at Wyeth, I’d imagine that things have slowed down a great deal. No one knows what the future will be like, what parts of the company will stay, and which people will be asked to stay with them. How do you make plans under those conditions? For many people, the project they’re working on is now very much a secondary consideration.

Even outside the personal level, there are a lot of paralyzing influences. The same uncertainties about individual jobs apply to development projects. Some of what Wyeth is working on surely overlaps with what Pfizer’s already doing. So which project goes forward? Not both of a matched set, that’s for sure. There are some projects at both companies that are dead in the water, but no one can be sure which ones, and no one will know for some time to come.

That’s because you can’t really start ironing out these details until the deal goes through. Legally, Pfizer and Wyeth are separate companies, and there are a lot of difficulties involved in sharing information in such depth. Even when that eventually happens, there are going to be plenty of other things to work out. Let’s say that Project Y from Wyeth looks to be in better shape than the corresponding Project Y-Prime from Pfizer, so it goes on through. Fine! But under whose rules does it proceed?

Every company has its own culture about these things – the criteria that are used to recommend a compound to the clinic, the ways those boxes are filled in, the sorts of people who have to sign off on them. A project caught in the middle can stall while all these details are cleared up, losing months (or even a year or two) in the process. You can imagine the disconnects: you guys did check this compound for hERG activity, right? With what assay? And with what cutoff? That’s not the one we use, anyway; we’ll have to run it again, and get that signed off on by. . .hmm, well, by someone, we’ll figure out who’s in charge of that sort of thing soon, about the same time that we figure out who reports to them. Now, about your formulations work. . .you used what, again?

No, all this has a ferocious price, when you measure it in opportunity costs. The people caught up in all this could be doing something much more productive with their time, for sure. This sort of thing doesn’t show up on the books. And the longer the process drags on, the worse it’ll be.

Comments

[rnarco:]

Your comments can be applied to any acquisition or merger in the marketplace, so why single out just Pfizer/Wyeth. More importantly what do you suggest as an alternative? Unless you are talking major regulation changes that eliminate the delays in getting acquisitions/merger approved (which will never happen), then this is the process that we all have to live with. Do not blame someone for something they have no control over, that is the delay that ensues after a deal like this is announced and the uncertainty surrounding it.

Jan 30 09:19 AM

[Stephen Ros...:]

What valuable research at either company?
Seems to me both companies have been unable to bring much new into the picture.
PFE seems to have spent its cash for a similar doddering company.

Jan 30 11:04 AM

[Lars39:]

Pfizer's R&D center employs 6,000 at the cost of several $Billion a year. The last blockbuster drug Pfizer developed was Viagra, which was not even discovered by the R&D group in Groton, but by accident in England. Lipitor was purchased as part of the Warner Lambert acquisition in 2000. Pfizer could have closed the Research group 10 years ago, saved the money and spent it on buying drug compounds from others. Pfizer's purchase of Pharmacia was of questional value, and I don't see Wyeth being worth $68 Billion. Is it enough to offset the loss of Lipitor patent protection two years out? Doubtful IMO.

Jan 30 06:10 PM

[Ex-Pfizer:]

It looks like another managment trick from both companies to show the investors that senior executives are working hard, probably because the pipelines are so unattractive and more development candidates will not reach NDA?

Feb 01 10:49 AM

[Real Scienc...:]

The first week is always the worst, but pharmaceutical scientists know the importance of the work that they do. Regardless of management changes and business cycle effects, there are many sick people who need new medicines and new medical treatments, and I believe the scientists at these companies will continue to do their jobs effectively. The bigger concern is R&D layoffs down the road, particularly on the Wyeth side, since their staff has produced a remarkable number of new medicines in recent years.

Feb 02 08:45 AM