Pfizer's New Structure: Has The Company Learned From Past Merger Mistakes?

So Pfizer's (PFE) announced its post-Wyeth structure, and on the face of it, the plan makes as much sense as you can make of such a massive organization. The big divide is between small molecules and biologics, which makes sense - the two of them have different R&D, manufacturing, and regulatory issues in many ways. Besides, that's how most companies already divide things up internally if they do both.

There's a lot of brave talk in the press releases about how Pfizer has learned from its past mergers, how this organization will be ready to take wing just as soon as the last signature is put on the last form. I'm not buying it. It's good to hear that the company realizes that the previous mergers led to so much disruption and lost time, but I don't see how good intentions will help that much. There is no way, as far as I can imagine, to integrate ten billion dollars worth of R&D in an orderly fashion. The best that they can hope for is "not as hideous as the last couple of times", but I suppose the lawyers wouldn't sign off on that language as appropriate. And even that's a fairly ambitious goal.

We won't know for years if they've succeeded, either. The final measure is the productivity of the new organization, and for some time they'll be running on what was already in the works at both companies before. That, as I've said before, is one of the hardest things about the drug business: the lag time before you see results. You can change the early R&D, and see in a year or two if you've started more projects than you used to. But you won't know if they were good projects (or better ones, anyway) until they've run for a while. Maybe you just lowered your standards and initiated a bunch of stuff with a higher failure rate?

For that to resolve itself, you have to see how many of these new-regime projects make it all the way to the clinic. But then you'll have to wonder if you've just thrown some exhausted, just-barely-there stuff over the wall to declare victory - everyone who's worked in a big pharma organization has seen that one. The real measure of success in this industry is how many things come out of the clinic alive, and that's so dependent on luck (since we don't understand enough about toxicology and drug mechanisms), that those numbers may not reflect anything you're doing particularly right or wrong. No one at Pfizer saw torcetrapib's horrible failure coming, for example.

But hold on - another real measure of success in this industry, when you get right down to it, is money. Did those projects you started, took to the clinic, got through human trials, took to the FDA, and got out onto the market ever pay for themselves? There's always the possibility of an Exubera, to pick another example from Pfizer's recent past. And now we're up to ten or twelve years since you overhauled basic R&D. How many overhauls have you done since? Who's to say what thing had which effect and how? Pfizer can tell you about that, too - the dust hadn't settled from the Warner-Lambert deal when the Pharmacia one went through.

So, yes, we'll see about all this. But we won't see for a while, and when we finally do see, it'll probably be impossible to say just what we're looking at.

Comments

[desicon:]

Given the political conditions and the financial incentives associated with it one cannot expect any new block buster drug coming out of R & D budgets. The R & D role will be to develop derivative products and product extentions.

Apr 08 07:20 PM

[donzelion:]

These mergers may affect R&D paths - or they may not. They may result in efficiency gains - or they may not.

However, they will absolutely affect the leverage each pharm player has with governments in the emerging markets.

Right now, nobody really cares about the emerging markets because they contribute next to nothing to the existing bottom lines for the pharm giants. You can find Viagra on the streets for pennies, and many other profitable drugs for next to nothing. Pushing reluctant governments to enforce controls or shift profits to the pharms is impossible

In the future though, the pharm industry could become far more powerful simply by capturing revenues from the emerging markets that are currently lost to piracy. That's a more plausible growth story than most hopes that rest on the traditional "blockbuster gamble" that has come to drive analysis of the pharm sector over the last 25 years.

Apr 09 07:08 AM

[a. palmer jr.:]

I hope this new structure will translate into higher stock prices for PFE so that eventually I can sell.

Apr 09 11:09 PM

[EGGBEATER:]

WE DON'T KNOW FOR SURE AS YET IF THE PFIZER/WYETH MERGER WILL TURN OUT TO BE A SUCCESS OR A FAILURE. IT'S TOO EARLY TO TELL.-
PFIZER'S ACQUISITION OF WARNER-LAMBERT BECAME A SUCCESS THANKS TO THE W-L BLOCKBUSTER DRUG LIPITOR, WITH SALES OF $ 12+ BILLION LAST YEAR.-
PFIZER'S ACQUISITION OF PHARMACIA BECAME SOUR DUE TO THE SUBSEQUENT FAILURE OF PHARMACIA'S 2 BLOCKBUSTER DRUGS CELEBREX AND BEXTRA THAT HAD TO BE, OR WILL BE, DISCONTINUED.-

A PHARMA COMPANY WILL EVENTUALLY HAVE TO DOWNSIZE (OR PERHAPS EVEN DISAPPEAR) IF: 1) IT HAS NO SIGNIFICANT/PROMISING NEW COMPOUNDS IN ITS R&D PIPELINE, AND, 2) ITS BESTSELLING PRODUCTS GO OFF PATENT PROTECTION, WHICH IMMEDIATELY BRINGS IN THE GENERIC WOLVES WHO HAVE BEEN WAITING TO FLOOD THE MARKET WITH SIMILAR PRODUCTS AT A FRACTION OF THE ORIGINAL PRICE.
CAVEAT: GENERICS NOT ALWAYS PROVIDE THE SAME STANDARD QUALITY AS THE ORIGINALLY PATENTED PRODUCT.

Apr 10 01:55 AM

[Long US stockS:]

I agree. Last 5 yrs this type of analysis -"May or may not"- has been meaningless.....


On Apr 09 11:09 PM a. palmer jr. wrote:

> I hope this new structure will translate into higher stock prices
> for PFE so that eventually I can sell.

Apr 13 08:52 PM

[Long US stockS:]

You are Right...


On Apr 10 01:55 AM EGGBEATER wrote:

> WE DON'T KNOW FOR SURE AS YET IF THE PFIZER/WYETH MERGER WILL TURN
> OUT TO BE A SUCCESS OR A FAILURE. IT'S TOO EARLY TO TELL.-
> PFIZER'S ACQUISITION OF WARNER-LAMBERT BECAME A SUCCESS THANKS TO
> THE W-L BLOCKBUSTER DRUG LIPITOR, WITH SALES OF $ 12+ BILLION LAST
> YEAR.-
> PFIZER'S ACQUISITION OF PHARMACIA BECAME SOUR DUE TO THE SUBSEQUENT
> FAILURE OF PHARMACIA'S 2 BLOCKBUSTER DRUGS CELEBREX AND BEXTRA THAT
> HAD TO BE, OR WILL BE, DISCONTINUED.-
>
> A PHARMA COMPANY WILL EVENTUALLY HAVE TO DOWNSIZE (OR PERHAPS EVEN
> DISAPPEAR) IF: 1) IT HAS NO SIGNIFICANT/PROMISING NEW COMPOUNDS IN
> ITS R&D PIPELINE, AND, 2) ITS BESTSELLING PRODUCTS GO OFF PATENT
> PROTECTION, WHICH IMMEDIATELY BRINGS IN THE GENERIC WOLVES WHO HAVE
> BEEN WAITING TO FLOOD THE MARKET WITH SIMILAR PRODUCTS AT A FRACTION
> OF THE ORIGINAL PRICE.
> CAVEAT: GENERICS NOT ALWAYS PROVIDE THE SAME STANDARD QUALITY AS
> THE ORIGINALLY PATENTED PRODUCT.

Apr 13 08:54 PM