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Pfizer After Lipitor Slims Down to Push Mini-Blockbusters PDF Print E-mail
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Thursday, 01 December 2011 06:19

Nov. 30 (Bloomberg) -- Pfizer Inc.’s long dependence on the cholesterol pill Lipitor to produce almost one-fifth of the company’s revenue begins eroding today when the drug’s patent protection ends in the U.S.

The next step will be rebuilding the world’s biggest drugmaker into a smaller, faster-moving company that focuses on development of biologic drugs and specialty medicines while expanding sales of existing products, such as Lipitor and the erection drug Viagra, in emerging countries such as China, executives said in interviews.

“We’re not going to be a one-product company,” said Geno Germano, Pfizer’s president of specialty care and oncology, interviewed at the company’s New York headquarters. “We’re poised to deliver significant new pipeline assets in the coming year, and in coming years.”

Pfizer rose 3.5 percent to $20.07 at the close in New York, and has gained 15 percent this year.

The drugmaker is depending on four products to generate $4 billion in new revenue by 2014, said Timothy Anderson, a Sanford C. Bernstein analyst in New York, in a note to clients.

The drugs are Prevnar, a bacterial infection vaccine gained in Pfizer’s 2009 Wyeth purchase; the blood-thinner Eliquis, co- developed with Bristol-Myers Squibb Co.; the rheumatoid arthritis drug tofacitinib; and the cancer drug Xalkori for non- small-cell lung tumors. Pfizer is awaiting U.S. regulatory approval on Eliquis and tofacitinib.

‘Positive Data Points’

While it’s too early to tell whether those products will reach their potential, they offer “positive data points that should enhance confidence that this company might, just might, be turning a corner,” said Jami Rubin, an analyst with Goldman Sachs in New York, in a telephone interview.

It’s a significant corner. Lipitor, the world’s top-selling medicine, last year had $10.7 billion in sales, a figure analysts have said may drop as much as 70 percent by 2012.

At the same time, Chief Executive Officer Ian Read is planning to sell or spin off Pfizer’s animal health and nutritional businesses. Those units generated $5.44 billion in 2010 sales, or about 8 percent of revenue, all of which will vanish when they’re divested.

“Most CEOs want to build empires,” Rubin said. “Pfizer was a poster child for why bigger isn’t better. I think Ian Read understands that.”

‘Inflection Point’

Generic competition to Lipitor is “a major inflection point. They’re going from being the most successful primary-care company on the planet to focusing on biologics and specialty drugs,” she said.

Pfizer said in July it doesn’t anticipate making more announcements about the two units to be divested until 2012, and that any transaction may take as many as 24 months to complete. In the meantime, the company is moving to minimize its initial U.S. losses from Lipitor by making deals with insurers and pharmacy benefit managers to lower the price of the branded drug in return for agreements to block the use of generic copies.

CVS Caremark Corp. said this month it will offer Lipitor exclusively for patients in Medicare’s drug benefit, the U.S. medical plan for the elderly and disabled, blocking the use of generic copies. The move will affect about 3 million patients, Carolyn Castel, a spokeswoman for CVS, said by e-mail.

Health insurers, including Coventry Health Care Inc. and UnitedHealth Group Inc., have agreed to similar pacts.

The deals are meant to help Pfizer hold on to as much market share as possible until more generic makers are allowed to begin selling copies of the drug under normal patent procedures after 180 days.

Avoiding ‘Total Collapse’

“They’re trying to avoid just a total collapse, since the U.S. is such a big market,” said Christopher Bowe, an analyst with Informa-Scrip Intelligence in New York.

Watson Pharmaceuticals Inc., which has an agreement with Pfizer to produce authorized copies of Lipitor, began shipping the pills to pharmacies today, the company said in a statement.

Ranbaxy Laboratories Ltd., based near New Delhi, is the other generic company entitled to sell generic Lipitor starting today. It is waiting for manufacturing approval by the U.S. Food and Drug Administration before it may do so.

At some point soon, Pfizer will shift resources out of Lipitor, said David Simmons, Pfizer’s president of emerging markets and established products.

The company plans to slowly start running fewer advertisements for the drug and will keep up its “Lipitor for You” program, a patient co-pay discount program, only as long as it generates positive results, Simmons said. “There is some point of diminishing returns,” he said.

Last Stand in China

The last stand for the branded drug may be in developing countries, Simmons said, noting that Lipitor “will continue to have a lifespan in China.”

Pfizer hasn’t yet begun marketing products in rural areas of China, he said, a country with 1.3 billion potential consumers. Simmons estimated that only 9 percent to 10 percent of patients who could benefit from Lipitor in China were aware of their condition and had been diagnosed, compared with 45 percent to 50 percent in the U.S. and Europe.

It remains an open question whether Pfizer will turn to a major acquisition, as it has three times since 1999, if its current plans don’t pan out. The key to changing the company’s pattern on mergers will be whether Pfizer can regularly produce new products, Rubin said.

“Pfizer has not been able to do that for the last decade,” she said.

$22 Billion Gain

Seamus Fernandez, an analyst with Leerink Swann in Boston, has estimated that divestiture of the two units could produce as much as $22 billion for the company.

While Read has said money gained from any deal will be spent on share buybacks, such a move would buck a company trend reaching back to 1999, when the drugmaker acquired Warner Lambert and gained Lipitor.

Since then, the company acquired Pharmacia in 2002 and Wyeth in 2009. In total, the three deals cost the company more than $200 billion.

The key to changing the company’s historic pattern will be whether Pfizer can regularly produce new products, Rubin said.

“Pfizer has not been able to do that for the last decade,” she said.

Read’s predecessor, Jeffrey Kindler, told investors he didn’t see an acquisition in the company’s future less than a year before the company announced plans to buy Wyeth for $68 billion. Major acquisitions like the Wyeth deal, though, aren’t viewed by investors as positively as in the past, Rubin said.

‘Fact of the Industry’

“Consolidation has been a fact of the industry for 40 years, and isn’t going to stop today,” she said. “But the deals that were done for the sake of synergy to accelerate near- term earnings growth, investors aren’t going to reward those.”

Still, even a succession of small new drugs may not be enough to keep investors happy, Bernstein’s Anderson said in a note to clients. “The ultimate measure of R&D productivity is not just the number of new regulatory approvals, but also the commercial worth of those new compounds,” he wrote.

As part of Pfizer’s effort to slim down prior to the loss of Lipitor revenue, the company has cut spending on research and development from $9.34 billion in 2010 to an estimated $6.46 billion in 2013, Anderson said.

By 2015, the company will spend just 10 percent of revenue on drug discovery, the least of the nine drugmakers Anderson covers, the analyst said.

R&D Cuts

“Nobody’s cut R&D on an absolute basis as much as Pfizer has,” Rubin said, calling the decision to make the cuts controversial but necessary.

One solution to the pipeline question may be the type of risk-sharing partnership Pfizer has secured with Bristol-Myers in developing Eliquis, tagged as a $2.5 billion product at its future peak by Barbara Ryan, an analyst with Deutsche Bank Securities in New York, in a note to clients.

The FDA yesterday agreed to review the drug with a goal of deciding on an approval by the end of March, the companies said in a statement.

--Editors: Reg Gale, Andrew Pollack

To contact the reporter on this story: Drew Armstrong in Washington at This e-mail address is being protected from spambots. You need JavaScript enabled to view it ;

To contact the editor responsible for this story: Reg Gale at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Source: Businessweek

 
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