David's New Book

Thursday, January 21, 2010

Consolidation, de-consolidation and antibiotics.

Over the last 30 years there has been tremendous consolidation within the pharmaceutical industry. In 2003, Karen Bush of Johnson and Johnson looked at the histories of six of the large pharmaceutical companies over the preceding 20 years. Karen found that these six companies derived from mergers and acquisitions of 70 precedent companies. If extrapolated to large pharmaceutical companies in general, this would indicate a 91% consolidation over 20 years. Since then, we should add the merger of Aventis with Sanofi to form Sanofi-Aventis, and the recent purchases of Schering-Plough by Merck and of Wyeth by Pfizer. I cannot begin to imagine how many jobs were destroyed by this process. This also means that there are simply fewer and fewer companies around who might be doing antibiotic research even if they were so motivated. In fact, we are now down to only 4-5 large companies still active in antibiotic discovery research.
The industry, in my view, cannot continue to survive in its current large company, blockbuster-dependent configuration. There are simply not enough multi-billion dollar drugs being discovered to support all those companies that need them for survival. Take Pfizer-Wyeth for example. This will be a $60 billion company needing to generate anywhere from $3 to 6 billion in additional revenues (or cost savings) every year. There will be cost savings after the merger, but eventually Pfizer will have to come up with one or more very big products to survive. And this is not just true of Pfizer, but applies to all of the current giants with 10s of billions of dollars in revenue coming in each year. I do not believe that this is feasible. The giants will have to break themselves up into more bite-size pieces.
In terms of antibiotics, Pfizer-Wyeth will have; piperacillin-tazobactam, a billion dollar product that is just starting to feel major effects from loss of its patent position; tigecycline, launched in 2005 and now selling around $250 million; and linezolid which is selling over $1 billion but which is threatened with loss of its patent exclusivity in 2015. For a start-up company, this would be a very strong beginning. It would allow a rapid entry into the public markets for additional investors. The new company could then go about its business of both trying to discover and develop its own new antibiotics and to bring in products from outside, perhaps from biotech, to fill out its pipeline. In my view, the new company would be much smaller than its current configuration within the larger company in the sense that it would have a small number of key internal folks who would manage programs through, mainly, outside contractors, much as is done in biotech. The marketing organization could be more streamlined and could incorporate collaborations with external parties. This would allow the new company to break away from old outdated marketing policies of the larger parent (if they exist). This solution also has the advantage of avoiding the enormous large pharma bureaucracy, allowing the new company to react more quickly to changing situations and to make decisions more efficiently. When will large pharma realize this and how long will it take the smaller entities that will emerge to start cranking on antibiotics again? I just hope I am around to see it and that some of the folks who have been displaced by the ongoing mergers and acquisitions will land back in the antibiotics game.