Saturday, May 29, 2010

Consolidation - the end of the big pharma model?

Since the year 2000, what has Pfizer done?  Back in 2000, when I was at Wyeth, we were in the midst of merger talks with Warner-Lambert.  Warner-Lambert had acquired Parke-Davis in the 1970s and Parke-Davis had an antibiotics research group – so I was interested to say the least.  Then, just as things were about to draw to a close, Wyeth management was pushed aside by Pfizer, who apparently came in with a bigger pocketbook, and Pfizer became the acquirer, not Wyeth.  With Warner-Lambert, Pfizer also got Agouron, a hot new antiviral research group on the west coast that had several promising compounds in development.

In 2002, Pfizer acquired Pharmacia.  Pharmacia previously had acquired Upjohn, another antibiotics company, and Monsanto-Searle which had the very promising anti-inflammatory drug, Celebrex, in its late stage pipeline. This was a another case where Pfizer beat out Wyeth in the merger discussions to become the “winner.”  Celebrex did not turn out to be the barn burner it was predicted to be. And,  of course, in the ultimate “insult,” Pfizer acquired Wyeth last year.  How much did all these acquisitions cost?  $68 Billion for Wyeth alone.  

What has all this consolidation done for Pfizer?  Well, it allows them to obtain additional products and revenues while shedding jobs at the same time.  How many jobs have been lost from Pfizer and its acquisitions since 2000?  I don’t know.  100,000?  When I think about this in terms of antibiotics, we have now lost Upjohn and Parke-Davis antibiotics research partly as a result of Pfizer’s consolidation.  Wyeth had already cut their antibiotics research group prior to the Pfizer take-over.

Has the strategy worked?  Not if you look at market capitalization as shown in the chart above.  Since 2000, when Pfizer’s market cap was $264.2 Billion, it had shriveled to $119.6 Billion as of the end of 2009.  What about needed new medicines?  Have there been any additions to the Pfizer medicine chest as a result of all this?  If so – they haven’t been enough to stop an inexorable slide in investor value for the company.

The depressing part of the story is that Pfizer is not alone in its hunger for consolidation to salve its sorry pipeline.  Most of the large pharmaceutical companies have been pursuing a similar path with similar losses in both research, especially antibiotics research, jobs and market valuation.   To me, these data provide compelling evidence that the large pharma model is dying if not already dead.  We need a new way forward that I believe will involve much smaller and more nimble companies.

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