Tuesday, December 15, 2009

2009 Big Pharma DOTY Nominee: Pfizer, Feds Settle for $2.3 Billion

It's time for the IN VIVO Blog's Second Annual Deal of the Year! competition. This year we're presenting awards in three categories--that's 300% more fake prizes than last year!--to highlight the most interesting and creative deal making solutions of the year. The categories are: Big Pharma Deal of the Year, M&A/Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (roughly half a dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

Alright, we know this one isn’t going to get the Roger. In fact, it probably won’t get any votes, since technically speaking Pfizer’s $2.3 billion deal to settle a wide-ranging investigation into its promotional practices doesn’t even count as business development.

More like the opposite.

But you should think about this deal anyway. Trust us. In fact, trust is the point here.

Pfizer’s September settlement is by far the biggest in the wave of industry prosecutions that defined the decade of the 2000s. So you should take note for that fact alone.

Indeed, the circumstances of the case (Pfizer has the deepest pockets in the industry, it is in essence a repeat offender, and the allegations involved the now notorious Cox-2 inhibitor class) coupled with the retirement of Acting US Attorney Michael Loucks may mean it is a record that is never broken.

$2.3 billion is a lot of money. Okay, it is not $68 billion, the price tag on Pfizer’s purchase of Wyeth, a deal we expect will get more votes than this one in the DOTY competition. But, it is enough to pay a $.30 cent per share one-time dividend—more than enough to offset the dividend cut Pfizer announced in the context of the Wyeth transaction. Oh, right, and Pfizer announced something else the day it announced the Wyeth deal: the tentative settlement with the US Attorney in Massachusetts.

So this deal does have something to do with business development after all.

But these settlements have always been more important than the dollars. Each case—and the headlines it generates—marks another step down in the reputation of the industry. They have helped stoke a puritanical fire in the medical establishment, one that aims to root out all industry influence over clinical research, medical education, and clinical practice standards, a movement that could, taken to extremes, jeopardize the entire private sector biomedical model.

It is hard to put a price tag on a loss of trust. But there is a cost. It shows up when juries award damages in product liability suits. Or when legislators say $80 billion isn’t enough of a contribution to health care reform. Or—most importantly and hardest to measure—when patients stop taking their medicine in response to a negative headline. Because, after all, every time someone takes a prescription drug, it is an act of trust.

Pfizer seems to have gotten the message. At least, CEO Jeff Kindler is telling anyone and everyone that he has, during a kind of post-Wyeth integration mea culpa tour. So the CEO of Pfizer clearly agrees with us that reputation counts.

But here's the thing about trust. Once it is lost, it is hard to earn back. If you don't believe us, check out this New York Times take-down of the estrogen replacement therapy market, which basically says that Wyeth's entire franchise in that category is the result of a decades long, um, fraud.

See, in an era defined by loss of trust, buying new companies only buys new headaches. Wyeth's HRT franchise is Pfizer's now. Kindler has more work to do.

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