Tuesday, January 27, 2009

Big Pharma Is Confused: Should we get Bigger, or Should we get Smaller?

Pfizer, it appears, says ‘Bigger’ (even though it didn’t exactly work last time). GSK meanwhile continues to say ‘Smaller’, at least when it comes to R&D (and that, let’s face it, is where the roots of Big Pharma’s problems lie).

For GSK, the answer (or part of it) to the productivity challenge is to get smaller and more biotech-like: hence the announcement last year of even smaller research units (the 50-strong drug performance units (DPUs)) complete with investment boards and three year funding cycles—effectively mimicking real-world biotech as far as is logically possible within a big corporate. (You’ve read a bit about it here, can see here the closest a GSK exec came to advocating complete disaggregation, and will read much more in next month’s IN VIVO.)

Pfizer, meanwhile, appears to be taking the get-bigger bet—again. This time it’s forking out $68 billion for the privilege, in its purchase of Wyeth. You’d think that given the poor track record on value-creation associated with mega-mergers, that the Big Pharma would try something different. (Ok, so we get some of the reasons for the tie-up, not least the huge revenue crater left by Lipitor and its not-to-be successor, torcetrapib, but the words Band-Aid, short-term and quick fix spring to mind.)

In a sense Pfizer is—or was—trying to think outside the bigger-is-better box. Like GSK, and a handful of other Big Pharma including Roche and Novartis, it was moving to establish more focused divisions within R&D. Thus we heard about its oncology business unit, described in more detail by a colleague in this feature, its externally-focused Biotherapeutics and Bioinnovation Center, headed up by Exelixis co-founder Corey Goodman, and, further downstream, increasingly autonomous development and commercial units. This was more than just talk; this was really happening.

And the funny thing is, Pfizer continues to preach the small-is-good philosophy, even while creating the world’s largest pharma company ever, with 2008 prescription drug sales in excess of $70 billion, over 130,000 employees (pre-cuts) and dozens of research sites. “Unique and Flexible Business Model Features Focus and Agility of Smaller Enterprises Backed by Resources and Scale of Global Company” piped the press release on the brand-new company's website.

So the teams behind this deal know a lot more than we do. But it’s hard, very hard, to imagine what it is about a combined Wyeth-Pfizer (Pfwyeth is a favorite, although rather Welsh-sounding; though Wy-Pfi features strongly in today’s blog chatter) that provides focus and agility. Cost-cutting and layoffs, maybe.

All the while, GSK continues to plug this best-of-both (biotech and pharma) worlds mantra, with somewhat more credibility than Pfizer at this point. (Indeed, GSK is one of the few Big Pharma names that hasn’t regularly appeared in the speculation over who-will-merge next.)

And, if information we've learned is correct, its next move might be almost the exact opposite of a mega-merger: the birth of a tiny new drug performance unit. The Immuno-Inflammation CEDD (or biotech-like-unit, for those without the lingo) is expected to this week announce the creation with a bunch of Boston academics of a company that will focus on regulatory T-cells.

The GSK CEDD seeds it, but the aim is to bring in the VCs in a B round sometime in 2010. And they, goes the thinking, will delight in the prospect of a pre-determined exit once GSK buys the unit back—"at a certain return," according to our GSK source. (That's granted the science works out, of course.)

Who’s got the right idea, then? Neither approach is a dead cert solution, to say the least. But we’ll know a lot more by 2012. By then Lipitor will have gone generic and GSK’s fresh-faced DPUs will be at the end of their first three-year funding cycle. They'll either be raking in the next round of money, or, if GSK holds its nerve, they'll be going to the wall like any other biotech whose coffers were empty.

As for Pfwyeth: it might just be disaggregating.

image from flickr user Joan Thewlis used under a creative commons license.


Anonymous said...

I prefer Wy-Pfi myself

Anonymous said...

I've been hearing Wyzer. Although perhaps not the best fit, given the questionable nature of this combination.