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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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September 10, 2008

Pfizer / Bayer?

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Posted by Derek

The rumor seems to be going around that Pfizer might be making a bid for Bayer (aka Bayer/Schering). That sounds ridiculous to me, and if Pfizer actually does such a thing, then its management is even more starved for ideas than its nastiest critics could believe.

Why all the negativity? Well, Bayer doesn’t seem to be much of a fit, for one thing. The company’s Nexavar (sorafenib) oncology drug competes directly head-to-head with Pfizer’s Sutent (sunitinib), and a good chunk of that revenue goes to Onyx, anyway. (Which reminds me – I keep seeing mentions of that drug being an Onyx discovery which was picked up by Bayer, which isn’t right. That one was made at Bayer – why Onyx has a piece of it has to do with the biology, not the drug discovery). The market for kidney cancer would be completely tied up by a Pfizer/Bayer deal, which makes you wonder if the resulting behemoth would be required to divest one of the drugs.

Pfizer does like to pick up big-selling compounds by buying the whole company behind them, but Bayer/Schering doesn’t have anything in the Lipitor / Celebrex class right now. (Remember Celebrex?) They might have one coming, though, with their Factor Xa inhibitor, rivaroxaban: it’s expected to do very well in the extremely lucrative clotting market, but it’s not there yet. And besides, some of that one is already tied up with J&J, at least in the U.S.

Then there’s the general objection: I’d argue that Pfizer is in the shape it’s in because they’ve pursued the big, big, acquisition strategy. Their own labs have been unproductive, and they unfortunately seem to spray down the research organizations they purchase with whatever’s in the air supply at the home base. OK, that’s probably unfair – but no one can deny that as a whole, Pfizer’s internal drug discovery efforts have been remarkably frustrating for many years now. And they’ve got a massive cost structure, what with all the various facilities they’ve accumulated over the years, which is what’s led to things like their mass exodus from Michigan.

More of that sort of thing is what I expect from Pfizer, not some big acquisition. (And I suppose that it should be mentioned that it’s now a widely held belief that more layoffs are coming there this fall, anyway). But if they buy something, it won’t be pretty. What they need is revenue to replace Lipitor in a few years, not people or research facilities. And that’s another reason that a Bayer purchase makes no sense – have you looked into how hard it is to lay people off or close a site in Germany? Years, it takes years, and buckets of money – just what Pfizer doesn’t need to take on.

So if you need an excuse to dump Pfizer’s stock (and why, exactly, would you be holding Pfizer stock?) a purchase of Bayer would be the perfect signal that they’ve lost their minds in Groton. I don’t think they have, though. Not completely. Not quite yet.

Comments (30) + TrackBacks (0) | Category: Business and Markets


COMMENTS

1. Gone Swimming on September 10, 2008 8:23 AM writes...

I'm fairly certain that the people who have "lost their minds" are in New York and not Groton. At least as far as the crazy mergers go.

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2. KwadGuy on September 10, 2008 8:33 AM writes...

Good analysis. This deal makes no sense on the surface. There's nothing in the pipeline that would seem to make Bayer particularly attractive to Pfizer, and the issues with employee termination in the EU, and Germany in particular, are extremely foreboding.

Dumber merger decisions have been made (AOL/Time Warner anyone), so never say never. But I just don't see it.

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3. petros on September 10, 2008 8:42 AM writes...

I was staggered to read the rumours on this one. Whilst Pfizer might want to make another large acquisition while it can afford it, this one makes no sense at all.

Would Pfizer want the diagnostic, animal health, crop protection and (residual) chemicals businesses?

On top of which the culture clash would be horrendous, probably surpassing the Pharmacia Upjohn merger

It isn't impossible to get shot of employees in Germany now, Bayer has already down it, but it is expensive, and it's previous merger saw the ending of all non-German R&D such as Derek's WDF

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4. Pfrustrated in Groton on September 10, 2008 9:03 AM writes...

Rumors abound. There was an announcement at Pfizer in Aug. of pending large scale reductions. As much as 30% is the number floating around!! 30%!! Unbelievable. They're calling it "asymmetric reductions". Nice. Should be seeing much more about this soon as actual numbers are to be announced by end of sept. So as far as the Bayer thing goes, I wouldn't put anything past the megalomaniacs running Pfizer in New York.

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5. Ram on September 10, 2008 9:13 AM writes...

"OK, that’s probably unfair – but no one can deny that as a whole, Pfizer’s internal drug discovery efforts have been remarkably frustrating for many years"

No reason to be productive when you could be fired any day. The human mind shuts down in the absence of positive stimulation or incentive. You might argue the R&D are emulating the executives on this one. Work just hard enough not to get fired....although there's no million dollar bonus at the end of the year awaiting the chemist for his sloth.

Sing along -"Be an Exec and get a big check, be with R&D and live on socks and peas"

Oh yeah..that's bad.

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6. Don B. on September 10, 2008 9:51 AM writes...

I think the "miasma" that kills acquired R&D emanates from Groton. It may be reinforced by the NYC attitude.

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7. KwadGuy on September 10, 2008 9:55 AM writes...

Re: Pfrustrated in Groton:

What I've heard from reasonably reliable sources is that the original plan was for the ATS (Adapt to Scale) workforce reduction was a push down on August 29. However, the plan got hung up for unknown reasons, and the new date is sometime in October. It is expected, as you note, to be asymmetric (some TAs completely eliminated, others left primarily intact). As part of the ATS, there will be a change in the way research is structured (AGAIN! Second one in about a year!), and there will be substantive changes in reporting configurations.

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8. Jose on September 10, 2008 10:58 AM writes...

I can't see how anyone (even dark lord MBA ninjas) can run numbers and make this marriage look good for anyone. On top of it, those guys at Boston CG must be laughing their heads off over their cute little acronym "ATS." bah.

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9. ClanMaster on September 10, 2008 11:11 AM writes...

This is like watching car crash TV. Everybody knows that such mega-mergers are doomed. There is an orgy of evidence that this doesn't work. However, I fear that precisely because this is a dumb idea the illustious leaders of Pfizer and their associated gurus will view doing it as some typo of macho target. They will decide that they will make their careers by making a success of the merger. Meanwhile everybody else will be standing, arms folded, shaking their heads as Pfizer slips into oblivion. It's painful to watch to be honest but it's such an fantastic lesson in how NOT to run a company that it's compeling to watch. It's also beginning to have an element of slapstick humour. Surely they can't be serious.

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10. eugene on September 10, 2008 11:49 AM writes...

CEN news just wrote a story about how Pfizer research is going to get all better in the last issue. You can't access the story without an ACS membership though.

http://pubs.acs.org/subscribe/journals/cen/86/i35/toc/toc_i35.html#business

Apparently the gist of it is that they are done with mergers because they are disruptive to R&D. They eliminated a lot of projects in order to focus on a smaller number and they are not necessarily looking for blockbusters anyomore. Also, there is some Scotsman in charge of research who sees the glass as half empty and because of that he is a realist and the message gets across to the CEO.

Well, that's my one minute summary of the article at least.

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11. processchemist on September 10, 2008 11:56 AM writes...

How strange... I remember a C&EN article (in february?) reporting about a conference of Pfizer CEO with financial analysts from the investors.
The analysts conclusion was that a good solution for Pfizer was to break down the company in many ones focused on single terapeuthic areas. Things and opinions are changing fast these times.

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12. paxal0up on September 10, 2008 11:59 AM writes...

in france, we believe that pfizer NICOX will buy a company that works on nitric oxide. they are already in business with nicox. nicox and has dozens of blockbusters including nitro-aspirin and naproxcinod the only NSAID that reduces arterial tension

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13. Ali g on September 10, 2008 12:06 PM writes...

Why would Pfizer want to merge? That is the wrong question. Why would the CEO want Pfizer to merge? That is the correct question. Well the only thing that CEO pay correlates with is company size. So if the CEO can make his company larger, his pay will increase. So the CEO will always be looking to merge.

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14. Dimitri on September 10, 2008 1:13 PM writes...

Ali said-

"Why would the CEO want Pfizer to merge? That is the correct question. Well the only thing that CEO pay correlates with is company size. So if the CEO can make his company larger, his pay will increase. So the CEO will always be looking to merge."

You hit the nail right on the head. That is what is wrong with America. Even if it were the wrong decision he will do it.

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15. RonaldMcDonald on September 10, 2008 1:32 PM writes...

I have seen Pfizer as a very functional company, at least when it comes to science. They are e.g. very innovative in computational sciences, many high impact publications might proof this. However, I don't sympathize at all with company politics, though this time it pretty much sounds like rumours

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16. Jose on September 10, 2008 3:48 PM writes...

"They are e.g. very innovative in computational sciences...."

'Cause computational chem really helps you become a force in the marketplace right? Bwahhh!!
(sorry, couldn't resist).

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17. milkshake on September 10, 2008 11:08 PM writes...

I used to work for Pfizer. Such, such were the joys.

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18. Anonymous on September 11, 2008 4:51 AM writes...

Pfizer - Bayer not a good fit? Over-lapping products, too, big, etc.. Makes no sense?

That's exactly what they said about GlaxoWellcome - SKB before the merger.

And what has GSK done?

Stock: flat
Pipeline: empty (excuse me empty = promising in GSK-speak)
Structure: incredibly large and unwieldy (don't be fooled by the CEDD/DPU sham)
Morale: absolute zero (Kelvin)
Employment: continuous lay-offs (Molecular Discovery Research and the Development divisions are awaiting their massive cuts by end of the month)

So does the Pfizer-Bayer merger make sense?

As an earlier poster said: Yes, if you are the CEO. No if you are anyone outside the top core of excecutives.

Signed,
Victim of merger madness, many times over
(call me Vic for short!)

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19. Don B on September 11, 2008 7:52 AM writes...

"They are e.g. very innovative in computational sciences, many high impact publications might proof this."

Please support the above with a SINGLE example of a drug from these "computations"!

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20. rtw on September 11, 2008 8:12 AM writes...

17 Milkshake - Join the club. I too worked for them after the takeover of WL. I was one of many in Ann Arbor to get the shaft! After all - That organization must have been good for something - It was there that Lipitor was discovered!! It seems everything Pfizer management/marketing touches in R&D goes south the last 9 years.... They have no clue! I don't think it's so much about the science they do is just how that science is managed. Its a very tough job, as I can attest being involved in drug research for 20+ years. The vast majority of members of these organization will spend their whole careers and never be directly involved in a successful project resulting in a drug going to the market place.

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21. KwadGuy on September 11, 2008 8:19 AM writes...

[QUOTE]"They are e.g. very innovative in computational sciences, many high impact publications might proof this."

Please support the above with a SINGLE example of a drug from these "computations"![/QUOTE]

I would generally agree that Pfizer comp chem has not had a major publication impact. The caveat is that they had one paper, Lipinski's Rule-of-Five, which is probably the most referenced and used theoretical paper of the past two decades. Ironically, it came out of chemistry, not comp chem.

For pharma with a really strong publication record in comp chem, I'd look to Merck or Vertex in '90s and perhaps to early in this decade. That's not to say that these were the only companies with strong comp chem, but the number and quality of the computational papers coming out of these companies were better than those from any other pharma companies I can think of. This, obviously, is in part a reflection of corporate decisions to support publication (over tight fisted worries over IP that inhibit publication).

Again, this is not to say Pfizer hasn't been innovative in the comp sciences. But their publication record doesn't really support this. But things being what they are (particularly at IP sensitive Pfizer), this could just mean the good work is being done but not published.

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22. Tim on September 11, 2008 8:25 AM writes...

Don't forget the AMD-Drug "VEGF Trap-Eye". It is very promsing, potenial Blockbuster, should be better than Lucentis and far better than Pfizer's Macugen.

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23. anonymous coward on September 11, 2008 8:52 AM writes...

Pfizer co-own apixaban (with BMS), a similar compound to Bayer's rivaroxaban. Apixaban may have missed an efficacy endpoint in one indication (VTE prevention following major orthopedic surgery) recently, but it may still prove good in other, cardiac indications.

Frankly, it's only rivaroxaban and apixaban that are on the horizon that look like they'll be able to supplant warfarin (Factor Xa inhbitiors seem to be more bad-ass than the other class on the horizon, direct thrombin inhibitors [like AZ's failed near-blockbuster, exanta]). So not just kidney cancer, but thrombosis too...

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24. Nick K on September 11, 2008 9:28 AM writes...

I have mixed feelings about Pfizer's difficulties - I worked in Central Research many years ago, and hated it for the arrogance and incompetence of the management, and for the stifling and hostile atmosphere. It was far easier to follow the company line rather than do anything genuinely original or creative. That said, there are (or at least were...) plenty of decent folk there. They deserve better senior management.

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25. Acid hydrolysis on September 11, 2008 1:02 PM writes...

Please support the above with a SINGLE example of a drug from these "computations"

If you expect "drugs" from computation, you are barking up the wrong tree. Computation tosses ideas at medicinal chemists. Some of them work, some of them don't. Sometimes you can be fairly sure that something will work. It's better than having no ideas.

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26. fat old man on September 11, 2008 6:06 PM writes...

I wonder how many of us in large pharma would be willing to comment on rumors of downsizing in their respective employers. I can say that rumors abound here, and announcements are expected soon.

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27. Don B on September 12, 2008 8:02 AM writes...

IMO, Lupinski's Rule of Five has caused more trouble than it is worth.

Please note that Lipitor(TM) fails the "RULES"!

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28. Ed on September 12, 2008 8:31 AM writes...

Isn't there an active transport mechanism for Lipitor? If so, debating whether it fails Lipinksi's rules or not is rather pointless , no?

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29. Hap on September 12, 2008 2:10 PM writes...

A. Hydrolysis-

I wouldn't assume computational chemistry is the only source of ideas for medicinal chemists. It seems proper to ask whether computational chemistry/biology generates more ideas (or better ones) than other methods, or if not, whether it is either cheaper (costs less per idea) or saves enough money later (by killing bad ideas) than other methods. Simply suggesting things to make isn't that particular to CC/B, no?

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30. pfizer sux on September 16, 2008 9:49 AM writes...

I was just laid off also, first round of i heard 10,000 ATS has been extended another month so expect a lot more by thanksgiving. the company is going down the tubes........

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