Pfizer Can Still Grow With Biotech Acquisitions
by Andrew Vaino
News that Pfizer (PFE) is halting its clinical Phase 3 study of Torcetrapib comes at a bad time, though bad news is rarely well-timed, for the company. Pfizer had hoped this drug would replace top-selling Lipitor, which could come off patent as early as 2010.
So, while avoiding any predictions that Pfizer will be trading lower Monday morning---which would be more a statement of fact than a prediction---I think Pfizer will be a good buy once the dust settles from this.
I've written before that I think the best way for drug companies to grow is by acquisition of technology from smaller, more dynamic companies. Size and bureaucracy have a way of inhibiting innovation.
From an investment strategy point of view, bigger companies are able to cherry-pick technology after it has been taken to a certain point (for example Phase 1 or Phase 2 study) mitigating risk. While there are still uncertainties associated with this, they are much smaller than the risks associated with starting a project from scratch. With a recent decline in private equity funding for biotech and weak biotech IPO market, prices for these smaller companies are on the decline.
Right now I think Pfizer is more of a drug acquisition company than they are a drug discovery company. According to a recent presentation by the head of global alliances at Novartis, of the major pharmaceutical companies Pfizer has by far the greatest proportion of its revenue derived from technology discovered elsewhere.
Two annoucements last week further point to Pfizer expanding this strategy. Pfizer announced a $100M, five year, collaboration with The Scripps Research Institute giving the drug giant the right to first refusal to license up to half of discoveries made at Scripps. Now, Scripps is the premier biomedical research facility in the world, so $20M per year is pretty cheap. In essence Pfizer is gaining access to cheap labor in the form of grad students and post-docs: it's sort of like offshoring, really.
Also last week Pfizer announced it was converting an unused building at its La Jolla research campus into a "biotech incubator", and will provide $10M per year to help get nascent companies off the ground. Presumably this will also help Pfizer to the fruits of their discoveries.
I think these two events clearly indicate an accelerating shift in focus for Pfizer that combines the financial and developmental resources of a pharmaceutical giant with nimbler and more innovative biotech companies. In essence Pfizer is postioning itself to act as a dominant consumer in a free market of biotech ideas.
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News that Pfizer (PFE) is halting its clinical Phase 3 study of Torcetrapib comes at a bad time, though bad news is rarely well-timed, for the company. Pfizer had hoped this drug would replace top-selling Lipitor, which could come off patent as early as 2010.
So, while avoiding any predictions that Pfizer will be trading lower Monday morning---which would be more a statement of fact than a prediction---I think Pfizer will be a good buy once the dust settles from this.
I've written before that I think the best way for drug companies to grow is by acquisition of technology from smaller, more dynamic companies. Size and bureaucracy have a way of inhibiting innovation.
From an investment strategy point of view, bigger companies are able to cherry-pick technology after it has been taken to a certain point (for example Phase 1 or Phase 2 study) mitigating risk. While there are still uncertainties associated with this, they are much smaller than the risks associated with starting a project from scratch. With a recent decline in private equity funding for biotech and weak biotech IPO market, prices for these smaller companies are on the decline.
Right now I think Pfizer is more of a drug acquisition company than they are a drug discovery company. According to a recent presentation by the head of global alliances at Novartis, of the major pharmaceutical companies Pfizer has by far the greatest proportion of its revenue derived from technology discovered elsewhere.
Two annoucements last week further point to Pfizer expanding this strategy. Pfizer announced a $100M, five year, collaboration with The Scripps Research Institute giving the drug giant the right to first refusal to license up to half of discoveries made at Scripps. Now, Scripps is the premier biomedical research facility in the world, so $20M per year is pretty cheap. In essence Pfizer is gaining access to cheap labor in the form of grad students and post-docs: it's sort of like offshoring, really.
Also last week Pfizer announced it was converting an unused building at its La Jolla research campus into a "biotech incubator", and will provide $10M per year to help get nascent companies off the ground. Presumably this will also help Pfizer to the fruits of their discoveries.
I think these two events clearly indicate an accelerating shift in focus for Pfizer that combines the financial and developmental resources of a pharmaceutical giant with nimbler and more innovative biotech companies. In essence Pfizer is postioning itself to act as a dominant consumer in a free market of biotech ideas.
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posted by Nico at
9:13 PM
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