Pfizer is like Woody Allen’s famous shark. It has to keep moving or it will die. And the drug company seems unable to keep moving by any means other than acquisitions.
Its all-time best-selling drug, Lipitor, was an acquisition. But some of Pfizer’s acquisitions have also been huge failures. It acquired Exubera, a multi-billion dollar failure in inhaled insulin. Exubera is not an exception. Pfizer has managed to destroy shareholder value in more than one acquisition. This prompts two questions: why does Pfizer persist in its pursuit of acquisitions, including its pursuit of AstraZeneca, and why does Pfizer fail to make the most of the acquisitions it completes?
Pfizer has to do acquisitions because it has trouble developing its own drugs. For the money it spends on research and development, its output of marketable drugs is low. Pfizer can’t explicitly admit that, but it has implicitly admitted it by closing research and development facilities and shifting money to other uses, such as buying back its own stock from shareholders.
Unfortunately for Pfizer, drug companies also new need drugs in order to keep moving. Old drugs, like Lipitor, go off patent and face competition from generic versions. When they do, drug companies either slash their prices to match generic pricing or watch market share quickly drop to nearly zero. If you have trouble developing your own new drugs, you have to buy someone else’s.
Unfortunately, when Pfizer does acquisitions, the investment bankers who put together the deal are more likely to do well than Pfizer itself. The Lipitor deal was a success because Pfizer didn’t have to finish developing it. The drug’s developer, Warner-Lambert, did the important development work and then teamed up with Pfizer for the marketing. Pfizer was as strong in marketing as it is weak in development. Nobody had more salespeople calling on physicians to push sales – Pfizer’s famous “feet on the street”. The company then acquired Warner-Lambert to own all the revenue flowing from Lipitor.
Culture shock
The Exubera acquisition is more typical of Pfizer. Its purchases rarely pay off as hoped for because Pfizer cannot help imposing its culture on the new acquisition. Pfizer is a huge company with, in its view, the most experienced, best people. They show workers in the acquired company how things are done in the big-time. Unfortunately, Pfizer’s culture is not a culture in which scientists and clinicians thrive as much as the salespeople, accountants (like the present CEO) and attorneys (the prior CEO).
Pfizer is not alone in this sort of big company arrogance, but the cost of arrogance is especially high in the drug development business. Drug development doesn’t rely on or even benefit from scale. Development is not manufacturing and it’s not marketing, where scale matters. Drug development is driven by scientific and clinical innovation, expertise and insight. People with those qualities are found in companies of all sizes because attracting and retaining them is a matter of company culture more than company size.
Many scientific and clinical innovators find Pfizer’s culture uninviting. It is a good thing the development of Lipitor was done before Pfizer acquired Warner-Lambert because within a few years after the acquisition, many of the scientists responsible for Lipitor had left Pfizer.
When you have trouble developing new drugs internally and have trouble keeping the innovative scientists you bring in via acquisitions, you have to keep on buying up new companies. You are like the person who has to be married and is looking for their fourth spouse.
So Pfizer is courting AstraZeneca. If it succeeds, the acquisition is unlikely to produce another Lipitor-like success. AstraZeneca’s potential cancer treating “hit drugs” are not at the stage Lipitor was when Pfizer got its hands on it. They need more clinical work and they are riskier. Pfizer has had no great success in this field, so the success of the new drugs it may bring on board will depend on the skills of AstraZeneca’s scientists and clinical affairs team.
If Pfizer is true to form, its culture will alienate the very people it needs to maximise the chances of getting AstraZeneca’s candidate drugs through the risks of approval and adoption.
The result is unlikely to be positive for AstraZeneca shareholders who get Pfizer stock in an acquisition. Pfizer shareholders may see a short-term benefit, driven by the usual cost-cutting from closing research facilities, a tax manoeuvre using Pfizer’s non-US cash, and a change of tax domicile (it’s not entirely useless to have an accountant in the CEO position). Long-term, it is likely to be the same old story for Pfizer shareholders – an acquisition that started with grand proclamations and ended with write-offs.
And what about cancer patients? They have a stake in the action. They need new drug candidates to be in the hands of the companies most likely to succeed in developing the rare candidates that actually work. Pfizer is not one of those companies. AstraZeneca might be. If AstraZeneca’s cancer candidates end up under Pfizer’s thumb, cancer patients are less likely to be treated by any of them.