Employees of Pfizer and AstraZeneca were jarred on Easter Sunday morning with The Sunday Times story that Pfizer is mulling a takeover of AstraZeneca (AZ). For those
In all major mergers, there are good reasons given by the principals for the business case justifying such a move. However, my own experience teaches that such mergers have a debilitating impact on R&D, the engine of any biopharmaceutical company. Thus, it is interesting to speculate what might happen if such a takeover would occur.
In 2008, the year before Pfizer’s $68 billion purchase of Wyeth, Pfizer spent close to $8 billion and Wyeth $5 billion on R&D. In 2013, Pfizer spent $6.55 billion. Effectively, Pfizer eliminated 50% of what the individual organizations had spent five years earlier. This massive cut did not come purely from elimination of duplications and improved processes. Clearly, drastic cuts in personnel and closure of research sites had to occur to make this happen. In 2013, AZ Invested $4.82 billion in R&D, almost 19% of its pharmaceutical sales of $25.7 billion. Percentage-wise, Pfizer invested less in R&D with only 13.7% of its biopharmaceutical sales of $47.9 billion. It is likely that Pfizer will take a similar hard line on a new R&D organization should this acquisition occur. Thus, both organization can expect a major round of cost cutting.
Where might these occur? An investigation of AZ’s pipeline, particularly the early and mid-stage assets, could provide some answers. AZ has one of the most transparent pipelines in the industry with every compound, its disease indication/mechanism of action and development stage all listed on its website. The website is pretty current as it was last updated in January. Most interesting is AZ’s oncology pipeline with 24 compounds in phase 1/2 including a number of compounds in the exciting area of immuno-oncology, the hottest area of cancer research right now. There is some overlap in each pipeline and so some compounds will be discontinued. But, for the most part, these are assets that Pfizer will covet. The question in oncology will be where will the future work be carried out? Pfizer consolidated all of its oncology R&D in LaJolla, California back in 2007. It is unlikely that Pfizer would return to a situation where oncology research was split in multiple sites around the globe, particularly as this adds R&D costs. Thus, researchers in both companies will wonder about their future should such a merger happen.
The next major area of emphasis in AZ is in the respiratory disease area. Pfizer discontinued its R&D in respiratory diseases back in 2007, when it decided to work in fewer disease areas. However, two of AZ’s biggest products are for the treatment of asthma and COPD: Symbicort ($3.5 billion in sales in 2013) and Pulmicort ($867 million in 2013). Furthermore, AZ has a dozen early stage candidates in this general area. Suddenly, Pfizer could have a new franchise in respiratory diseases. Both companies, however, have efforts in inflammation/autoimmunity research. Again, this is an area ripe for consolidation with the prioritization of some programs and the discontinuation of others. It is unlikely that Pfizer would simultaneously progress five compounds for Lupus, five compounds for Crohn’s Disease, etc. Again, it would be expected that these research efforts would be centralized in one location further paring infrastructure costs.
As for other AZ areas of research, based on the pipeline, it appears CNS (which follows a largely outsourced model), infectious diseases, and cardiovascular can all be absorbed into existing Pfizer groups. Thus, the facilities where these groups exist could be eliminated in order to provide savings.
Clearly, all of the above is speculation. It is based on a high level analysis made on the assumption that, if such an takeover were to occur, cost savings would be demanded across the new company, including R&D. If such a deal were to be announced, the type of speculation offered here would be rampant in the R&D organizations of both companies. Given that it would be close to a year before the merger would be finalized and approved by regulatory authorities, such speculation will weigh down an R&D organization. In this type of an atmosphere, a lot less science gets discussed. Rather, one worries about whether they will have a role in the new company, whether they will have to move their family to a new site, whether they will be able to work on the same program, whether they will have the same boss, etc. It is not fun. For the sake of the scientists in both organizations, I hope that it doesn’t happen.
