Science left behind in Pfizer-AstraZeneca saga
pharmafile | May 18, 2014 | News story | Medical Communications, Research and Development, Sales and Marketing | AstraZeneca, MPs, Pfizer, Wellcome Trust, science
With all the posturing, debates and endless comment on the commercial aspects of a $106 billion deal between Pfizer and AstraZeneca, the issue of scientific research has been forgotten.
A number of large British science groups – including the Wellcome Trust and others – have called the potential takeover a ‘concern’ for medical research and development in the UK, as AstraZeneca’s R&D base would be cut under a Pfizer regime.
But in many ways this is already happening, and the reasons for the mega merger are aimed at shoring up the lack of medical innovation coming from both companies, rather than trying to help it grow.
AZ has had a turbulent few years. Since 2010 it has faced large patent expiries on a number of key blockbusters, revenue of which has not been replaced by a pipeline of new drugs.
This is not a unique scenario for the industry, but AZ has suffered worse than most in the world of big pharma as it has also seen a slew of late-stage failures, including potential medicines for prostate cancer, depression and arthritis, which has seen the firm having to write off hundreds of millions of pounds in lost trials.
It has over the past few weeks been touting new drugs in its pipeline and signed a series of new research deals with UK charities and academia, but these are all for early-stage developments, and are at a high risk of not producing any revenue for years or even decades.
Late-stage promise?
AZ has however started three late-stage trials this year alone for treatments in asthma, rheumatoid arthritis and Alzheimer’s disease. But all three, should they succeed and get to market, are not guaranteed high earners.
Asthma and arthritis are already highly saturated markets with major blockbusters already pulling in billions, and much competition is already on the horizon.
With Alzheimer’s, AZ is carrying a high risk of failure in Phase III as there has not been a new medicine for the condition in ten years, and the late-stage pipeline of many firms are littered with failed attempts to try and break this duck.
Even if it should be approved, AZ can expect low revenue from any new Alzheimer’s drug as it will most likely not be a step-change in treatment, something that is desperately needed in the field.
The most promising late-stage treatment for AZ is olaparib; a potential first-in-class oral poly ADP ribose polymerase (PARP) inhibitor for patients with BRCA mutated ovarian cancer.
The drug has had a difficult journey however, and AZ nearly ditched the drug completely in 2011 after it performed poorly in several trials.
The treatment, which was originally developed by Targacept, may now have had some reprieve, but it will come into a market riddled by previous failures, and competition in the form of Roche’s Avastin (bevacizumab).
It is expected to reach peak annual sales of around $1.5 billion should it reach the market, but much still stands in the way of a successful launch.
Such is the difficulty of this disease that Roche has had its troubles in getting Avastin’s licence extended to treat ovarian cancer, and is still to convince the FDA of its worth, with only the EMA currently having approved the drug for this type of cancer.
AZ may be touting its promise, but these drugs are not set to bring in quickly the sort of multi-billion dollar revenue the firm needs to truly rebuff Pfizer.
Paying the price
Patent expiries are expected, but there has to be something in the pipeline to try and help offset these losses, and it simply didn’t happen for AZ after its first wave of generic erosion five years’ ago.
It was these failures that led to the departure of its former chief executive David Brennan in 2012, and the ascension of former Roche man Pascal Soriot to become the firm’s new leader.
By all accounts Soriot has done a good job of keeping his new ship afloat, and its view in the eyes of shareholders and the wider world has certainly increased since his rise to power.
But this has not stopped Pfizer smelling an opportunity, and AZ is still sufficiently unsure of itself for a takeover bid to be seriously considered by shareholders.
Public opinion in the UK, however, appears set against such a bid, and concerns have been continually raised that having Pfizer buy AstraZeneca would see scientists cut from the UK and less tax being paid to the treasury.
But AZ is already creating this scenario with no help from Pfizer as failure after failure has hit the firm in recent years.
It also emerged during Soriot’s hearing with MPs last week that the company paid no corporation tax in 2013, and the chief executive could not answer when it would begin paying it again (or indeed why it hadn’t paid).
The company has also dramatically downsized its research presence in the UK in recent years. In 2011 the firm axed its Charnwood R&D facility in Loughborough, UK, with the loss of around 1,000 jobs.
When the downsizing occurred, AZ said that activity at its second British R&D site at Alderley Park in Macclesfield would be ‘stepped up’ as part of the restructure, with its workforce expanded.
This however proved not to last as in March this year, AZ exited the site and poured £330 million into a move to Cambridge – a move that could see the loss of up to 600 jobs.
Tax, politics and the return of the mega merger
The issues surrounding the bid have less to do with science than with politics, business and share prices.
At time of press another bid has not been offered, although many analysts feel it will most likely be upped with more favourable terms, and common consensus sees AZ shareholders eventually allowing a deal to pass that benefits them the most.
The acquisition would see Pfizer domiciled in the UK, primarily for tax reasons, although this will most likely not mean an influx of Pfizer employees to Britain, but rather see Pfizer set its HQ here, with little else.
Pfizer currently brings in around $54 billion in revenue a year, and pays a 27% tax rate on this, given that it is currently under US tax laws that are more onerous than the ones in the UK.
But by moving to the UK, this will cut the rate down to around 20% – helping save the firm an estimated $800 million a year.
Mega mergers were thought to be a thing of the past, with most companies now opting to make smaller acquisitions of less risky biotech firms with a single or several promising drugs in the pipeline.
Pfizer is going against the grain although historically, it certainly has form when it comes to buying up major companies.
But the reason is clear: science has not delivered for both firms, and so new revenue creators are required.
For Pfizer, the panic set in long before it started losing patents on its once $13 billion a year stating Lipitor (atorvastatin) in 2011, a situation that decimated the drug’s sales, as it now only makes around $2 billion a year.
Pfizer had tried a number of projects to help re-establish this sort of revenue from a follow-up to Lipitor, but these attempts failed, and nothing has since been created to duplicate its earnings.
Now its biggest treatment is its ageing pain drug Lyrica (pregabalin), but this only managed to bring in $4.6 billion last year; a far cry from the sales of Lipitor at its peak.
To try and offset some of its losses, Pfizer has been cutting staff across the globe – including around 2,000 R&D staff in the UK after it exited from Sandwich, Kent, in 2011.
These cuts have only gone so far, and analysts believe it’s a ‘quick win’ for the firm should it domicile in the UK and save $800 million a year by taking advantage of its low tax rate.
Weakening powerhouse
The US giant still remains the largest pharmaceutical firm in the world – in terms of drug revenue – but this top spot is set to be claimed by Novartis and Sanofi as the decade wears on, according to analysts at EvaluatePharma, and Pfizer will be relegated to third on the big pharma list by 2016.
Its share price has fluctuated throughout the year, beginning in January at about $30.50 a share jumping to a high of nearly $33 in March, but hit a new low for 2014 at the end of May with $29 a share, coming after AZ rebuffed both of the company’s bids.
Only by joining with AstraZeneca will Pfizer be able to maintain its position as the biggest pharma firm in the world, and would also increase its share price.
Whilst Sanofi and Novartis have not got single big blockbusters on the horizon, they have both steadily been racking up the number of New Molecular Entities (NMEs) approved by the FDA.
Data from EvaluatePharma show that between 2008 and 2013, Sanofi won six new drug approvals whilst Novartis, second on the list behind GSK, had 13 NMEs.
Pfizer managed six approvals, in-line with Sanofi but far short of Novartis and nowhere near GSK’s impressive 20 approvals. AstraZeneca, meanwhile, languishes joint bottom of the list, with just two approvals in the same time period.
The failure to innovate
Whilst Pfizer has a reasonably strong pipeline which is increasingly focussing on prescription medicines – and notably cancer – AZ has a relatively weak later-stage pipeline, which also is heavily invested in cancer.
Any deal would not likely create a scientific powerhouse, and Pfizer has already admitted that there be ‘fewer scientists’ should a deal go through.
The focus on oncology is also a difficult one for future growth: biosimilars are already cropping up to challenge biologics, such as Roche’s breast cancer drug Herceptin (trastuzumab), meaning they can no longer go unchallenged by generic firms.
Cancer drugs are also increasingly focussing on sub-types of cancers, specifically on certain mutations, which only occur in a small percentage of patients.
This reduces the population and treatment size, meaning revenues will struggle to grow past $1 – $4 billion for most new oncology products.
And in order to get even this sort of money, firms are having to ratchet up the prices to tens of thousands of dollars per drug, per patient, but are now coming under increasing pressure from healthcare providers and insurers who do not want to stump the bill.
So what is the cause of this new mega merger? It simply boils down to a failure to innovate in the laboratory, so it has forced the hands of the boardroom to innovative commercially. This may save and strengthen both companies, but it is doing little to save or improve the lives of patients.
Ben Adams
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