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PFIZER

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Government Trumps Pfizer Deal

Termination of business contract or partnership

Since its announcement last year, a US$160 billion Pfizer-Allergan merger has been under an ongoing discussion, with great synergies and tax savings expected if the deal was to be finalized, (we wrote about it in our ‘Pfizer-Allergan Deal – What’s in Store for Allergan’ article in February 2016).

However, discussions came to an abrupt end, when the merger was called off on April 6th, 2016 in the wake of changes in tax rules by the US government to check inversions. New rules disregard last three years’ (at the time of deal) acquisitions by a foreign company in the USA in determining its market value. It is a general feeling that the three-year rule was introduced primarily to stop Pfizer-Allergan deal. Since its announcement, the deal was a talking point in political debates with some presidential hopefuls taking an open stance against it.

To secure maximum tax benefits of inversion deal, Pfizer shareholders were required to own 50-60% of the merged entity. Allergan’s market capitalization stood at US$120 billion (against Pfizer’s US$200), owing to three deals, i.e. Allergan-Actavis merger (US$66 billion), Forest Laboratories acquisition (US$25 billion) and Warner Chilcott purchase (US$5 billion), struck in last three years, thereby giving Pfizer shareholders more than 50% of the combined entity. However, this will not be the case now due to drastic reduction in Allergan’s market value as a result of three-year window provision. This also means that both the companies will have to go back to the drawing board.

For Pfizer, this means the need for an increased focus on management of its vast portfolio of drugs (a mix of patent and off-patent products) with an intent to further improve profitability. While Pfizer’s patented drugs command higher prices, the off-patent ones are subject to price decline thereby impacting the company’s profitability. After the announcement of Pfizer-Allergan deal, there were speculations about sale/spin-off of Pfizer’s off-patented portfolio. However, with revenue loss due to the broken deal, the plan (if still any) to sell off-patented business is likely to be put in freezer for some time to come. This could also mean more efforts on research and development front, and being inherently a research driven company, Pfizer has some potentially lucrative drugs in pipeline (including cholesterol lowering and cancer drugs).

For Allergan, the broken deal means looking for alternative ways to strengthen its position outside the USA. The company can take inorganic route to achieve this. No headway was made towards operations restructuring of the merged entity. Therefore, in all likelihood, the research and development assets of Allergan will remain intact, one positive outcome for the company out of the broken deal, as it has some good candidates in the field of ophthalmology, urology, and women’s health. With sale of its generic business to Israeli rival Teva Pharmaceuticals in July 2015, Allergan showed the intent to focus on patented products, therefore the company will have to look for means to raise its R&D budget.

The broken Pfizer-Allergan deal will remain in discussion in coming days from the point of view of missed opportunities for both Pfizer and Allergan, as well as for the political angle involved. Even if the decision was politically motivated, it may have put moratorium on inversion as a strategy for the time being, and it would be interesting to track moves not only in the pharmaceutical space but in other industries as well, following the new regulatory regime.

by EOS Intelligence EOS Intelligence No Comments

Pfizer-Allergan Deal – What’s in Store for Allergan

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In November 2015, Pfizer and Allergan announced a US$160 billion merger deal. Once finalized, the Pfizer-Allergan deal would follow three large mergers/acquisitions concluded by Pfizer in the last 15 years. Though relocation to Ireland to save higher corporate tax in USA is apparently the main purpose of this merger, it is expected to create a pharmaceutical powerhouse with more than US$60 billion in annual revenue. In the light of competitive advantage this deal is anticipated to yield, it becomes imperative to look at Pfizer’s evolution since its first mega deal in 2000.

Pfizer acquired US-based Warner-Lambert in a US$110 billion deal in 2000. With this acquisition, Pfizer gained ownership of blockbuster anti-cholesterol drug Lipitor, besides some popular consumer health brands, such as Listerine. Lambert deal was shortly followed by US$60 billion purchase of US-based Pharmacia in 2003. The deal, while catapulting Pfizer’s revenue by more than US$12 billion, allowed it to gain control of successful brands, such as Celebrex (inflammation) and Xalatan (glaucoma), along with R&D pipeline of cancer drugs and a specialist-focused sales force of Pharmacia.

Pfizer waited six years for its next acquisition, and bought US-based Wyeth for US$68 billion in 2009. This deal came amid imminent expiry of Pfizer’s 14 patents through 2014, including its best-selling drug Lipitor in 2011. Pfizer looked to benefit from Wyeth’s leadership position in vaccines, nutritionals, and biologics, including Prevnar, the first pneumococcal vaccine for infants. Wyeth’s portfolio potential had indeed been locked, as evident in the net 30%-90% increase in sales of its key brands between 2009 and 2014, post-acquisition.

These three deals helped Pfizer in becoming a US$50 billion company with a diverse product portfolio. However, it came with a challenge of ensuring operational efficiency and leveraging synergies with acquired companies. This was achieved through a range of adjustments, including lay-offs to eliminate overlaps and to consolidate various functions. Pfizer deals were severe on the employees of acquired companies, with more than 90,000 jobs eliminated (which may have included those lost to attrition) between 2000 and 2014. At the time of each deal, there were apprehensions regarding the future of research and development in Pfizer. Though the company managed to maintain its R&D budget at about 16% of revenues, several sites (including six from Wyeth and two from Pharmacia) were closed post acquisitions. It was soon reflected in the company’s product pipe line, with only 17 applications filed for new product approval between 2007 and 2014, in contrast to 43 during 2000-2006.

To sum up Pfizer’s strategy, the company acquired rivals with blockbuster brands to boost its topline, and to benefit from pooling of resources. The strategy worked on most counts, except for Celebrex where the sales failed to take off partially due to pull-out (from market) of a rival drug (Merck’s Vioxx) in 2004 owing to safety reasons. Notwithstanding the criticism for massive lay-offs, Pfizer managed to create a lean organization, thereby improving its revenue per employee.

Pfizer Performance Timeline (2000-2014)

Pfizer’s next acquisition target, Allergan, came in to existence following Ireland-based Actavis’ acquisition of USA-based Allergan Inc. in March 2015, post which the combined entity was renamed Allergan. Allergan then sold its generic drugs business to Israeli rival Teva Pharmaceuticals in July 2015.

As Pfizer’s deal with Allergan looks in sight, there are speculations regarding future shape of the combined entity in terms of employee strength, sales focus, and future product pipeline (i.e. R&D).

Pfizer-Allergan deal involves trimming of sales and administration expenses by more than US$1.0 billion. This is likely to be achieved (mostly) in North America where Allergan operations are concentrated.

Cuts worth more than US$600 million are expected in R&D. With Teva deal, Allergan showed intent to focus on branded proprietary drugs, and Pfizer is also a predominantly green-field research organization. Therefore it is not clear yet, which product programs will face the ax due to little overlap in research focus of two companies.

Research Focus of Allergan and Pfizer

As Allergan declared end to lay-offs in June 2015, it was expected that most of the Actavis acquisition-related restructuring activity was over by the time Pfizer-Allergan deal was announced. This means the cost savings linked with Pfizer-Allergan merger will result from the existing operations (as of November 2015) of the two companies.

EOS Perspective

Based on precedence of Pfizer takeovers, there is a likelihood that Allergan might bear most of the brunt of cost cutting measures. However, at the outset, a simple merger is not likely to impact either efficiency or earnings (from R&D perspective) of the combined entity due to nearly identical revenue per employee (as of 2014) for both the companies, and Allergan’s significantly lower R&D expenditure (8% of its revenue vs. Pfizer’s 16%).

Cost cutting is likely to be undertaken with an eye on revenue and profitability in mid to long term. From Allergan’s perspective, we anticipate this to be achieved through the following:

  • Focus on products in the pipeline with good growth prospects: Allergan’s Rapastinel (anti-depressant) and Vraylar (schizophrenia) are in this category; another option for Pfizer-Allergan is to focus on drugs that are in advanced stages of trials i.e. Phase III and IV

  • Focus on high revenue earning products: While most Pfizer products (including those off-patented in recent years) generate revenues in the range of US$200 million to US$5 billion, Allergan’s portfolio is still underdeveloped (due to limited global exposure) except for few products from central nervous system (CNS), gastroenterology, and women’s health segments

Possible Restructuring Approach for Pfizer-Allergan

At present, only mere speculations can be offered regarding the future shape of the combined entity, as no concrete steps have been announced. It will be interesting to track the decisions taken by Pfizer-Allergan in the coming months to achieve targeted cost savings.

by EOS Intelligence EOS Intelligence No Comments

Will Pharma Tweet Louder? 6 Rules of Doing it Right on Social Media

Initially considered to be exclusively a tool for common people to connect with friends and share their private pictures, social media platforms have now gained the status of a potent communication channel eagerly used by companies across the world. While the expansion of social media is influencing the way businesses are conducted today, pharma and healthcare industry has been somewhat slow and reluctant to use it to its fullest potential.

By 2012, Facebook user base crossed 1 billion mark, increasing by 200 times since 2005, while Twitter recorded tremendous growth, reporting 200 million active users sharing 400 million tweets per day. While some industries such as consumer goods, retail, and hospitality have been benefitting from engaging with their customers through a range of social media platforms, other sectors, including pharma and healthcare, have been slow to join the ‘social crowd’.

Points of concern

There is a reason why healthcare-related sectors were late on the social media map. Creating an open platform for communication on health and drugs aspects, raises a range of concerns: the FDA regulations, patient confidentiality, cyber security, unavoidable off-label use discussions, uncontrolled negative comments, and risks of providing wrong medical advice that could lead to lawsuits. The FDA in particular, plays an important role here, through its Division of Drug Marketing, Advertising and Communications (DDMAC), which lays out the rules of the content that can and cannot be communicated, what content must be included and the manner in which the communication must occur. The fears associated with social media activity monitoring by the FDA, typically originate from three problems:

  • Lack of clarity and formal guidelines – in 2011, the FDA published draft guidelines, and it is yet to develop definitive rules on social media policy. The FDA is acting slow, and there is no clarity on dos and don’ts for social media engagement, yet the authority regularly scans the social space to monitor risky communication, while pharma companies find the rules of the game ambiguous

  • User-initiated off-label use discussions – a common issue in pharma social media platforms is user questions and discussions on off-label use of drugs, i.e. using a drug in a different way than described in the approved drug label or leaflet. This is considered unsolicited content and companies must respond and correct such a content occurring in public forum as these discussions might encourage dangerous experiments with drugs by patients or might be confused with recommended and approved use of a drug

  • Adverse event reporting obligation – the FDA obliged pharma companies to immediately report any adverse drug effect or reaction they learn about. Social media give platform for large numbers of patients to share their experience with adverse drugs effects, and the companies are afraid they will have to report it, which may cause investigations, bad press, and might lead drug being banned from sale

Similar fears are faced by non-US pharma companies too, as the FDA’s local counterpart authorities introduce similar regulations on communication via social media, which at times can be even stricter than the American ones.

Game worth the candle

Ignoring the risks by pharma companies can unfold a range of undesirable scenarios, a fact that has kept many drug makers hesitant of engaging in social media for quite some time. But this does not mean that pharma and healthcare organizations are still not present in social media at all. To the contrary, pharma companies, healthcare providers, device manufacturers, and health insurers have started to listen and engage with users through social platforms, though many of them still do it cautiously and have still not been able to unlock the social media’s full potential. These players have started to understand that with careful moves, the benefits will outweigh the risks:

  • generate engagement and discussion around health issues, which contributes to the positive reputation and brand image, and obviously – increase sales,

  • get quick, cheap, first-hand information on drugs’ effects on a large scale, which brings valuable insights that are not available from regular clinical trials whose scale is always smaller,

  • gather information invaluable in building marketing strategies, including pointers on price perceptions, drug availability as well as patients’ opinions about competitors’ drugs.

Who’s doing it?

Though it was estimated that in 2011, 90% of the pharmaceutical industry was still inactive on social media, currently, this has changed (though today’s participation share is unknown). Several pharma-sponsored communities are now active across Facebook, Twitter, YouTube, Google Plus, on one or multiple platforms, with a differing level of interactivity and different weight being put on inbound versus outbound marketing. Some of the examples include:

  • Roche’s Accu-Check Diabetes Link, a diabetes-support community with information, discussions, and blogs

  • GSK’s Alli Circles well-being, weight loss, and health community

  • Novartis’ CV Voice for cystic fibrosis patients and Chronic Myelogenous Leukemia own community-based site CML Earth

  • Pfizer’s community ‘getold.com’ targeting the expanding elderly group of the American population

  • Sanofi US’ Diabetes support community

  • Soon-to-be-launched Boehringer Ingelheim’s Facebook-based game, where players create and operate their own pharmaceutical firm, and discover imaginary medicines through virtual laboratory

Getting it right

It appears that the healthcare industry is finally attempting to catch up on the social media revolution in spite of a slow start. From primarily information dissemination, it is now moving towards real time engagement between physicians, patients, and other stakeholders. Soon, developing a social media policy will no longer be an option for pharma companies. But this should not be seen as a burden, but rather as an immense opportunity for the pharmaceutical companies to develop trust, build brand image, and impart health education. Drug makers that want to be successful on their social media path should consider 6 basic rules of online presence for pharma companies:

  1. Take your risks seriously – social media engagements, especially in pharma domain, always raise privacy, legal, and confidentiality concerns among the participants and monitoring bodies. Extra cautiousness in operating online communities is of utmost importance, including constant monitoring of the content being added by individual users and patients. Social platforms also pose risk of incorrect drug information or unfair accusations that might damage your image, but it can be flipped to an advantage, using the platform to quickly clarify and avert unwanted comments, provided that you have a dedicated, competent staff handling your social media

  2. Control your speakers – given the high risks and ambiguity of formal guidelines, there is a need for internal policy or guideline book listing dos and don’ts for online communication, content approval process, crisis management practice, confidential information sharing policy for employees running social platforms on behalf of the company

  3. Know your target audience – the social media pharma-related content must stay relevant and target focused groups to have the right impact. Patients with a particular disease or ailment look for relevant, detailed information, and they typically already know quite a bit about the problem. Expertise must be shown along with dedication to creating high quality content, that is useful, new, and (ideally) entertaining

  4. Get the objective right – social media is not another advertising board. The primary aim of the social media presence is to generate engagement as well as share and manage knowledge by facilitating interaction and discussions. This must take precedence over advertising

  5. Be transparent – transparency is always appreciated by consumers and patients. The link with the company must be clear, users working for the company must disclose their affiliation, and negative comments, unless unjustified or vulgar, cannot be censored

  6. Understand that social media are not a lone island – social media activity and content must be aligned with overall marketing strategy and be used cohesively with all other marketing channels, ideally to complement each other. Social media cannot become a neglected child of the marketing department in a long run, it must be maintained actively and linked to other marketing efforts whenever possible (e.g. to disseminate important announcement teasers, generating traffic to blog entries, or provide interactive content as part of larger marketing campaign including traditional media)

Social media engagements by drug makers might seem only as a nice publicity stunt, but it is so much more than that. Pharma companies, as most players across many industries, finally started to realize that listening and engaging with conversation with the customer pays off in many aspects. Just as was the case in consumer goods or retail sectors, social media will continue to change the pharma industry on a large scale. Players who want to matter, should not allow themselves to stay behind, even considering the risks involved.

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