2009 Big Pharma DOTY Nominee: Pfizer/Wyeth

It's time for the IN VIVO Blog's Second Annual Deal of the Year! competition. This year we're presenting awards in three categories--that's 300% more fake prizes than last year!--to highlight the most interesting and creative deal making solutions of the year. The categories are: Big Pharma Deal of the Year, M&A/Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (roughly half a dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.
This, surely, is The One. Whether or not you agree with Jeff Kindler's strategy for Pfizer (plenty don't), the $68 billion Wyeth acquisition, announced on January 26, has to be the most obvious candidate for Big Pharma Deal of the Year.

Are we saying it's 2009's "most interesting and creative" deal making solution, in line with what these illustrious award nominations are supposedly rooting out? Creative, no. It was another, even-more-mega, mega-merger that cynics saw as a means to mitigate the impact of Lipitor's genericization. Solution? Too early to say. But what the deal perhaps lacked in creativity--at least, at first sight--it surely made up for in interest.

For this is the deal that marked the beginning of a new kind of Big Pharma. For better or for worse, it turns Pfizer from an R&D-focused, high-risk, high-reward company into a diversified, industrialized group whose investment appeal is less about growth than about dividends, efficiency and value.

In its scale, the transaction symbolized the scope of Pfizer's--and other Big Pharma's--challenges, and in its content, it captured--in one fell swoop--many of the individual strategies drug firms are pursuing in order to escape from their R&D productivity problems. The deal furnished Pfizer with biologicals--supposedly faster-to-develop, easier-to-protect than small molecules--and thus with a chance to compete in the much-vaunted biosimilars opportunity, too, which management is beginning to talk up. The deal also provided vaccines, once a dowdy corner of health care but now Big Pharmas' ticket to good government relations, emerging market access and--exemplified by the ongoing swine 'flu outbreak--pumped up revenues.

And Wyeth brought to Pfizer a significant consumer business (not as big as the one Pfizer sold to J&J only a few years ago, but still ...) thereby offering access to non-Western markets, and, as importantly, to a new, lower-cost range of products.

And that's the point: Pfizer has decided its only way to survive is by providing a far wider range of medicines, at a range of price-points, across a range of markets. What it sorely lacks in innovative R&D output it will make up in breadth-of-offering, economies of scale and lower costs. As a senior Pfizer source was quoted in this IN VIVO feature:

"The way to deliver earnings growth isn't what we did in the go-go days of the '90s, but rather, it's emulating what the consumer package goods companies, Coke, Pepsi, Procter & Gamble did. There was never great top-line growth there--3-8%. But if you grow your expense line at a much slower rate you can still achieve double-digit bottom-line growth--a predictable 10-13%."

All that makes sense, surely, in a payer-constrained world with increasing generics and where most future growth is predicted to come from generic- and OTC-dominated developing markets like China.

Maybe. But, you ask, isn't Pfizer chickening out of blue-sky R&D? If it's not the end of the story it's certainly the end of the chapter on blockbuster, primary care drugs. Pfizer isn't giving up internal R&D, but it's definitely demoting it, betting that purchases can fill the gaps. And it's betting, too, that it can create the kind of small-unit creativity within its far-larger walls that GlaxoSmithKline has so vocally advocated.

The deal's critics say Pfizer should have gotten smaller, not larger. It should have followed Bristol. Pfizer considered shrinking, and spin-offs, according to strategy SVP Bill Ringo. Too complicated and risky, he and his colleagues concluded.

But far from choosing the easy option, it's arguable that buying Wyeth was equally, if not more, risky. Even following the R&D re-org, headcount cuts and a 35% reduction in global R&D square-footage, questions remain. The Big Pharma-turned-GE hasn't yet proven that it has a new, sustainable lease of life, far from. But that it's daring to try--well, that deserves a gold-plated* DOTY award, surely? (*not really)

Supreme Court Shoots Down Wyeth Pre-Emption Argument

After more than a year of anxiety, the U.S. Supreme Court this morning voted 6-to-3 to allow product-liability lawsuits to proceed against drugmakers in state courts (here is the ruling). At issue was the notion of preemption, which says that FDA approval of a drug supercedes state law claims challenging safety, efficacy or labeling.

The decision upheld a ruling by the Vermont Supreme Court that sided with Diana Levine, 63, a musician who lost part of her arm after a hospital administered a Wyeth drug improperly. She developed gangrene, sued Wyeth and was awarded $6 million after arguing the drugmaker wasn't prevented from adding or strengthening the warning on the label, even though the FDA rejected a proposed change.

"Oh, my God. I'm so, so happy. I can't believe this phone call," she tells the Associated Press. "I've been waiting for so long, and I had no idea of what the chances were. I'm just ecstatic. I'm going to have to sit down."

The ruling is a victory for consumers and many others - including 47 state attorneys general; former FDA commissioners; AARP; editors of the New England Journal of Medicine and the Journal of the American Medical Association, as well as various unions and tort law professors - who filed briefs last summer in support of Levine. They insisted that preemption would harm patients, making it more difficult, if not impossible, to seek legal recourse when they are allegedly harmed by a prescription drug.

Once a drug is marketed to thousands of people, we learn of things that we never knew in the clinical trials for that drug - problems that arise over the year as doctors prescribe and patients take the drug day in and day out," says Brian Wolfman, the director of the Public Citizen Litigation Group, who is also one of Levine's attorneys. "For all these reasons, legal immunity for drug manufacturers - as called for by the drug companies and the Bush administration - would have been a huge mistake."

The decision is a blow to the pharmaceutical industry. Drugmakers and their supporters maintained that FDA approval of a drug supercedes state law claims challenging safety, efficacy or labeling. Drugmakers and the FDA - with the backing of the Bush administration and various business groups - had insisted that preemption existed by maintaining the agency's action are the final word on safety and effectiveness.

But the Supremes disagreed. "Wyeth's argument that requiring it to comply with a state-law duty to provide a stronger warning would interfere with Congress' purpose of entrusting an agency with drug-labeling decisions is meritless, because it relis on an untenable interpretation of congressional intent and an overbroad view of an agency's power to preempt state law," the majority ruled.

In advancing the argument that the FDA must be presumed to have established a specific labeling standard that leaves no room for different state-law judgments, Wyeth relies not on any statement by Congress but on the preamble to a 2006 FDA regulation declaring that state law failure-to-warn claims threaten the FDA’s statutorily prescribed role.

Although an agency regulation with the force of law can preempt conflicting state requirements, this case involves no such regulation but merely an agency’s assertion that state law is an obstacle to achieving its statutory objectives. Where, as here, Congress has not authorized a federal agency to pre-empt state law directly, the weight this Court accords the agency’s explanation of state law’s impact on the federal scheme depends on its thoroughness, consistency,and persuasiveness.

Under this standard, the FDA’s 2006 preamble does not merit deference: It is inherently suspect in light of the FDA’s failure to offer interested parties notice or opportunity for comment on the preemption question; it is at odds with the available evidence of Congress’ purposes; and it reverses the FDA’s own longstanding position that state law is a complementary form of drug regulation without providing a reasoned explanation."

For its part, Wyeth was unbowed. "We believed that Federal law prohibited the company from revising its product label as the Vermont court required, and we regret that the Supreme Court disagreed. The medical and scientific experts at FDA are in the best position to weigh the risks and benefits of a medicine and to assess how those risks and benefits should be described in the product's label," the drugmaker's outside attorney, Burt Rein, said in a statement.

Justice Clarence Thomas agreed with the outcome, but didn't join the majority opinion written by Justice John Paul Stevens. Justice Samuel Alito wrote a dissent that was joined by Chief Justice John Roberts and Justice Antonin Scalia. "This case illustrates that tragic facts make bad law," Alito wrote. "The court holds that a state tort jury, rather than the Food and Drug Administration, is ultimately responsible for regulating warning labels for prescription drugs."

Check our coverage in The Pink Sheet Daily for still more info.

image from flickr user dbking used under a creative commons license.

The IN VIVO Blog Podcast: Thoughts on Pfizer-Wyeth

Why is Pfizer buying Wyeth? Will the Big Pharma of the future look like General Electric? Is there a good reason to relocate to Indiana? Answers to all these questions and more on this week's installment of The IN VIVO Blog Podcast.

Just click the image below to get started. Oh, and we're on iTunes now as well, so please subscribe to that (it's free).

While You Were Throwing Snowballs

At least on the East Coast, March has apparently lived up to its reputation and come in like a large cat. Here at IVB we're not so much concerned with the way it begins and ends, but instead would rather focus on the Madness in between.

Speaking of madness: while you were making snowmen ...

• That Sebelius/HHS announcement that made so much news this weekend? Ramsey Baghdadi had the scoop for the IN VIVO Blog.
  
• Art imitates life imitating comedy imitating sad state of the world: Pharma Giles at PharmaGossip.
  
• Wyeth's Prevenar approved in Russia.
• Roche scheme to enhance Pulmozyme compliance probably needed a little more thought, don'cha think? The company has now been censured in the UK for giving out Toys R Us gift certificates to children on the drug, reports the FT.
  
• Actelion's application to expand Tracleer's use into PAH patients with less severe disease greeted with a complete response letter from FDA. FDA says Actelion's REMS first needs to be finalized and approved before it can finish its review of the sNDA.
• Have higher regulatory hurdles affected investment in early-stage Type-2 diabetes companies? VCs weigh in at The Pink Sheet.
  
• Offenses across the NFC East are breathing easier. Sadly, Brian Dawkins, no longer an Eagle, signs 5-year deal with Denver Broncos.