Pfizer keeps rising as takeovers boost pharma
It was a week in which Pfizer stock soared amid another takeover. Donal Lynch looks at the state of play for the company and talked to its MD in Ireland Paul Reid.
If Paul Reid, Pfizer's smooth-talking MD in Ireland, is in a good mood, it might be because we meet on a day when the pharma behemoth's long-anticipated acquisition of Hospira, the world's leading provider of injectable drugs and infusion technologies, is over the line (and formally confirmed the day after we meet). Predictably, the company's stock surges after the announcement, with the consensus being that the merger will be very good indeed for both companies.
The deal goes some way towards exorcising the ghosts of the failed AstraZeneca takeover - that company fought off a $140bn bid in May last year - and it will bring real benefits to Pfizer. Cost savings will amount to $800m and the company can expand Hospira's drug sales beyond Europe and North America and into developing markets, where Pfizer does a lot of business. Hospira is also a leader in producing generic drugs which will be important to Pfizer in the coming decade when the expiration of patents on biologic therapies - drugs produced in living cells - are expected to lead to the loss of more than $100bn in annual sales across the industry. Reid says that, "the combination of our two companies has provided the opportunity to create a dedicated R&D organisation focused on developing a pipeline of new sterile injectable products, biosimilars and devices, as well as continuing to support the large base of Pfizer off-patent medicines across the globe".
The deal may also boost revenue but it's not quite as transformational as the AstraZeneca acquisition would have been, and there is a feeling among some that Pfizer is already too big to grow effectively. The deal has also fuelled already rampant speculation that Pfizer may soon - as early as 2017 even - split off into several companies, which might have a big impact on the Irish operation. Reid, as you might expect, is cagey on that subject. "That's pure speculation. As our CEO (Ian Read) would say, we make the best decisions for the business in terms of our capital allocation. We have numerous parts to our business and they all operate very successfully so I don't really see a reason for those to be split apart."
Revenue has fallen at Pfizer for the last number of years and Reid sketches out what he feels the reasons for this are: "We are now halfway through the year and this is the third consecutive quarter of operational revenue growth despite the loss of expiries, we continue to work through. During the last few years we faced patent expiration of some of our biggest medicines and this has had an impact on the business. However, these medicines are still very important for patients and still significant medicines for Pfizer. That is our business model - we seek a price when new medicines come to market to recoup the up-front research and development investment and then the value decreases significantly with patent loss."
Like most pharma companies, Pfizer's main problem is that it can't organically replace its blockbuster drugs, like Lipitor and Viagra, quickly enough. None of that is to say that the company doesn't have a deep pipeline of drugs in the works - Reid points out to me that they in fact have 84 compounds in their pipeline - but, in an overall rising market, investors and shareholders are impatient and despite the company spending billions in R&D (some of that on its facilities in Ireland) breakthroughs cannot come quick enough. "It is a torturous process to bring medicines from the laboratory to market and people probably don't know enough about the torture involved", Reid says. "From discovery to development, the process can take between anything from eight to 10 years. One in 10,000 of the compounds that are discovered can be used and they cost from $1-$2bn to bring through those various phases."
The pressure to bring medicines through the pipeline to market as well as the cost involved, has, Reid says, caused researchers to make trade-offs. "What I mean by that, if there is evidence in phase one or phase two of the process that maybe something is not going to be what we thought it would be, then we need to stop. There is huge pressure on researchers to make those trade-offs."
Reid says that a further issue is that the company is no longer focussed on producing 'blockbusters' that will target conditions that affect large swathes of the population. Instead, "we're developing medicines for illnesses that affect a smaller population and the question for us is, how do we protect our revenue line? There is still a huge investment in these drugs, they still take from 8-10 years to bring to commercialisation but quite frankly there is not the same level of return that we've had in the past. We also need to be able to price those medicines appropriately so that countries, states and payers can afford to pay for them. And that's, for me, the big turning point over the last 10 years vs before when we were developing drugs to treat things like diabetes and cholesterol."
Appraising the public of the intricacies and expense of this process is important for Pfizer in the sometimes emotive debate about the price and availability of drugs through the public health system here. Reid says that the company's job is "to convince the Department and the Government to reimburse for those medicines at a fair price."
The pharmaceutical industry's three-year supply agreement with the Department of Health will be renegotiated soon. "We have medicines submitted for reimbursement that go through a fairly long process; we're finding that our high-cost medicines take longer to reimburse" Reid says. "It's in everyone's interest that medicines that help patients to get better quicker are gotten to them at a fair price."
It's been a mixed few years for the company in Ireland. Like most businesses, Pfizer was hit hard in the recession but, while patent expiration is always an issue, the Irish operation's much anticipated fall off the so-called patent cliff never materialised. The company still employs 3,200 people nationally. They put a further €330m in investment into Ireland at Grange Castle (a site for biotech manufacturing). Despite generic rivals to Viagra and the expiration of the patent for Lipitor, a cholesterol drug the active ingredient of which is manufactured in Cork, growing demand in emerging markets have meant that the Little Island plant, which was earmarked for closure in 2013, has remained open. Reid explains that the patent cliff is "very much an accepted norm and part of the business model. Even when drugs go over the patent cliff, we're still growing the business through that."
Reid grew up in Waterford, near Dunmore East, and spent his childhood near the harbour in a "strictly middle-class" family. At 16 years of age he was given responsibility of holding the keys to opening the local supermarket in Waterford at the weekends and checking in the deliveries for the day ahead. "A big deal for a young lad!"
He went to school at De La Salle and then on to Trinity where he did a degree in management. From there it was straight into industry. As part of his final year thesis, he interviewed the Sales and Marketing Manager of Rowa Pharmaceuticals. "He must have seen something in me and the result was an offer of a permanent marketing job before I ever graduated. This was the springboard to a fast ascending career in pharma!" Before joining Pfizer, where he has held a number of roles, he also worked with Aventis Pharma and Nutricia Ireland. He is married to Colette and the couple have three children aged between four and eight.
Reid tells me he welcomes the new European initiative, due to become live on July 1 next year, which will bring more transparency to interactions between industry and healthcare professionals, but I wonder if that commitment to transparency applies to other aspects of the business: in the days before we speak, Pfizer makes headlines in the UK for resisting demands from investors and transparency campaigners that it disclose results from all historical drug trials. Reid responds: "Well we have longstanding commitment to clinical trial transparency and have already published data for trials from 2007. Requests for earlier data are considered on an individual basis. We don't believe that further investment beyond this would offer value to patients, health services or to our shareholders."
I wonder what effect will the so-called Knowledge Development Box will have on Pfizer's business in Ireland. "We welcome the Government's proposals around the Knowledge Box," Reid responds. "The detail is still being worked out as to what would be in scope so we will be interested to see that, but certainly for a small island economy, competitive corporate tax strategies are vitally important to companies like Pfizer in continuing to attract FDI to Ireland. In 2014 US investment in Europe fell while investment into Ireland surged nearly 42pc, to roughly $37bn in that same period and the US accounted for 72pc of Ireland's inward investment in 2014. So yes, competitive corporate tax strategies are vital and we welcome the Knowledge Box."
Given how synonymous Pfizer is with Viagra, I wonder if there are any plans to look again at developing a female libido drug; Pfizer abandoned attempts to solve that riddle in 2004. No, is the short answer: "Pfizer scientists invested a lot of time into assessing this therapy area, including a thorough assessment of our medicinal assets. While we did not identify a compound that could help, I think colleagues made a valuable contribution to better understanding of the conditions and the science behind them. Unfortunately, we don't have anything in the pipeline targeting this therapy area today."
So nothing for ladies night, but the men get short changed somewhat too. Towards the end of our interview, Reid lets his guard drop with an uncharacteristically open paean of male pain: "You'd think working for a pharmaceutical company there would be something we'd have for hair loss", he half laughs, half sighs gesturing to his actually-not-bad head of hair. "But there's nothing yet." You know how he feels. Whatever about cancer research, let's hope Pfizer's boffins have this pressing issue somewhere among their 84 compounds.
Sunday Indo Business