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Pfizer in the hunt


After all, tomorrow is another day

Pfizer (PFE:NYSE) Chairman Hank McKinnell made the interesting comments that his company would rather acquire smaller biotech companies instead of partnering with them. He believes today's biotech executives prefer to be acquired instead of signing a more traditional product development/marketing deal. He stated: "There was a time when 300 companies in the biotechnology space all wanted to grow up and be the next Pfizer, but I think they now recognize that this is pretty unlikely. Some of these companies have decided that, rather than follow their own strategy of growing the business or partnering with someone like us, they would rather be acquired at this point."

I find this interesting, though I have to wonder which biotech CEOs he has been speaking with. Nearly all the ones I speak with have designs on creating large, multi-product companies.

Mr. McKinnell is correct when he notes there are enormous risks in product development. News from this week alone underscores the potential pitfalls. Drug development costs will continue to soar, especially if FDA regulators again become roadblocks to new drug approvals.

Biotech execs are not going to be easily persuaded to sell. Esperion, which Mr. McKinnell cites as an example, was something of a perfect storm. Pfizer already had rights to one of their drugs in an arrangement that complicated the partnership prospects of another drug. Esperion management was generally comprised of the scientists who shepherded Lipitor through to approval, so there was a very close connection there. Esperion was faced with the Durus Capital Management problem*, which was certain to generate millions of shares for sale over a period of months. Management had also just endured a dramatic fluctuation in their stock price due to early release of clinical data by the Journal of the American Medical Association. In other words, Esperion agreed to sell to Pfizer because of a confluence of events atypical of most small biotech companies.

If Mr. McKinnell waves enough billions in front of a biotech company, however, and can convince them that the financing environment will get measurably worse going forward due to election risk and other factors, Pfizer may have a shot to do the acquisitions it needs to patch holes in its pipeline. I suspect it will be an uphill battle as most biotech CEOs have enough of an ego to believe they can be the next Amgen (AMGN:NASD), if not the next Pfizer.

* Durus, for those who do not remember, "inadvertently" purchased about a third of Esperion in open-market transactions without reporting it to regulators. They signed a lock-up agreement that was about to expire when Pfizer announced it was purchasing Esperion for $1.3B in cash. The expiration of the lock up would have created about a million shares per quarter of sales as Durus unwound the deal.

No positions in stocks mentioned.

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