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Published: 2008-03-26

Pfizer/Pharmacia Merger: The Biggest Just Got Bigger



Pfizer/Pharmacia Merger - The Biggest Just Got Bigger

The FTC recently approved the merger of Pfizer Inc. and Pharmacia Corporation. Pfizer is purchasing Pharmacia for an estimated $60 billion solidifying its position as the world's largest pharmaceutical company. Pfizer will control 11 percent of the world's pharmaceutical market, up from 8 percent, with annual revenue estimated to increase to $46 billion from $32 billion. Pfizer will control 50 percent more of the market than its closest rival. The world's second largest drug company, GlaxoSmithKline PLC, only has 7 percent of the market. Pfizer and Pharmacia will divest pharmaceuticals in nine different areas in response to the FTC's charges that the merger would otherwise have anticompetitive effects in those product markets. The European Commission approved the merger of the two companies in February, but also demanded that the companies divest some of their assets.

The deal was originally scheduled to close in March, and was delayed due to FTC concerns. The biggest regulatory hurdle involved the experimental urinary incontinence drug darifenacin (Enablex®). Pharmacia sells the competing drugs Detrol® (tolterodine) and its long-acting counterpart Detrol LAR, which only has to be taken once-a-day. These products had combined sales of more than $700 million last year. The only other once-a-day product in the United States for the same illness is Johnson & Johnson's Ditropan XLR (oxybutinin). The FTC alleged that the merger of Pfizer and Pharmacia would cause significant anticompetitive harm to the consumer by eliminating potential competition between Pharmacia's Detrol® and Pfizer's Enablex®. Pfizer has therefore agreed to sell all rights to Enablex® to Switzerland based Novartis AG for $225 million. Pfizer submitted the new drug application (NDA) for darifenacin in December 2002, so FDA approval could happen as soon as this year. This rare, late FDA-stage type of acquisition makes the price a tremendous bargain for Novartis. The industry average cost to bring a drug to market is $800 million. The industry average time to bring a drug to market is 14 years. Many analysts believe that Enablex® could reach annual sales of $1 billion. Novartis has also been successful in licensing products from other mergers. Novartis acquired SmithKline Beecham's successful antivirals famciclovir (Famvir®) and penciclovir (Vectavir/Denavir®) for $1.63 billion as a condition of the merger of Glaxo Wellcome and SmithKline Beecham in 2000 which formed GlaxoSmithKline.

Pfizer and Pharmacia will divest products in eight additional areas to satisfy antitrust concerns. The products are combination hormone replacement therapy for women, treatments for male impotence, a canine arthritis treatment, antibiotics for lactating cow mastitis, antibiotics for dry cow mastitis, over-the-counter hydrocortisone creams and ointments, over-the-counter motion sickness medications, and over-the-counter cough drops. Pfizer will retain rights to its well known impotence treatment Viagra®. However, it will divest all rights that Pharmacia has in two experimental products for the same illness. Pfizer's well known Halls® cough drops will be sold to Cadbury Schweppes. Pfizer claims that as a result of the merger, it will be less dependent on any single product or any single therapeutic area. Pfizer will have a presence in three additional clinical areas: oncology, endocrinology, and ophthalmology. It also plans to file an average of four NDA's with the FDA each year through 2006. Although this sounds impressive, new drugs often fail to pass with the FDA and often do not live up to their expectations or pre-market hype. Therefore, Pfizer is looking for ways to increase sales of its existing drugs.

Some analysts believe Pfizer is becoming too big for its own drug pipeline to support. It will need numerous successful drugs to drive its revenue and growth. Patent expirations and challenges could adversely affect sales as soon as next year. Pfizer says patent protection on its epilepsy treatment Neurontin® (gabapentin) will extend until 2017. However, generic competitors do not agree. These competitors are challenging Neurontin®'s patent protection and, a generic alternative could be on the market as soon as next year. Neurontin® had sales of $2.3 billion last year.

Also, Pfizer will lose patent protection of its successful antifungal Diflucan® (fluconazole) next year. In 2002, Diflucan® accounted for $1.1 billion in sales. In 2006, the patent protection for Pfizer's blood pressure medication Norvasc® (amlodipine besylate) and its popular anti-depressant Zoloft® (sertraline hydrochloride) will expire. These two products accounted for $8 billion in sales in 2002.




For more information, please contact Powell, Goldstein, Frazer & Murphy LLP attorneys June Casalmir at jcasalmir@pgfm.com or Bernard Rhee at brhee@pgfm.com.