The ink is barely dry on its $68 billion merger with Wyeth but that hasn’t stopped Pfizer from launching yet another deal. On April 16, Pfizer announced it will join forces with Britain’s GlaxoSmithKline to pool their HIV operations to create a new company devoted to marketing the two companies existing HIV medicines and developing new ones. The new venture, which will be 85% owned by GSK, will have 19% share of the HIV market.
“This creates the focus of a specialist company with the support of two big parents,” GSK CEO Andrew Witty said in a conference call. “It gives us a huge portfolio 11 medicines on market and six in the clinic.”
The news comes just a day after Pfizer’s head of worldwide research Rod MacKenzie told a conference in New York that “the big research organization model really doesn’t work particularly well.” said MacKenzie. Calling the “old model” (of which Pfizer was the industry’s biggest proponent) was too unwieldy, lacking accountability, and overly bureaucratic.
After years of endless mergers and acquisitions to get bigger, now big pharma is intent on getting smaller. The new venture is an attempt by the world’s two biggest drug companies to replicate the energy and drive of a small biotech. Witty calls it an opportunity to “create a specialist company…with real independence that will have the flexibility to do other deals and license in other products just as a specialist biotech would.”
While the new company will centralize sales, marketing and administration from a new headquarters in London, research and development teams will remain within each parent’s organization. They will be contracted out to the new company. This seems at odds with the stated goal of creating the culture of a biotech.
It will, however, lead to cost savings of $89 million, most of which will be delivered in 2010, Witty said. The new company will be headquartered in London with $373 million in working capital, although Witty did not disclose exactly how much each company will contribute.
For GSK, which created some of the world’s first and best selling HIV drugs such as AZT and Epivir many of which are set to lose patent protection in the coming years, the deal offers access to Pfizer’s portfolio of new medicines in clinical development. While Pfizer gets the benefit of GSK’s strong marketing in distribution in HIV.
Witty, who has repeatedly said he is not interested in mega-mergers, says the new company “is a good example of the way in which we want to create value and generate efficiency in our business.” He noted that GSK is looking at various parts of its businesses where it might be possible to create similar alliances.
After years of mega deals will hiving off research areas to create smaller standalone businesses become the new template for pharma? The jury is out. It’s clearly a way for both companies to reduce risks and costs.
The way the new company plans to incentivize new drug development, however, does offer an interesting new model. Describing the model as innovative, Witty said the rewards will go to developers of new medicines if they make it to market. If those new medicines come only from GSK, it’s equity share in the venture will increase or conversely if Pfizer is more successful its interest will increase.
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