Kerentech

By Shannon Pettypiece and Andrea Gerlin

Oct. 15 (Bloomberg) — Pfizer Inc. may slash as much as $3 billion in research after combining its laboratories with Wyeth, putting thousands of scientists out of work and narrowing the drugmaker’s search for new products.

With the $68 billion deal closed, Pfizer will probably trim its combined research budget, Martin Mackay, president of Pfizer Global Research and Development, said in an interview. While Mackay didn’t say by how much, Pfizer may hold the line at about $8 billion, the same as it spent by itself in 2008, said Barbara Ryan, a Greenwich, Connecticut-based analyst for Deutsche Bank, in a telephone interview. That’s 30 percent less than the total both companies spent on research last year.

Pfizer has trimmed jobs and limited the diseases it studies in the last two years to save money as it braces for the loss of $10 billion in sales when its Lipitor cholesterol pill faces generic competition in 2011. While Pfizer Chief Executive Officer Jeffrey Kindler said he bought Wyeth to help offset those losses, the drugmaker’s ability to innovate over time may be diminished with fewer scientists to find new treatments, said Kenneth Kaitin, of Tufts University in Medford, Massachusetts.

“These big acquisitions don’t do a thing for research,” said Kaitin, director of the Tufts Center for the Study of Drug Development. “I don’t think anyone should be fooled into thinking these big acquisitions have anything to do with innovation or increased research and development capacity.”

Nine Areas

Pfizer, the world’s biggest drugmaker, has narrowed its drug-development focus to nine disease areas led by cancer, brain disorders and diabetes. It has trimmed its scientific programs on heart failure, high cholesterol and obesity. The New York-based company also reorganized its research centers so that each area of therapeutic research is based at one location.

Over the short term, Pfizer is close to meeting its goal of having 24 to 28 products in late-stage development by December, Mackay said in an Oct. 2 interview. That includes a pill developed for rheumatoid arthritis, CP- 690550, which could generate $1.5 billion annually, said Cowen & Co. analyst Craig Gordon. Existing treatments for that disease are injected.

Such late-stage products, though, have been years in development. Since 2007, the company has fired more than 2,000 researchers and closed laboratories in Michigan, Japan and France. While the Wyeth purchase may help Pfizer offset the loss of Lipitor revenue initially, the research cuts may challenge the combined company’s long-term growth, Kaitin said.

“This is just a delaying tactic, it doesn’t increase output in terms of research,” Kaitin said. “This is a survival technique for big pharma.”

Joint Operations

Pfizer and Wyeth will begin joint operations tomorrow, Pfizer said today in a statement. Wyeth shares will stop trading today and each outstanding share of Wyeth will be converted to $33 in cash and 0.985 of a Pfizer share.

Moody’s Investor Services lowered its long-term rating of Pfizer to A1 from Aa2. Fitch Ratings dropped Pfizer’s long-term issuer default rating to AA- from AA.

Mackay, in an interview at the company’s Sandwich, England, laboratories, said that while no final figure has been reached, the combined research budget would be reduced. The drugmaker will review projects in the next six weeks, said David Roblin, who heads the Sandwich laboratory where Viagra, Pfizer’s top- selling erectile drug, was invented.

Scientists at the two companies aren’t permitted to exchange information about their work until the merger is completed, and are “desperate” to talk, Roblin said Oct. 2.

“As soon as the close happens, the phones will be red hot,” Roblin said. “It’s an exciting time for scientists because there’s nothing like new data.”

Potential Targets

The company looked at more than 100 potential acquisitions before deciding to buy Wyeth, Mackay said. The merged company, he said, will focus on cancer, pain, neurological disorders, heart and circulatory diseases, diabetes, infectious diseases and antibacterials and vaccines.

Pfizer rose 29 cents, or 1.7 percent, to $17.66 at 4:15 p.m. in New York Stock Exchange composite trading after announcing the acquisition would be completed today. Pfizer has gained 8.7 percent in the past 12 months.

Pfizer is not alone in scaling back research spending to combat sinking revenue from cheaper copy drugs. Products that now generate $137 billion in sales are expected to face generic competition during the next five years, said IMS Health Inc.

Industry Job Cuts

Johnson & Johnson, based in New Brunswick, New Jersey, said this week its research budget fell 13 percent in the third quarter compared with a year earlier. British drugmaker AstraZeneca Plc has slashed at least 700 research positions and GlaxoSmithKline Plc, also based in London, said last year it planned to eliminate as many as 850 researchers.

The proportion of sales that pharmaceutical companies spend on research may sink to 13 percent next year, from 16 to 18 percent of sales, Ryan said.

Spending cuts have resulted in a flood of scientists into the job market, said Michael Steiner, who provides financial and career counseling to pharmaceutical professionals at RegentAtlantic Capital LLC in Morristown, New Jersey. Steiner said he has more than 100 pharmaceutical clients. Many who have lost their jobs are considering teaching, consulting or working at small biotechnology companies.

Job openings at large pharmaceutical firms are scarce, and some of his clients have been looking for work for more than a year, he said.

High School Chemistry Teachers

“Pretty much all the high school chemistry jobs have been filled,” said Steiner in a telephone interview. “Some of these are people who have been at a company for more than 25 years and are now entering the job market for the first time.”

Most pharmaceutical researchers need a Ph.D. in biology or chemistry and some have medical degrees, according to the U.S. Bureau of Labor Statistics. Drugmakers also employ laboratory technicians and support staff, jobs that typically require a high school diploma or an associate degree.

In Ann Arbor, Michigan, where Pfizer closed its 2,100- person laboratory in 2008, more than a dozen ex-Pfizer employees have taken jobs at the nearby University of Michigan, the school said in 2008. Among them is Michael Wilson, who started working as a pharmaceutical researcher at Warner Lambert Co. 25 years ago on development of Lipitor, now the world’s best-selling medicine with $12.4 billion in 2008 revenue. Pfizer bought Warner Lambert in 2000.

Former Pfizer employees displaced by lab closures in Ann Arbor and Kalamazoo, Michigan, have formed at least 44 companies, according to economic development groups Ann Arbor Spark and Southwest Michigan First.

New Venture

One such company, Kalexsyn Inc., was founded by two chemists fired by Pfizer when it bought Pharmacia Corp. in 2003. Kalexsyn provides contract chemistry work and early stage laboratory research for pharmaceutical companies.

Pfizer said in January it would fire 19,000 workers, about 15 percent of the merged drugmakers’ 129,500 employees. That is in addition to the more than 14,000 positions it has eliminated since 2007. Madison, New Jersey-based Wyeth spent $3.4 billion on research in 2008 and has about 6,000 researchers. Pfizer spent $7.9 billion last year with about 10,000 scientists.

Following the Wyeth acquisition, Mackay and Mikael Dolsten, now president of Wyeth research, will divide executive responsibility for research and development at the combined company. Mackay will oversee traditional research into chemicals and Dolsten will guide development of biotechnology products derived from living cells.

Wyeth Officers Retained

“I’ve known Mikael Dolsten for some time and I’m a great admirer,” Mackay said. “The notion of us both running this organization just made a lot of sense.”

Nine chief scientific officers have been appointed to lead therapeutic and technical areas of the company’s R&D, some retained from Wyeth, Mackay said.

Mackay said he expects scientific collaborations with external partners to continue once the merger is completed.

“I don’t think we’re going to aim for the Pfizer culture or the Wyeth culture or any legacy company,” Mackay said. “To make this work in this two-division model with Mikael and I running it, collaboration is going to be at the forefront.”

One of the inconvenient truths of the biotech and pharmaceutical industry is that only about one out of every 10 drug candidates good enough to enter clinical trials passes all the tests to graduate as an FDA-approved therapy. Every major drugmaker is searching for ways to boost that success rate, and yesterday I got an interesting glimpse into how the world’s largest biotech, Amgen, thinks about how to raise its game.

Amgen is based in Thousand Oaks, CA, but has 900 employees in Seattle and about 200 more in Cambridge, MA, many of whom play critical roles in the perilous early steps of R&D where a lot of time and money get wasted. I got an overview from Amgen’s senior vice president of translational sciences, Joe Miletich, while he was in Seattle this week to meet with employees (and briefly enjoy the view of Elliott Bay from the office CEO Kevin Sharer sometimes uses).

Amgen (NASDAQ: AMGN) had $15 billion in revenues a year ago, largely from products for patients with anemia, autoimmune diseases, and cancer. About one-fifth of that revenue, $3 billion, was poured into the R&D budget. Much has been written about how Amgen coasted on the success of its first two blockbusters in the 1990s, acquired another one in 2002 from Seattle-based Immunex, but has more recently sought to re-ignite its innovation engine, particularly for cancer drugs, this decade under R&D boss Roger Perlmutter, a former Merck executive and University of Washington immunology professor.

Since it often takes a decade or more to develop a new drug, this effort is still a work in progress, but Amgen now has 50 drugs in the pipeline from the late discovery stage through Phase III clinical trials. Amgen has organized the pipeline with three key guys who report to Perlmutter from beginning to end. David Lacey runs the early discovery, Miletich handles translational steps from there through early-stage clinical trials, and Sean Harper is responsible for late-stage clinical trials.

Miletich was formerly a professor of internal medicine and pathology at Washington University in St. Louis and a Merck executive. His team in the middle of the R&D machine takes drugs after they’ve graduated from the discovery phase, and then runs them through a battery of genetic tests, cell-based tests, animal tests, models of disease, and biomarker studies to see which types of people might respond to such a treatment. The goal is to test whether the candidates are safe, and whether there’s “evidence of biological impact” that gives the company “a high degree of certainty” on whether the drug is actually hitting the desired target and doing what it is supposed to do in people, he says. If done right, this work is supposed to answer which of those 50 drugs on the roster, and which of the 6 to 8 new ones that enter human trials each year, are truly worthy of putting major-league resources behind in the ultimate proving grounds of Phase II and III clinical trials. The rest of the candidates, Miletich says, may need more long-term observation in people, while some should be killed early before too much money is wasted, he says.

This isn’t revolutionary stuff—it’s what other companies do, Miletich acknowledged. But it is an effort to weave together basic research and clinical development in a closer way than had been done in the past, when research might just hand over a drug to development to see if it worked, Miletich says. He says this more integrated, or “translational,” approach should pay off directly by raising Amgen’s success rate above the usual industry rule of thumb.

“Over the next five years, I’d like to see us have about a 20-30 percent higher success rate over the historical average,” Miletich says.

That sounded pretty bold, but Miletich was quick to throw in qualifiers.

There are apples-to-oranges comparisons when stacking up a low-risk program to develop another statin drug for lowering cholesterol, as opposed to a new drug for lupus, which uses a completely new mode of action for a disease that doesn’t have effective therapies. Amgen has been known in the past to take on some of these lower-risk projects, like making longer-lasting versions of erythropoietin (Aranesp) and pegfilgrastim (Neulasta). But now Amgen’s pipeline is a bit more daring, with about two-thirds to three-fourths of its candidates being aimed at diseases where no one has a marketed product that works the same way, Miletich says.

One of the most interesting examples that Miletich offered up is a new antibody drug emerging in Amgen’s pipeline, called AMG-785. This is based on biological work that says a protein called sclerostin normally neutralizes production of osteoblasts, the cells that build new bone. Some patients with rare genetic abnormalities, who lack the gene to make sclerostin, have been shown to end up with severe deformities from bone overgrowth by the time they are in their 30s, Miletich says.

Even more interestingly, patients with only one of two functioning copies of the sclerostin gene have no symptoms of disease, but they have really strong bone mineral density, which means they don’t develop osteoporosis later in life, and usually “they don’t break bones” in accidents, Miletich says.

So Amgen’s vision is to build on that fundamental genetic insight to create a drug that does that same thing, blocking sclerostin in a carefully calibrated way. With some clever in-house protein engineering, Miletich says Amgen showed an experimental antibody drug could block the correct functioning of the sclerostin protein and offer the desired bone cell-building effect in early stage studies. That drug, code-named AMG-785, is now one of the molecules that Amgen and its partner, Belgium-based UCB, are most excited about based on early studies that showed “a very robust response with a single injection,” Miletich says. The drug still has a lot to prove—it’s now in one Phase II trial and entering another—but it has forced its way to the top of Miletich’s priority list based on all indications from the early-stage studies.

There’s also a business case to be made for such a drug, and Miletich was no stranger to that. Nothing currently on the market for osteoporosis can build new bone. This product also dovetails nicely with the most visible drug in Amgen’s pipeline, denosumab. That product candidate, currently awaiting FDA approval, has been shown to lower fracture risk of patients through a different mechanism, stopping osteoclast cells from breaking down too much bone. That drug could generate $2.2 billion in annual sales by 2012, according to a Rodman & Renshaw analysis. Any new product that does the opposite—building up bone—could be given to patients with early-stage osteoporosis. Those patients could be brought back to a healthy state, and then put on denosumab therapy for “maintenance” to keep them healthy.

“This could give physicians and patients both sides of the lever,” Miletich says.

Whether that turns out to be true won’t be known until the late-stage clinical trials either prove or disprove what Miletich’s troops have done so far in their methodical quest to understand what the drug is doing at early stages. Even with a $3 billion research budget that can buy every state of the art tool, and recruit world-class scientists, Miletich made it clear this is still a very humbling industry.

“I don’t like to overhype things,” Miletich says. “All of us in the field do a disservice when we celebrate success in a way that comes out sounding like we’ve answered everything. That’s not true. Human biology is enormously complex.”

 

 

Teva has also been taking in employees fired by other companies.

Einav Ben-Yehuda

While most companies are announcing layoffs, Teva Pharmaceutical Industries Ltd. (Nasdaq:TEVA; TASE:TEVA) is recruiting 100 new employees. Teva corporate VP human resources Isaac Abravanel told “Globes” that the company had also taken in employees who have been laid off from other companies. He said “We want to recruit 100 new people for our production activities in Jerusalem. In recent months, following the wave of lay offs in the Israeli economy, we initiated contacts with various companies who had fired employees like ECI, Intel, Tnuva, Alliance, Ampa, Kodak and Orbotech and we took in employees for our activities in Jerusalem and Kfar Saba. We are also striving to take in workers from the ultra-orthodox Jewish sector, new immigrants from Ethiopia and Iran and returning Israelis.” However, Abravanel admitted that there was a slowdown in recruitment, taking into account that Teva had hired 2,000 new people over the past two years. He said, “the slowdown in recruitment is mainly because of the acquisition of Barr Pharmaceuticals.” At the same time Abravanel stressed that there will be no layoffs or salary cuts. “We have no reason to fire employees. Employment stability is one of Teva’s strategic values. There is no need to change anything relating to the company’s human resource management. We will carry on hiring, carry on raising salaries and carry on getting rid of employees who are not so good.”

Published by Globes [online], Israel business news – www.globes-online.com – on January 21, 2009 © Copyright of Globes Publisher Itonut (1983) Ltd. 2009