Tuesday, June 23, 2009

Wyeth Heartburn for Pfizer

The state of Massachusetts announced Monday that it has joined fourteen other states in a pricing suit against Wyeth (WYE-$44.62), alleging that the drug manufacturer “knowingly failed to give the government the same discounts it provided to private purchasers” for its blockbuster GI drug Protonix. This litigation is just one in a litany of “at risk” problems Pfizer (PFE-$14.63), the world’s largest drugmaker, will inherit with its $68 billion acquisition of Wyeth, pending approval by the stockholders of both companies.

The states’ action follows on the heels of two
whistleblower lawsuits filed last month which allege that Wyeth avoided paying hundreds of millions in rebates due to state Medicaid programs for two versions—oral and intravenous—of Protonix.

Wyeth's sales performance to 2013 will be hampered by the patent expiry of four key products, including the $2.6 billion selling
Enbrel (rheumatoid arthritis and psoriatic drug loses patent in 2012) and its hemophilia drug Refacto (with patent expiry in 2010).

Wyeth has patent protection on its $3.9 billion anti-depressant drug,
Effexor, through 2010. The timing of generic launches, however, will likely impact the ability of the company’s sales representatives to “convince” prescribing physician that its follow-up compound Pristiq, a new antidepressant launched last year, is the “better” therapeutic agent.

Even drugs in the company’s portfolio with existing patent protection are no longer insulated from intrusion, as generic competitors are becoming more aggressive in their attempts to disrupt existing market exclusivity. For example, despite the existence of patent protection until 2010, Teva attempted in late 2007 to launch a generic version of Protonix tablets, with an intended goal of bullying Wyeth to essentially pay the Israeli-based generic firm as part of a
standstill agreement. A similar legacy awaits Pfizer with Wyeth’s $1.3 billion antibiotic drug Zosyn/Tazocin. Although the Food and Drug Administration granted patent extension on this key hospital product until 2023, Wyeth management admitted back in April that generics would likely be launched in the third-quarter.

One of the most promising drugs that Pfizer will inherit in Wyeth’s pipeline is the experimental vaccine bapineuzumab, which the company is developing with Elan for the treatment of Alzheimer’s disease. To date, released data is showing mixed results—both with efficacy and side effects. Of concern, in July 2008,
Phase 2 published results revealed that the drug worked no better in the patients with the gene that was a risk factor for Alzheimer’s disease as in those without the gene.

Pfizer will also inherit $5.6 billion and $1.9 billion in pension benefit and other post-retirement obligations (such as healthcare) owed to current and retired Wyeth employees. In addition, if the markets suffer more losses this year, the company could be forced to pony up more than the approximately $440 million Wyeth had planned to contribute to its qualified defined benefit pension plans (expected return on assets this year is 8.75 percent, according to the 2008 10-K). Of note, last year Wyeth contributed $664.6 million to its current pension plan to offset experienced investment losses (60 percent asset exposure to stocks).]

"Mama Mia! That's a spicy meat-a-ball!"

Lost profits to generics, pipeline setbacks, and rising pension obligations – management at Pfizer may need some Protonix for the heartburn sure to follow upon completion of the merger with Wyeth.

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

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