Pfizer's $60 bil. offer for Pharmacia could be a landmark event in the remaking of the Pfizer image, as well as a large-scale strategic move to broaden Pfizer's product line into new specialties and deepen the pipeline.

Revamping its 50-year image as the tough, give-no-quarter competitor, Pfizer is trying the more subtle art of the friendly integration.

For a company that still boasts of successfully "executing" the Warner-Lambert merger, the Pharmacia deal represents a new style of acquisition.

Pfizer tried hard to convey a working-together theme in public events announcing the Pharmacia deal.

Explaining the impetus behind the merger, Pfizer repeatedly stressed that Pharmacia is its number one preferred partner and that the opinion is mutual.

Pfizer, which portrayed the Warner-Lambert deal as the melding of the two fastest-growing pharmaceutical firms, notes that while the present one does not meet quite as high a standard, the deal will bring together two companies with "double-digit [growth] cultures."

"Our independent analysis said to both of us, 'the best combination in a consolidating industry is Pfizer and Pharmacia,'" Pfizer Chairman Hank McKinnell told the financial community during Q&A on July 15.

"We know Pharmacia well," McKinnell declared. "And, we have the greatest respect for the company, its people, and its many accomplishments. Working together, we have introduced Celebrex and Bextra for the treatment of arthritis...and have done so with great success. It has been a good and productive partnership."

At a July 17 meeting with analysts, McKinnell reiterated his long-time interest in Pharmacia. "We at Pfizer have long been intrigued by the possibilities of a Pfizer and Pharmacia combination. It is rare to see two companies in our industry that have more complementary strengths, less overlap and more potential for synergy."

Synergy, however, still means substantial integration savings to Pfizer, even in a friendly deal.

In fact, synergy savings expected in the first three years of the friendly Pharmacia deal (2003-2005) are higher than the savings extracted from the Warner-Lambert unfriendly deal.

Pfizer reports that savings from the Warner-Lambert integration since the deal closed in June 2000 are now on track to reach $1.8 bil. by the end of this year, exceeding the originally predicted $1.6 bil. (see ¹ [A#PS040191] ).

The company anticipates trimming away $2.5 bil. in costs from the merged Pharmacia operations by the third year post-merger.

At Warner-Lambert, the cuts affected about 15% of 44,000 employees at the time of the merger: 6,338 left Pfizer by the end of 2001 and another 350 who were notified before the end of 2001 are leaving this year. Additional Warner-Lambert departures could be forthcoming in the proposed divestitures of the Tetra pet food (800 employees), Adams confectionaries (12,000) and Schick-Wilkinson (3,500) businesses.

Pfizer reserved $1.1 bil. for the initial W-L terminations; $1 bil. had been used by the end of last year.

A growing share of the integration savings from the Warner-Lambert merger is coming from suppliers through purchasing efficiencies.

Pfizer has recently moved combined purchasing power to the front of its litany of savings in the running quarterly commentary on the W-L integration.

The cost-saving techniques with suppliers generally rely on trimming the number of vendors in specific categories and using the increased volume to the remaining vendors to demand concessions. The Pharmacia merger should accelerate this trend.

Pfizer is looking to the integration experience within Pharmacia as one of the ways to get the savings.

McKinnell introduced Pharmacia Chairman Fred Hassan as a veteran of bringing companies together. With experience in six integrations during his career, Hassan claims to hold "probably an industry record."

Pfizer "executed" the Warner-Lambert combination while continuing to gain market share, McKinnell said. "This time - working together - we can bring these two companies together."

McKinnell stressed his desire to work with Hassan, calling him "my good friend" and attributing to him the best explanation of the merger: "Pharmacia makes Pfizer a better specialty company; and Pfizer makes Pharmacia a better company in the general practitioner market."

Similarly, Pfizer stage-managed the publicity to give Hassan prominent credit with the financial press as the architect of the combined and relocated Pharmacia.

As the designated vice-chairman of the merged companies, Hassan appears headed for an active role in the integration and a future role as an advocate/ambassador to other potential merger partners.

Since moving into senior management at American Home Products in the mid-1980's, Hassan has prided himself on clever alliances and a diplomatic approach to the accumulation of products and companies. McKinnell complimented him indirectly as a kindred spirit noting that Pharmacia "was born through acquisition" and the melding together of companies.(² see chart: What's In This Name?)

One of Hassan's tasks will be to reassure Pharmacia's current license partners.

In the co-development and future co-promotion area, Pharmacia has three active arrangements: with the German firm Altana for development and marketing of roflumilast for asthma; with the UK firm Celltech for the development co-promotion of CDP-870 for rheumatoid arthritis in the U.S., EU and Japan; and with the Finnish firm Orion for development and marketing of the 5-HT2A/2C receptor antagonist deramciclane for the U.S.

Among Pharmacia's marketed products, Camptosar (irinotecan) is in-licensed from Yakult-Honcha/Daiichi and Axert (almotriptan) is in-licensed from Almirall-Prodesfarma.

Both Pfizer and Pharmacia have relationships with Boehringer Ingelheim. Pfizer has a worldwide co-development and co-promotion agreement with BI for the inhaled chronic obstructive pulmonary disease product Spiriva (tiotropium). Spiriva has been introduced into six EU markets. Pharmacia copromotes Detrol LA and Mirapex with BI outside the U.S.

"One or two" of Pharmacia's in-licensed products have change of control provisions, McKinnell noted. These provisions do not, however, grant unilateral rights to the licensing companies to withdraw from arrangements with Pharmacia, McKinnell maintained.

"Fred and I will be working with those partners to convince them that they have an even stronger partner with Pharmacia as part of Pfizer," McKinnell said.

Hassan described his future role as an ongoing personal commitment "to making this transaction work, and to insure that value creation does not end with this agreement."

Pfizer's penchant for absorbing co-promotion partners puts several other companies in interesting positions: BI with Spiriva ; Aventis with Exubera ; and Serono with Rebif .

As a late-stage development project in inhaled insulin, Exubera holds the promise of vaulting Pfizer back into the diabetes market. Pfizer continues to look at the diabetes business as similar in kind to the broad, growing and under-served markets where it has its current blockbuster products.

Pfizer Senior VP-Science & Technology Peter Corr (the highest level holdover from the Warner-Lambert merger) reminded a July 17 meeting with the financial community of the potential for Exubera.

There are 175 mil. diabetic patients worldwide and that number is growing rapidly, Corr noted. "In the U.S., an estimated 30%-40% of the Type II diabetic patients are not adequately controlled."

Responding to concerns about pulmonary safety that have delayed the Exubera NDA, Corr noted that Pfizer has begun new studies to confirm the "small and non-progressive" nature of pulmonary function changes observed in Exubera clinical trials to date.

Corr said that "interim data, which we have now recently reviewed from ongoing control trials at one year, are very encouraging and consistent with the pulmonary test function results" from previous clinical trials.

Pfizer maintains that while combined data from the 14 human trials in Phase II and Phase III showed a modest change of 1% in FEV function, the percentage of patients showing a serious fall in FEV was the same for inhaled insulin as for subcutaneous insulin patients.

Corr's positive remarks on the market and development progress for Exubera were important in light of a more restrained presentation on the product's potential by Aventis in late June. Aventis did not include Exubera among its list of drugs with potential for annual sales of 1 bil. Euro (³ [A#00640250023], p. 33).

Corr noted that the Pharmacia merger has already occasioned at least a short delay in the revised NDA filing schedule for Exubera. A joint Pfizer-Aventis meeting to plan the filing was set for Monday, July 15 but "obviously had to be cancelled."

Serono may be protected from too close a Pfizer embrace by the relatively small size of the co-marked product and a significant product overlap in the worldwide growth hormone market.

Pfizer's Exec VP and top pharmaceuticals exec Karen Katen told the July 17 meeting that the Rebif co-promotion deal "demonstrates that Pfizer does not simply seek co-promotion partners to bring in blockbusters; we seek to promote the best medicines" (⁴ Also see "Serono/Pfizer Rebif Co-Promotion Deal Will Use Neurontin Sales Force" - Pink Sheet, 15 July, 2002., p. 18).

The multiple sclerosis treatment aims at a market that is currently less than the $1 bil. threshold that marks a contributor to the mega companies; Biogen, however, is headed for over $700 mil. in sales for Avonex , the leader in the category.

Katen said that Pfizer is "quite excited" by Rebif because it "is the best therapy in multiple sclerosis and it nicely complements Pfizer's broad portfolio of products to treat neurological disorders." From that perspective, it offers a fresh product for the Pfizer sales force to promote if the Neurontin generic challenges create a gap in Pfizer's neurology line before the introduction of pregabalin.

Katen and Hassan repeatedly stressed the potential of the combined sales activities of Pfizer and Pharmacia under a single management.

Katen noted that the combination of the sales forces may create an immediate savings, not by permitting reductions, but by reducing the separate expansion demands.

"We had planned at Pfizer to expand our primary care field force by up to 2,000 people in the next two years for the new products coming along," Katen said.

Likewise, Pharmacia had planned on expanding their primary care field force. "Now, obviously, with the integration," both companies will not have to "take on that type of disruptive and expensive task because the people will be there," Katen said.

Hassan noted the advantages of a single team managing the COX-2 portfolio. "We will also now have the same single team managing Dynastat [the European brand for parecoxib] which you know is closely linked to valdecoxib," the Pharmacia chairman said. "The whole management of this is going to be more streamlined, more effective and less costly."

Hassan added that Pharmacia's single-product sales calls in classes like urology for Detrol are wasteful. Katen pointed out that sales calls could be combined with Viagra .

"Detrol fits nicely into our world-class genitourinary portfolio and, in tandem with Viagra, should see sustained growth in the urinary and primary care markets," Katen said.

Similarly, Katen said that Pfizer's "long history of success and service in the anti-infective market should give a substantial boost to the prospects of Zyvox ," which she identified as "already the number-one injectable antibiotic in the market." The drug is on a pace toward about $220 mil. in sales this year, more than double that in 2001.

Pfizer’s Friendly Tack: McKinnell Shares Credit With Hassan, Offers No. 2 Spot

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