Pfizer's $1.3 bil. acquisition of Esperion will reunite the Lipitor research team and give Pfizer two more chances to develop a novel mechanism anti-atherosclerotic agent.

Pfizer is hoping that the Esperion research team can help the company build on the success of the cholesterol-lowering agent Lipitor, which has become the world's top-selling pharmaceutical.

Esperion CEO Roger Newton, PhD, led Parke-Davis' atherosclerosis drug discovery team for 12 years and was one of the researchers who discovered Lipitor (atorvastatin). The biotech company was founded in 1998 by Newton and four other former Parke-Davis research scientists.

Esperion's two lead research projects - a recombinant apolipoprotein A-I Milano (ETC-216) and a large unilamellar vesicle agent (ETC-588) - are both in Phase II trials for use as acute high cholesterol therapy.

While Lipitor primarily treats atherosclerosis by reducing LDL cholesterol, the Esperion agents have been shown to reduce plaque volume by raising HDL levels, thereby increasing the amount of cholesterol processed by the liver.

Pfizer singled out ETC-216 in announcing the merger Dec. 21. Early Phase II data published in the Journal of the American Medical Association Nov. 5 showed a "statistically significant reduction in plaque volume in patients with acute coronary syndrome at the end of six weeks," Pfizer noted.

Pfizer was developing an internal candidate (the ACAT inhibitor avasimibe) that it hoped would become the first direct-acting anti-atherosclerotic agent.

The announcement of the Phase III program for avasimibe was a highlight of Pfizer's first investor meeting following the closing of the Warner-Lambert acquisition in 2000 (¹ Also see "Pfizer ACAT Inhibitor Phase III Underway; Zocor, Lipitor Prepare For Crestor" - Pink Sheet, 18 December, 2000., p. 10).

However, initial study results did not meet Pfizer's expectations, and the company quietly disclosed the termination of the development program in its 2003 third quarter results.

Pfizer is pursuing a separate internal development program in the HDL area. The company has initiated Phase III trials for torcetrapib, which Pfizer hopes will be combined with Lipitor for use as a chronic therapy. Torcetrapib raises HDL by inhibiting the action of the cholesteryl ester transfer protein (² Also see "Lipitor Scripts Rebounding, Pfizer Says; Cholesterol Category Still Has Life" - Pink Sheet, 23 June, 2003., p. 8).

Pfizer has described the torcetrapib Phase III program as the largest ever undertaken in the drug industry. The company's $1.3 bil. investment in Esperion underscores its commitment to remaining a leader in the cardiovascular field.

Pfizer will commence a cash tender offer to acquire Esperion stock for $35 a share. The price represents a 54% premium over the last 20 trading days, Pfizer said. Esperion closed Dec. 19 at $22.70.

Esperion shares posted significant gains following the JAMA publication. Pfizer is paying a 100% premium to the company's price before the article appeared.

The Esperion acquisition represents a quiet first for Pfizer. The company is no stranger to mergers, having completed the $90 bil. takeover of Warner-Lambert and the $60 bil. acquisition of Pharmacia in the last three years. Pfizer also has a vast network of biotech alliances.

However, Pfizer - unlike most big pharmaceutical companies - has not previously made a significant biotech acquisition.

Pfizer, however, does have experience with an inherited biotech affiliate. The company has retained the separate operating structure of Agouron, which Warner-Lambert acquired in 1998.

Esperion and its 70 employees will operate as a division of Pfizer R&D. The company is based in Ann Arbor, where Pfizer maintains a large presence through the former Parke-Davis R&D campus.

Newton is one of three former Parke-Davis execs still with Esperion, along with VP-Pharmacology Charles Bisgaier, PhD (formerly vascular and cardiac disease associate research fellow) and VP-Cellular & Molecular Biology Michael Pape, PhD (formerly molecular biology research associate).

A fourth co-founder, Parke-Davis molecular biologist Thomas Rea, has since left Esperion.

After digesting Pharmacia and Warner-Lambert, Pfizer has turned its focus to more targeted purchases - particularly in biotechnology - rather than any more large-scale mergers (³ Also see "Pfizer Considering Biotech Acquisitions; “Probably No” Big Mergers" - Pink Sheet, 17 November, 2003., p. 32).

Pfizer also appears to be getting into a pattern of holiday season shopping for biotech alliances: last year, the company added two Phase III research candidates through separate deals with Neurocrine and EyeTech (⁴ Also see "Pfizer’s Eye-Openers: Company Licenses Insomnia, Blindness Agents" - Pink Sheet, 23 December, 2002., p. 16).

While Pfizer is paying a premium price for Esperion, the company's vast resources make it fairly easy to contemplate deals in the billion dollar range.

Following the Pharmacia merger, Pfizer has an annual R&D budget of $7 bil. The Esperion deal will cost the company less than 20% of that amount (see chart: " ⁵ Pfizer Plays The Percentages ").

Pfizer would also be able to cover the purchase price using only the projected synergies from the Pharmacia merger in 2004.

Using another metric, the deal has already paid off: Pfizer gained more than $5.6 bil. in market capitalization during the week after the deal was announced.

With a market cap of close to $270 bil., Pfizer's valuation typically fluctuates by more than $1.3 bil. on any given day.

In addition to the Parke-Davis research pedigree, Pfizer had pre-existing ties with Esperion through the Pharmacia legacy business.

Pharmacia is the original patent holder on ETC-216, and licensed the product to Esperion in 1998. The company retained a right of first negotiation for North American rights when Esperion decided to seek a development partner.

In fact, the Esperion deal can also be viewed as another step in the Pharmacia integration.

The cancellation of another Pharmacia agreement - with Celltech for the anti-TNF antibody CDP-870 - freed up some resources that Pfizer can use in Esperion deal.

Although ETC-216 is slightly further back in Phase II than ETC-588, it appears to be the higher priority project for Pfizer.

The 47-patient Phase II study published in JAMA showed that ETC-216 administered intravenously for five doses at weekly intervals "produced significant regression of coronary atherosclerosis" as measured by intravascular ultrasound, Steven Nissen, MD, Cleveland Clinic Foundation, et al. found. (Nissen is a member of FDA's Cardio-Renal Advisory Committee).

Forty-seven patients were randomized to either placebo, ETC-216 at a dose of 15 mg/kg or ETC-216 at 45 mg/kg. After five weeks of treatment, the mean atheroma volume decreased by 1.06% in the combined ETC-216 groups, compared to an increase of 0.14% among placebo patients, the study found.

Esperion plans to round out the data with another Phase II study in a larger patient population.

Esperion's second lead candidate, ETC-588, has completed enrollment in two Phase II trials. The company expects to hold end-of-Phase II meetings with FDA in the second half of 2004.

Esperion also has two compounds in Phase I: the peptide/phospholipid complex ETC-642 and a small molecule, ETC-1001.

Pfizer was advised on the transaction by Lazard and Cadwalader, Wickersham & Taft. Lehman Brothers and Morgan, Lewis & Bockius advised Esperion.

Pfizer/Esperion Deal Reunites Lipitor Team; $1.3 Bil. Buys Two HDL Agents

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