Pfizer has put Pharmacia’s diagnostics unit on the block and said last week that the division, though healthy, “is not aligned” with the drug giant’s commercial focus.
The move will affect some 1,100 employees worldwide and might eventually remove the Pharmacia brand from the modest number of diagnostic products the company sells in 60 countries.
“The Pharmacia diagnostics business is a successful and growing business, with an outstanding reputation and strong position in its industry,” Pfizer CEO Hank McKinnell said in a statement. “However, this business is not aligned with Pfizer’s strategic focus on our three core businesses of human pharmaceuticals, consumer healthcare, and animal health.”
With roughly $220 million in receipts last year, the diagnostics division will now be shopped around to those companies that may represent “the best way for this business to grow,” he said.
Small Fry, Into the Fire
The move by Pfizer was anticipated by some industry experts even as they puzzled why the world’s biggest drug maker would choose to jettison a unit that, though small, generates strong earnings.
One reason may have been that Pfizer “really doesn’t know what to do with it. It’s a very tiny piece,” said Jorge Leon, president of Leomics Consulting, which had been helping Pharmacia devise a strategy to convince Pfizer keep the unit. Leon made his remarks to SNPtech Reporter in January. [see Jan. 17, 2003, issue].The deal closed in April.
From Pharmacia’s perspective, its diagnostics unit is an important asset not only because it can help in the preclinical selection of patients, but because diagnostic discovery can also uncover functional therapeutic leads. “But Pfizer probably will want to divest it as soon as possible,” Leon said.
Truth is, the issue of pharmacogenomics got lost in all the noise that accompanied the acquisition news last July. Genomics tool vendors of every persuasion began rubbing their palms just thinking about the potential buying power of an even stronger Pfizer: The deal, worth an estimated $60 billion in stock, ultimately will give Pfizer the keys to a $7 billion R&D war chest and more than $54 billion in annual revenues.
Pharmacogenomics tool providers in particular had every right to feel optimistic: Pfizer co-founded the SNP Consortium and is the second-largest pharmacogenomics player in the US behind GlaxoSmithKline. In a two-day pharmacogenomics conference in Philadelphia last December, Pfizer was one of only three drug companies to present. (The other two were Pharmacia and Bayer.)
Pfizer, the world’s biggest drug maker, said it will have 120 new chemical entities in development, and said it plans to file 20 NDAs over the next five years. So from an economic perspective, Pharmacia’s diagnostics business can be considered expendable.
The unit, which focuses on ho-hum allergy testing, draws around $200 million in revenues each year and is “very, very profitable, very healthy, and growing very nicely” at about 10 percent per year, according to Leon.
“To Pfizer that amount is a drop in the ocean,” he said. “Pfizer’s like, ‘Who cares?’”
Paul Fitzhenry, a Pfizer spokesman, declined to say what Pfizer’s options are, and would not confirm whether the company is more apt to divest the unit, sell off one or more products, or spin it out as a wholly owned subsidiary.
Diamond to Defunct?
Around 30 years ago many pharma firms launched diagnostics businesses “because that was seen as a nice way to get into chemistry and patient testing and clinical trials,” according to Leon. Pharmacia was no exception, and in the early 1970s the company introduced a diagnostics division of its own in Uppsala, Sweden. The broader discipline was lucrative, and many drug makers were happy to have the steady stream of diagnostics-related revenue.
But when high-throughput screening came around and revolutionized the pharma landscape many players turned their backs on diagnostics. The discipline suddenly became small game.
Today, however, thanks to data from the human genome, the SNP Consortium, and the HapMap, molecular diagnostics is experiencing a rebirth. Indeed, a growing number of industry conferences that have traditionally been therapeutics-only have begun incorporating molecular diagnostics tracks.
The wave has also borne a community of diagnostic-tool and -service providers, and has even spurred Roche Diagnostics, the biggest molecular diagnostic shop in the world, to sell its diagnostic and theranostic expertise to competing drug makers hungry for a part of the IVD market [see SNPtech Reporter, June 13, 2003].
In fact, a recent report from consulting firm Front Line said the worldwide pharmacogenomics market will swell 20 percent to more than $1.6 billion by 2007, and that diagnostics will account for 29 percent of that growth.
“I think now pharmaceutical companies are taking a closer look at diagnostics, and it is acquiring tremendous relevance as an asset not just through preclinical selection of patients but also for the diagnostic discovery that will drive the discovery of functional therapeutic leads,” Leon explained in January. And later, in the marketing phase, diagnostics will perform the pharmacogenomics tests “that will become critical to prescribe drugs and help drive market share.”
For Leon, a former executive at Quest Diagnostics, Pfizer’s plan to divest the diagnostics unit came as a surprise. Leon had speculated that Pfizer would “seriously consider enhancing [its] pharmacogenomics efforts though the acquisition because of the link to diagnostics. I would suspect that somebody there would see this opportunity.”
He added that Pfizer is “really doing a tremendous amount of work in pharmacogenomics, and here suddenly they have a diagnostics company in their facilities. The connection [was] there to be made.”
Speaking with SNPtech Reporter after Pfizer announced it intent, Leon said “this is a good [unit] to buy … and it would be a good addition for those who want to get into the billion-dollar club.” He explained that for years it has been evident that to “make it” in IVD, a company must have “at least $1 billion in revenues.”
Leon said there are “some companies that are doing OK, but haven’t quite reached that point — such as Bio-Rad, BioMerieux, GeneProt, and Bayer.”
An analyst who spoke on the condition of anonymity said that Roche Diagnostics and Abbott Labs are likely to be prospective suitors — “especially Abbott, which is really trying to repair their diagnostics business.”