The proposed merger announced last week between Pfizer and Pharmacia could be a bellwether for the future of bioinformatics in pharma. The merged company will be the largest pharmaceutical firm in the world, with an annual R&D budget of more than $7 billion that Pfizer officials have vowed to wield aggressively in the search for new drugs and a beefed-up pipeline.
But how much of that money will be available for bioinformatics? Most analysts estimate that pharmaceutical firms spend about seven percent of their R&D budgets on informatics, putting the combined company’s potential spending at around $490 million. But with the pressure on to move the glut of genomic-based targets downstream, it’s likely that bioinformatics will claim only a portion of that spending, with the lion’s share going to cheminformatics and other in silico approaches.
On the other hand, bioinformatics vendors may benefit from the merger in the long run. Although there is likely to be a slowdown in purchasing by both companies until the deal is approved by shareholders and regulators, analysts predict that outsourcing will soon become the norm rather than the exception in informatics departments, particularly as companies increase in size through mergers and acquisitions.
A recent study from Datamonitor, a market research firm, noted that despite a decade of vigorous growth through M&A and ballooning R&D budgets, pharmaceutical productivity has failed to increase. Concluding that there are “no economies of scale in pharmaceutical R&D,” the report predicted that those firms who outsource non-core capabilities to “specialist vendors” would have a better shot at the goal of faster and cheaper drug development. In a similar vein, a study conducted last year by UBS Warburg predicted that the share of third-party tool vendors in the informatics market would increase from 9.7 percent in 2000 to 47.9 percent in 2005 as in-house informatics efforts decline.
If these predictions ring true, the combined company could be a very good customer for the bioinformatics industry in a year or two. Pfizer has already proven a willingness to partner with bioinformatics companies (see sidebar) and was one of the first customers for Incyte’s genomic database. In addition, Pfizer’s Cambridge, Mass.-based Discovery Technology Center has made genomics-based drug discovery its mission, powered by a Linux-based compute farm from Blackstone Computing.
Further, it appears the merger will negatively impact only Incyte and Celera — the only bioinformatics companies both Pfizer and Pharmacia have agreements with.
IT integration consultants will benefit from the deal: Pfizer spent $467 million in 2001 on consulting and systems integration costs associated with its merger with Warner Lambert, and Pharmacia spent $139 million in consulting fees for system and process integration and $52 million on IT integration projects related to its merger with Monsanto.
The Pfizer/Pharmacia union will be an interesting experiment in how large an R&D organization can get and still remain effective. Because the two companies have complementary product portfolios, there should be little duplication in research focus areas and, therefore, limited downsizing. One area that might see some expansion is cancer-related bioinformatics, according to Linda McNamara, health care strategy analyst at Datamonitor. “This is Pfizer’s first time entering the cancer market. In that sense, because bioinformatics and target validation is very closely linked with cancer, you might see a bit more movement on that side in R&D,” she said.
When GlaxoWellcome and Smith-Kline Beecham merged two years ago, the combined company increased its total bioinformatics staff from 150 to 200. With an R&D budget that dwarfs GSK’s $4 billion R&D allotment, the new entity will have the potential to retain one of the largest bioinformatics teams around — if it chooses to, that is. Alternatively, the combined entity could prove that there is indeed an upper limit to internal bioinformatics staffing and opt for increased outsourcing instead.
Under the terms of the agreement, Pfizer will acquire Pharmacia through a stock-for-stock transaction valued at $60 billion. The company will exchange 1.4 shares of Pfizer stock for each share of Pharmacia stock, a premium of roughly 35 percent over Pharmacia’s July 12 closing price. Pharmacia said it would proceed with its spin-off of Monsanto.
Pfizer will retain its headquarters in New York City. The companies currently employ a total of over 150,000 people worldwide.
Celera Genomics, Entelos, Genaissance Pharmaceuticals, Gene Logic, Gene-IT, Incyte Genomics, Inpharmatica,
LifeSpan BioSciences, Lion Bioscience, Scimagix
Celera Genomics, Center for Genomics Research at Karolinska Institute, Incyte Genomics