Pfizer-Wyeth Combo’s Impact on San Diego Biotech: Bad for Dealmaking, Good for Shareholders

1/27/09Follow @xconomy

The big story in pharmaceutical-and-biotech land yesterday was New York-based Pfizer’s $68 billion bid to acquire Madison, NJ-based Wyeth (NYSE: WYE). Wyeth is known for having more biotech expertise than many of its Big Pharma brethren, generating billions in sales from biotech products like its pneumococcal conjugate vaccine (Prevnar) for infants, as well as its partnership with Amgen to market the world’s best-selling biotech drug, etanercept (Enbrel) for rheumatoid arthritis.

Wyeth doesn’t have a presence in Southern California, although it does have partnerships with a pair of local biotechs, Ligand Pharmaceuticals and Inovio Biomedical, says Tim Ingersoll, a spokesman for Biocom, the regional trade association. Pfizer (NYSE: PFE) has a large presence in San Diego, with its global cancer research and an incubator for early stage ideas, Ingersoll says.

We asked a few of the San Diego Xconomists with life sciences expertise what sort of ripple effect this deal might have on the local biotech scene. Here’s what they had to say, via email:

Kleanthis Xanthopoulos, CEO of Carlsbad, CA-based Regulus Therapeutics:

“I think, at first passing, that this will be bad for biotechs which have traditionally used Big Pharma for non-dilutive financing through collaborations. It means one less target, one less pot of capital. Wyeth has been trying to transform into a large biotech in the last decade and has been relatively successful, especially in the biologics arena (e.g. Enbrel).

“The key point will be for Pfizer not to feel that they have now a complete “biotech” portfolio and therefore (make innovative biotech partnerships) no longer a priority. This will be a very serious mistake on their part. Lastly, note that the entire Wyeth management is out. Therefore, I do not expect Pfizer’s culture and attitude towards small biotech (e.g. most of San Diego) to change dramatically.”

Bill Rastetter, Partner with Venrock Associates, Executive Chairman of San Diego-based Apoptos:

“I think it is largely irrelevant. Pfizer needs scale of acquisition to make a difference with patent expirations. The $68 billion cash/stock deal is much larger than what would be paid for the vast majority of biotechs,” Maybe larger biotechs will be made available for sale, Rastetter says, but they could be “more problematic as there are more ‘strings attached,’ ” he says. “Of course, Genentech and Amgen are of this scale, but you’ve asked about San Diego. And Genentech is already spoken for,” (assuming Roche’s pending acquisition is completed.)

Drew Senyei, managing director, Enterprise Partners Venture Capital in La Jolla

“Consolidation is a normal part of the business. There are lots of new guys that still have not been taken out. My concern is more for the immediate disruption of deals currently pending with these companies, in that they will either get slowed way down or stop altogether. In this economy this is really tough for the little guy.”

Jack Lief, CEO of San Diego-based Arena Pharmaceuticals (NASDAQ: ARNA)

“I personally think this is fundamentally positive for biotech for the following reasons:

—The purpose of this merger is to allow Pfizer to maintain their bottom line via cost reductions to compensate for their top-line weakness. This highlights the vulnerability of the Pfizer business plan. Would Pfizer not have been better off improving their internal R&D processes 5 or 10 years ago or acquiring some high-quality biotech assets at a small fraction of what they will spend on Wyeth?

—What will Pfizer do when their next big drug goes off patent? Will investors be treated to more large acquisitions and dividend cuts? I suspect not. I think Pfizer will learn their lesson and acquire some meaningful new drug candidates from biotech and this will have a positive impact on biotech values.

—The $40+ billion cash that Wyeth investors will receive will certainly not all be reinvested in big pharma and I suspect a good portion will go to biotech, improving investor returns here.”

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