Pfizer bid for AstraZeneca epitomizes broader changes in pharmaceutical sector

Last month, news broke that Pfizer Inc. wanted to take over AstraZeneca. AstraZeneca has been fighting those advances. The standoff speaks to the changes taking place in the pharmaceutical sector.

This story was produced for “First,” Delaware’s public media news magazine television show. It airs Friday  at 5:30 and 11 p.m. with a rebroadcast Saturday at 5 p.m.

Last month, news broke that Pfizer wanted to take over AstraZeneca. AstraZeneca, which has a big footprint in Delaware, has been fighting those advances. No matter the outcome, the Pfizer-AstraZeneca standoff speaks to the broad, powerful changes taking place in the pharmaceutical sector.

Local footprint and possible implications

AstraZeneca is known for drugs including Crestor for cholesterol and Seroquel for mood disorders such as  schizophrenia. It’s a British company. But its U.S. headquarters are right off Route 202 in Wilmington, Delaware. The company also has a production plant in Newark.

“Their impact, when you consider their salaries for those 2,600 employees and then the services they purchase, are approximately $650 million total gross domestic product in the state, so [there’s] direct and indirect financial impact on the state,” said Alan Levin, director of Delaware’s economic development office. The company has been a source of opportunity both for recent university graduates and for collaboration with the region’s academic institutions. “So it’s a big impact,” he said.

Delaware courted AstraZeneca to settle in to Wilmington in the late ’90s, Levin said, after Astra and Zeneca — two separate companies — merged. He credits the successful bid in large part to the attention the company got from the Legislature, from the governor and Congress.

“All of that makes a difference,” he said.

AstraZeneca is getting a lot of attention again these days. Pfizer, based in New York, offered more than $100 billion for the company. AstraZeneca, which prides itself on its research abilities, claims Pfizer wants the deal to cut costs and avoid U.S. corporate taxes.

The takeover has worried leaders in the First State, including the governor.

“What I am most concerned about is the 2,600 families here in Delaware,” Gov. Jack Markell said. “There’s so much uncertainty about what this may lead to for them.”

An ‘epitome’ of changes and uncertainty across the industry

George Chressanthis, of Temple University’s Fox School of Business in Philadelphia, says major changes in big pharma have been driving waves of mergers and downsizing.

“Pfizer’s bid is really an epitome of what’s going on in the industry,” said Chressanthis.

Pfizer previously took over Wyeth and Pharmacia. AstraZeneca took over MedImmune, and has already reduced its local workforce by more than half since choosing Wilmington as its North American headquarters.

The companies are scrambling to build a more promising drug pipeline, as many of their current top-selling drugs are coming off patent protection and facing generic competition, Chressanthis said.

“Pfizer and AstraZeneca are less companies in the sense of sales than they were a few years ago. Why? As part of the challenges, a lot of patent expiration of top-name drugs,” he said.

For Pfizer that’s meant Lipitor. For AstraZeneca, Nexium and a whole lot more.

“AstraZeneca is widely known in the industry as having one of the worst patent cliffs in the industry in the sense of having a lot of products coming off patent at the same time,” he explained.

Chressanthis, who used to work at AstraZeneca, said that the big pharmaceutical companies have plucked the low-hanging fruit, those blockbuster drugs, for common conditions. Now, companies must sharpen their focus.

But drug development costs more and takes longer than before, especially as the industry now looks to treat things more complicated, specialty diseases such as neurological disorders and cancer.

“These are much more expensive technologies as a way to unlock these very, very challenging diseases,” said Chressanthis.

As a result, big pharma is shelving a lot of early research projects. They’re investing instead in therapies further along the pipeline, ones that show the most promise. AstraZeneca has some real strengths in this area, including “some very exciting immuno-oncology projects in early phase one and phase two,” according to Chressanthis, which creates the value that attracted Pfizer.

Merger or not, the company and others face a lot of uncertainty when it comes to research. Only around one in ten therapies that reach the clinical stage actually make it to market.

Opportunities

At the same time, big pharma’s worries can produce opportunities for smaller, more agile companies.

“Almost every big-pharma company you can name are our clients in the past and on and off throughout these years,” said Ben Hsu, chief administrative officer of QPS Holdings LLC. “But there are hundreds of smaller biotech companies, and they are also in our portfolio of clients.”

QPS is based out of the Delaware Technology Park in Newark, with sites around the globe. It’s part of a growing sector of contract-research organizations. The company oversees different aspects of early and clinical research for small and large companies. In some instances, it runs sophisticated screenings on human samples that a smaller company doesn’t have the resources to do internally or that a larger company no longer wants to oversee.

“Over 10 years ago, when I joined the company, it was less than 100 people,” Hsu said. “Now it’s over 1,100.”

About 200 of those jobs are based in Delaware. QPS has expanded as big companies looked to outsource research services and clinical trials, to reduce costs.

“We also very much understand our work, the impact, is quite significant in our sponsor’s drugs getting approved. It would eventually affect people’s lives their health, so we take pride to participate and offer our services in this area,” said Hsu.

Companies have also emerged as offshoots from the industry. Others are growing. Incyte, based in Wilmington, is one example that focuses on rare cancers. It’s expected to employ 600 plus people by the end of next year.

“That’s a big deal, so there are places for these individuals to go,” says Levin.

So whatever happens with AstraZeneca, a tide of challenge, opportunity and uncertainty will keep sweeping over Delaware’s biotech and pharma sectors.

Disclosure: AstraZeneca is a sponsoring underwriter of WHYY-FM’s weekly health and science show, “The Pulse.”