Pfallergan Merger Ripple Effects on Jobs, CROS and Restructuring
November 30, 2015
By Mark Terry, BioSpace.com Breaking News Staff
As the Pfizer -Allergan merger grinds ahead, analysts are looking at the implications of the deal. One area of speculation is the effect on contract research organizations (CROs).
CROs handle a large number of tasks for drug companies, including regulatory consulting, running clinical trials, and helping to develop reimbursement strategies. Over time, Pfizer has utilized several CROs, including PAREXEL International Corp. , Icon Plc, and Pharmaceutical Product Development LLC (PPD).
“I would have a bit more concern for the contract research companies, a lot of them rely on Big Pharma for their livelihood,” said Mike Bailey, director of research at FBB Capital Partners to BloombergBusiness. “If Pfizer even in the meantime hits the pause button, that could slow things down for contract research companies.”
The two companies have significant worldwide manufacturing capabilities. Pfizer currently operates a network of 55 internal product facilities. Allergan, Inc. runs more than 40. That brings the tally up 95, although it doesn’t take into consideration Pfizer’s acquisition of Hospira, Inc. in September. That brings in another 16, minus the Clayton, N.C. plant that was closed in June. The merged companies, then, will have a manufacturing network of 110 sites, at minimums.
However, Allergan sold off its generic drug business to Israel-based Teva Pharmaceutical Industries Ltd. in late July for $40.5 billion. As a result, probably some staff and facilities will be cut.
In addition, the merged companies are already considering splitting into two companies, potentially by 2018. One would focus on research and development and faster-growing drugs, and the other would focus on generics and mature drugs facing or already having been hit by patent expirations.
All of this restructuring is likely to result in lost jobs and changing relationships with CROs and vendors. On Nov. 19, Pfizer announced it had sold 200 acres and more than 2 million square feet of property on its campus in Pearl River, NY. It indicated it will keep its research and development facilities at a nearby site, but in May it announced it was cutting more than 500 jobs at its Pearl River site by 2017.
There has already been some changes with Boston-based Parexel (PRXL) earlier this year. In June, it announced it would be laying off 850 people as part of restructuring. Parexel apparently had a disproportionate number of Pfizer studies in progress that ended in the first half of 2015. There was talk early this year that Pfizer was spreading its CRO work to a third CRO partner, with Quintiles, Inc. as the top candidate. However, in April Pfizer announced it had chosen PPD as its third preferred CRO, but said it would not affect relationship with Parexel and Icon.
Pfizer has indicated that with the merger, it plans to make about $2 billion in cuts, and about a third of that would come from slashing research costs.
Parexel, for its part, doesn’t appear concerned. “We really don’t expect any fallout from this, certainly not negatively,” said Josef von Rickenbach, Parexel’s chief executive officer, in an Oct. 29 conference call. “If anything, as I said, this would be a net positive for us.” However, as reported by Bloomberg, Rickenbach said some projects would likely be temporarily delayed.
The Pfizer-Hospira deal won’t be finalized until early in 2016, and the Pfizer-Allergan deal won’t close until the second half of 2016. A Pfizer spokesperson told Bloomberg that discussing post-merger relationships with CROs was premature. The two companies probably haven’t even figured out what the merged company’s home address will be yet, although clearly it will be somewhere in Ireland.
In the long-term, unless concerns of the merged company’s chief operating officer Brent Saunders’ relative lack of focus on research and development comes true, many think the deal will only boost research and development.
“Pfizer’s use of CROs has been very successful,” said Tim Evans, an analyst with Wells Fargo. “It’s become a bit of a role model in some ways for how to drive efficiency into your research-and-development process by using outsourcing. Don’t be surprised if you see a quarter or two of depressed bookings. In the longer run, it’s a positive.”