Pfizer's Torcetrapib Failure: The Risks of New Drug Development

            
 
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Case Details:

Case Code : MKTG172
Case Length : 26 Pages
Period : 2000-2007
Pub Date : 2007
Teaching Note :Not Available
Organization : Pfizer, Inc.
Industry : Pharmaceutical
Countries : USA, Europe

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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Excerpts Contd...

Some Criticisms and a Question of Credibility

Some experts were unhappy with Pfizer as they felt that Pfizer had kept hyping Torcetrapib despite of the fact that it raised systolic blood pressure. Many experts were concerned that Torcetrapib raised blood pressure and that such a rise could prove fatal for a patient suffering from heart disease. But Pfizer had continued to disregard its critics. Some felt that the deaths could have been avoided as there were many research papers that suggested that the drug would fail...

Pfizer's Loss is Competitors' Gain

Pfizer's loss of Torcetrapib was expected to boost its rivals who had 'tried and tested' statins in the market. Industry experts felt that statins were expected to remain the mainstay of heart disease treatment. Shares of AstraZeneca rose close to 2 percent on the hope that Crestor's sale would increase in the future. Michael Leuchten, a UBS analyst, said that Crestor would gain market share from Lipitor and would face less pressure from new competitors until 2011-12. Andrew Baum, a Morgan Stanley analyst, projected that Crestor would generate sales of US$ 5.1 billion in 2012...

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Pfizer- A Bleak Outlook?

Following the news of the failure of torcetrapib, Lehman Brothers, JPMorgan and Merrill Lynch downgraded Pfizer's shares. On December 19, 2006, Moody's announced a downgrade of Pfizer's prestigious Aaa long-term debt rating by one notch to Aa1. Michael Levesque, vice president and senior credit officer at Moody's said, "Following the Torcetrapib failure, Pfizer's relationship between patent exposures and pipeline strength is no longer consistent with a Moody's Aaa rating."...

A High-Risk Business

Kindler said that Torcetrapib's failure highlighted the risks of drug R&D. "This is a very high-risk business," he said. Pfizer and other research-based pharmaceutical companies had for long justified the high prices of their drugs citing the enormous amount of money that goes into new drug discovery...

Implications for Drug Research and Development

Experts also raised question over the blockbuster approach to drug development followed by Big Pharma. Steve Brozak, an analyst with WBB Securities, said, "When you live by the blockbuster, you can be badly hurt when the blockbuster fails to materialise." They saw the Torcetrapib debacle as an example of why such an approach was no longer viable. They said that the research-based pharmaceutical companies' over-reliance on blockbusters had potential pitfalls as blockbusters were few in number and could not be developed in a hurry or in large numbers...

Outlook

Analysts felt that Kindler had a tough task ahead. The biggest challenge before Pfizer was to bring more new drugs to market. Pfizer had announced that it would bring six new products a year from 2010 onwards. On December 18, 2006, Kindler was also promoted to the position of chairman of Pfizer. As was expected Pfizer increased dividend to shareholders by a hefty 21 percent to keep them interested. The dividend would be payable on March 6, 2007...

Exhibits

Exhibit I: A Brief Note on Pfizer
Exhibit II: Top Ten Pharmaceuticals Brands by Global Sales
Exhibit III: Top Ten Segments in Pharmaceuticals by Global Sales
Exhibit IV: Torcetrapib - A Timeline
Exhibit V: Pfizer's Share Price Movement in 2006
Exhibit VI: Timeline for New Drug Development in the US


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