With the completion of the Pfizer Inc.-Pharmacia Corp. merger, the question that rises to the surface is this: Now that a big fish swallowed a rival and got bigger, what happens to the rest of the school in the pharmaceutical pond?

Because Pfizer now has become a very big fish indeed. The combined company has 14 products that are leaders in their therapeutic category. Pfizer now has more than 400 projects in its discovery pipeline and is building the largest library of chemical compounds in the industry. In 2002, Pfizer and Pharmacia had a combined research and development budget of more than $7 billion. Pfizer plans to file 20 new drug applications in the next five years and the combined 2002 revenue for the companies approached $50 billion.

Addressing how the $60 billion merger, announced in July, might affect the biotechnology industry, Ed Saltzman, president of consulting company Defined Health, said there will be ripples, but just how large is debatable. (See BioWorld Today, July 16, 2002.)

"Clearly, the most simplistic way the merger [will affect biotech] is that it takes one of the buyers out of the channel," Saltzman told BioWorld Today. "There are now fewer buyers for biotech in the sense that biotech exists partly to license products to pharma, or at least parts of products."

But, he added, "I don't think it will affect it too greatly."

Saltzman made the point that although Pharmacia as a buyer is lost to biotech, the pharmaceutical monster that is made through the merger must be fed in order to sustain company growth.

"If you are now an organization with $50 billion in sales," Saltzman said, "I think your thirst for products will be greater than it was in the past. This thirst that these companies have for products will drive them to figure out different ways to collaborate with biotech."

Even as large as New York-based Pfizer's "web of discovery alliances" is, he said, it might not be big enough.

"Even though they have a bigger pipeline, few people think it is sufficient," Saltzman said. "It puts a greater premium on buying in biotechnology, not less."

FTC Acceptance Of Merger Requires Product Returns

In order for the merger to become legal, Pharmacia and Pfizer were required to dump development programs to fight potential anticompetitive effects in certain areas. The Federal Trade Commission required the divestiture of pharmaceutical products in nine markets: extended-release drugs for the treatment of overactive bladder, combination hormone replacement therapies, treatments for erectile dysfunction, drugs for canine arthritis, antibiotics for lactating cow mastitis, antibiotics for dry cow mastitis, over-the-counter hydrocortisone creams and ointments, over-the-counter motion sickness medications and over-the-counter cough drops.

Falling under the blade was the collaboration between Pharmacia and Nastech Pharmaceutical Co. Inc., of Bothell, Wash. Centered on intranasal apomorphine for sexual dysfunction, the deal was originally signed in February 2002 and had a potential of about $56 million. With Pfizer's Viagra having more than 95 percent market share of the U.S. erectile dysfunction field, the FTC required intranasal apomorphine rights be returned to Nastech, but it also required rights to the ED product PNU-142,774 be returned to Neurocrine Biosciences Inc., of San Diego. (See BioWorld Today, Feb. 5, 2002.)

Nastech has long said it needs a partner to commercialize the product for such a large market (the product also is in development for female sexual dysfunction). But while Nastech is "actively looking for partners," said its chairman, CEO and president, Steven Quay, the divestiture deal the FTC required is pretty sweet.

"The FTC did an analysis and said intranasal works faster than Viagra and has the same - or maybe better - efficacy, it is highly competitive and cannot be in Pfizer in this merger," Quay told BioWorld Today. "And they also said, For Nastech to keep this product moving and to have the financial wherewithal [for development until re-partnered], Nastech actually needs some cash.'"

And it got it. Besides the $15.3 million received by Nastech via milestone and other payments, the FTC said another $13.5 million must be handed over. Also, Pfizer agreed not to sue Nastech or any of its future collaborators in the field of intranasal apomorphine for human sexual dysfunction. Plus, Nastech received a royalty-free worldwide exclusive license to intranasal apomorphine in human sexual dysfunction using any and all patents developed under the Nastech-Pharmacia collaboration.

When the collaboration was struck, Pharmacia bought 250,000 Nastech shares at $20 a share for proceeds of $5 million, or roughly 2.5 percent of the company. If it wants to sell that stock, Pfizer must notify Nastech, giving Nastech a period of time to place the shares with investors.

Quay said that the product "made progress on all three fronts: clinical, nonclinical and manufacturing" while in the collaboration. Intranasal apomorphine has been tested in Phase II trials in both men and women, and a new partner could be just around the corner for Nastech - the FTC certainly has done its part to structure the divestiture to allow for that.

"We believe this is an unprecedented arrangement," Quay said.

Thinning Out A Thick Pipeline

What is not known about the combined Pfizer pipeline is what, after analysis, will be seen as unnecessary, repetitive or unwanted. It's anyone's guess what might be dropped, but it seems sure there will be cuts, given the size of the research and development platforms that are coming together.

"I think you'll clearly see some divestitures," Saltzman said. "I don't think I'd want to predict what you'll see that is divested - sometimes I think we're quite surprised by that - but they will have to do a lot of work to evaluate their franchises."

He added, "Because of the sheer size of the deal, it will take a long time."

Ron Aldridge, senior director of investor relations at Pfizer, could not name the exact number of collaborators it has - he does not keep a detailed roster of Pfizer collaborations. But he said the company has "had about 500 or so in the past decade, of which about 250 are active now."

The actual number isn't significant. What's important is whether that number will shrink or grow. Saltzman, for one, feels biotechnology companies will continue to be the guts of pharmaceutical companies such as Pfizer.

"Biotech is having a terrible time in the financial markets," he said. "It's been very, very difficult. But biotech will always have the core value in discovery that, particularly if they manage their businesses well, pharmaceutical companies and colossal companies like Pfizer need."

He said there is "no alternative" to biotechnology and pharmaceutical partnering.

"The only path forward is constructive partnering with pharmaceutical companies," he said. "I think we are in the infancy of how these things are going to be ultimately structured. I think pharma has learned that acquiring is not in its best interest, but partnering with [biotech] will be the hallmark of the future. It's the only path forward for biotech."