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Pfizer's Balancing Act

Executive Summary

Unlike other major companies, Pfizer has successfully counterbalanced the disappointments of its internal R&D with the certainties of other companies' marketable products--first through co-promotions, and later through acquisitions--and its own sales capabilities. But things seem to have changed: by acquiring Pharmacia, Pfizer does as much as it can to assure investors above-average industry growth for the next several years and dilute the impact of the genericization of major products in 2006-7. But the deal also may limit Pfizer's ability to access new late-stage compounds, and thereby hedge the risk that its own pipeline won't produce, as potential licensers evaluate the implications of hooking up with a company which has gobbled up its two most important partners. Instead, Pfizer must depend on M&A to counterbalance risk of R&D failure-but given stronger anti-trust concerns and Pfizer's own breadth of R&D and product line, its acquisition choices will be limited. Nonetheless, with its near-term growth problems settled, Pfizer has created for itself important breathing room unavailable to most of its competitors--and thus greater ability to take advantage of new opportunities that develop.

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In an interview, Pfizer's head of R&D, John LaMattina, discusses R&D's position as the part of the company most vulnerable to cuts in response to weakening sales. Among other issues, LaMattina discusses Pfizer's increasing interest in large molecules, specialist markets and combination products, and the role external research will play in filling a pipeline facing significant near-term generic pressures. He also details Pfizer's advantages of scale, particularly in developing portfolios of products in individual disease areas for sale to major customers interested in large discounted, disease-managed product packages.

An Independent Pharmacia Diagnostics Charts an Independent Course

Two private equity firms' acquisition of Pharmacia Diagnostics from Pfizer underscores private equity's growing but still selective interest in European health care and opportunities in a field overlooked by mainstream diagnostics companies, allergy testing. The new owners are paying nearly $600 million in a bet on Pharmacia Diagnostics' long-time management's ability to take advantage of the growth potential of this specialized field.

An Independent Pharmacia Diagnostics Charts an Independent Course

Two private equity firms' acquisition of Pharmacia Diagnostics from Pfizer underscores private equity's growing but still selective interest in European health care and opportunities in a field overlooked by mainstream diagnostics companies, allergy testing. The new owners are paying nearly $600 million in a bet on Pharmacia Diagnostics' long-time management's ability to take advantage of the growth potential of this specialized field.

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