The Serono/Pfizer Rebif Co-Promotion: Just Act One?

Analysts generally expressed the view that Pfizer and Serono will both benefit from their agreement to co-promote the multiple sclerosis drug, Rebif. But some question whether the sales and marketing boost Pfizer will give the specialty drug justifies its $200 million upfront payment, or, for that matter, the estimated 35%-40% commission on sales that Serono will be required to pay Pfizer.

In March, shortly after the US launch of Serono SA 's multiple sclerosis treatment interferon beta-1a (Rebif) the company's chairman and CEO, Ernesto Bertarelli, dismissed rumors of a possible co-promotion with Pfizer Inc. So what changed between then and July 11th, when the two companies announced that they would indeed be joining forces to promote Rebif in the United States as part of a deal that netted Serono a $200 million up-front payment in exchange for an undisclosed percent of the drug's proceeds? [See Deal]

According to Serono VP and head of business development, Leon Bushara, the company did not look to line up a partner for the launch—as might well have been expected—or immediately thereafter, because its management was focused on their successful efforts to overturn the orphan drug market exclusivity enjoyed by Biogen Inc. 's competing interferon beta-1a MS drug, Avonex. Serono accomplished that rare feat, thereby gaining FDA approval, by demonstrating clinical superiority at 24 weeks in a head-to-head study. In particular, says Bushara, the company wanted to maximize the potential partnering value of Rebif by first resolving the various regulatory and labeling issues.

A bigger question, however, may be why Serono did the deal in the first place. Serono has invested heavily in building up a US sales force (reportedly spending $60 million over the last year), and the launch by most accounts was reasonably successful. Moreover, the estimated 350,000-patient MS market in the US is a small one, not requiring the sheer marketing firepower of a Pfizer.

Nonetheless, analysts generally gave the deal positive reviews—from both Pfizer's and Serono's perspectives. The prevailing view seemed to be that Pfizer's formidable presence in neurology, and established relationships with the general neurologist's community, would provide a key competitive advantage in an MS field that includes US market-leader Avonex, Teva Pharmaceutical Industries Ltd. 's glatiramer acetate (Copaxone), and interferon beta-1b (Betaferon), marketed by Berlex Laboratories Inc., the US division of Schering AG . Says Bushara: "Both in terms of call frequency and total market coverage, we're going to have an unparalleled capability together with Pfizer." Among other things, this will improve the breadth and depth of coverage for both high and less-intensive prescribers of MS drugs, according to Bushara. Accordingly, in light of the Pfizer deal, Serono has increased its projected US market share in four years from 25% to well over 30%.

In addition, a number of analysts pointed to the resources that Pfizer could provide in running large-scale Phase IV studies such as those already being conducted by Schering and Biogen for their MS drugs. And there's also the $200 million up-front fee, which will be amortized over the 11-year lifetime of the deal, as well as Pfizer's obligation to share in development and commercialization costs.

However, those factors notwithstanding, there's still the matter of whether or not the numbers will ultimately add up—for either company. One skeptic, analyst Steve Cox of Commerzbank Securities, thinks it very possible that they won't.

Cox cautions that any financial evaluation of the deal is necessarily speculative, since the profit-sharing formula has not been disclosed. But he estimates that for Pfizer to recover the $200 million payment over the life of the co-promotion, its take would have to be in the 35-40% range. And Cox is doubtful that Pfizer's participation will provide a boost in sales sufficient to justify relinquishing so large a portion of Rebif's revenues. Cox projects US Rebif sales of $77.2 million for 2002—reaching $562.4 million by 2005.

Selling to the MS market, observes Cox, "isn't about putting lots of people on the streets, knocking on doors, and pushing the product into as many places as possible." A small specialized sales force—like the one Serono already has—might well suffice, he argues.

In fact, Cox recalls Biogen officials telling him that, after ramping up their Avonex sales force last year, they experienced no appreciable gain in sales. Serono, he concludes, "may be barking up the wrong tree."

Ralph Makar, Berlex's VP, marketing, therapeutics, agrees. The MS market is a very concentrated one, says Berlex, who cites industry figures that show that the top 1000 prescribers account for 50% of all MS prescriptions. And, he adds, the 2500 highest prescribers write close to 75% of the prescriptions for MS drugs, the top 5000 accounting for 90%.

More important than feet-on-the-street figures, Makar argues, are solid relationships with physicians and patients. To this end, Makar says that Berlex brought in an entirely new marketing and medical team two years ago to step up efforts at providing educational resources and support for patients and physicians. That strategy, he points out, resulted in 19% growth in second quarter 2002 Betaferon sales, exceeding analysts' 15% forecast.

Performance to date of Rebif in the US suggests that Serono might have been able to do rather well on its own. Last quarter's $12.2 million in sales were slightly more than double Commerzbank's estimates. The bad news for Rebif actually came from outside the US, where that drug is the market leader. The $110.4 million in ex-US sales fell short of expectations, Serono officials placing the blame in part on the European launch of Teva's Copaxone, as well as on unstable economic and currency conditions in Latin America.

If the co-promotion ends up providing only a marginal sales boost for Rebif, Pfizer also stands to gain little in the way of revenue in return for its $200 million. There may, however, be some less measurable benefits for the soon-to-be largest drug company in the world. With Pfizer's epilepsy drug gabapentin (Neurontin) slated to go off patent at the end of the year, adding Rebif will help shore up its neurology franchise and provide a cushion should the follow-on candidate for Neurontin, pregabalin, encounter regulatory difficulties. And Rebif also provides a means of increasing the productivity of the substantial neurology sales and marketing infrastructure that Pfizer already has in place by giving reps an additional product to sell.

The deal may also serve as a way for Pfizer/Pharmacia to get the word out that it's willing to pay top dollar for products, be they small-molecule or—as the Rebif deal shows—large-molecule drugs. And it comes at a time when Pfizer has relinquished its unchallenged status as licensee of choice, with companies like GlaxoSmithKline and Lilly often landing deals for which Pfizer competed. (See "Pfizer's Balancing Act," IN VIVO, July 2002. (Also see "Pfizer's Balancing Act" - In Vivo, 1 Jul, 2002.))

Or the Rebif co-promotion may be a prelude to something much larger. Some industry observers speculate that the $200 million up-front fee may be a down payment of sorts for an eventual acquisition. Pfizer hasn't hesitated to buy co-promotion partners when it needed key assets, and Serono would give Pfizer protein manufacturing capabilities—a major hole in the company's astonishing breadth of product categories. It would also provide Pfizer entrée into the reproductive health arena—a therapeutic category of increasing interest. And—the doubts about Serono's need for help with Rebif aside—the Swiss-based biotechnology group would get something it needs for any of its new products: US marketing muscle.