The spate of acquisitions in the pharmaceutical industry continues with Pfizer Inc. (PFE) purchasing privately-owned biopharmaceutical company Excaliard Pharmaceuticals, Inc. With this acquisition, Pfizer has added a mid-stage candidate for the treatment of skin scarring to its pipeline.
Terms of the Agreement
While financial details of the agreement were not disclosed, Pfizer said that it will make an upfront payment to Excaliard. Pfizer will also make contingent payments on the achievement of certain milestones.
The candidate
EXC 001, the lead candidate at Excaliard, is being developed for the treatment of skin fibrosis or skin scarring. EXC 001 has been developed by Excaliard in collaboration with Isis Pharmaceuticals (ISIS). EXC 001 works by targeting connective tissue growth factor (CTGF), a growth factor that is over-expressed in damaged skin or tissue following a traumatic event.
Excaliard had presented positive phase II data on EXC 001 earlier this year. In addition to being safe and well-tolerated, EXC 001 significantly reduced scar severity in both hypertrophic and fine line scarring. EXC 001 is currently in a phase IIb study in patients following breast scar revision surgery. With no FDA-approved products for the reduction of scar severity, EXC 001 could have significant opportunity if developed successfully.
Isis Pharma to Gain
Since Isis Pharma is an equity owner of Excaliard and has an exclusive worldwide license agreement for the development and commercialization of certain antisense drugs, including EXC 001, the company is entitled to receive a part of the upfront and milestone payments to Excaliard.
The closure of the deal has guaranteed Isis Pharma $4.4 million of the maximum amount of $14 million that Isis Pharma stands to receive for its equity ownership of Excaliard. The balance amount (up to $9.6 million) will be received by Isis Pharma on the achievement of development and commercial milestones for EXC 001. Isis Pharma is also eligible to receive milestone and royalty payments under its licensing agreement with Excaliard for EXC 001.
We note that Pfizer has been looking to expand via acquisitions and partnerships to counter the loss of revenues that would arise following the genericization of its key drugs, especially its blockbuster cholesterol drug, Lipitor, which went generic in the US on November 30, 2011. We note that Pfizer is leaving no stone unturned to minimize the impact of genericization and retain sizeable market share despite Lipitor going generic, especially during the six-month first-to-file exclusivity period when the number of generic launches will be limited.
Towards achieving this objective, Pfizer tied up with generic player, Watson Pharmaceuticals (WPI) for an authorized generic version of Lipitor. With this move, Pfizer could very well retain many patients as the drug will be manufactured and supplied to Watson Pharma by Pfizer. Pfizer will get a share of the net sales from Watson Pharma's sales of the product. Moreover, Pfizer’s authorized generic version will be facing limited competition during the six-month exclusivity period.
Continuing with its policy of making acquisitions, Pfizer recently acquired Ferrosan’s consumer health care business. This acquisition has not only expanded Pfizer’s product portfolio, but also allowed the company to expand its footprint in Central and Eastern European countries.
Our Recommendation
We currently have a Neutral recommendation on Pfizer. While near-term earnings growth will come in the form of cost cutting and share repurchases, longer-term growth will depend on the success of drug development. The company carries a Zacks #2 Rank (Buy rating) in the short run.
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