Some of my Foolish colleagues and I have expounded on the problems with large pharma mergers and acquisitions -- and history is on our side -- but as we get closer to Pfizer
The acquisitions may make the drug companies bigger, but they may lose a few drugs in the process.
Japanese drugmaker Eisai said last week that it plans to end its partnership with Pfizer to market its Alzheimer's drug, Aricept, after Pfizer buys Wyeth. Pfizer recorded nearly half a billion dollars in sales of the drug last year, so the loss wouldn't be huge, but it's not trivial either.
The acquisition of Wyeth includes its phase 3 Alzheimer's drug, bapineuzumab, which Wyeth is developing with Elan. Eisai is surely worried that, if bapineuzumab is approved, Pfizer will give bapineuzumab more attention than Aricept.
Pfizer says that Eisai has no basis for terminating the partnership, so this one looks destined for court or perhaps a renegotiation of the partnership if the two sides can agree on a compromise. Pfizer could, for instance, agree to give Eisai a small royalty on bapineuzumab if Aricept sales fall below a certain level.
An excuse to terminate
Johnson & Johnson
I'm sure that Johnson & Johnson would love to get out of the contract, and Merck's acquisition of Schering might just be the window of opportunity. A change of control allows Johnson & Johnson to terminate the contract.
Management at Merck is no dummy -- $2.1 billion in revenue from that drug last year will keep you on your toes -- so Merck set up the acquisition as a reverse merger where Schering is technically acquiring Merck and then changing its name to Merck. Sneaky? Yes. Will Johnson & Johnson go for it? I think it's likely we'll see Johnson & Johnson force a compromise or maybe it'll play out in court, but Johnson & Johnson is playing it close to its chest.
Best of both worlds
For partners, mergers are great because they often get to make a decision about whether the acquisition is in the best interest of their respective companies. For instance, I haven't heard any complaints from Amgen
We also didn't hear many complaints from Bristol-Myers Squibb
The acquisitions that could have been
Sometimes external partnerships just drive away would-be acquirers altogether. This may have been what happened to Biogen Idec
For better or worse, the same fate is likely to befall many development-stage drugmakers that have taken on multiple partners to fund the development of their drug pipelines, such as Alnylam.
Lesson for investors
Many aspects of partnership agreements are kept secret, but that doesn't mean investors should ignore them altogether. There's usually some information about the terms of the agreements nestled inside the 10-Ks -- yes, you actually do have to read them. Keep in mind that many have change in control clauses, which may lower the value to any potential acquirer.
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Elan is a Rule Breakers pick. Biogen Idec is a Stock Advisor recommendation. Pfizer is an Inside Value selection. Johnson & Johnson is an Income Investor recommendation. Got that? Want to find out why? Try any of these newsletters today, free for 30 days.