Radical Surgery

One analyst says the Pfizer-Wyeth deal will lead to $3 billion in R&D cuts. It's either a sign of industry bloat—or a short-term fix.

Pfizer, Inc. sold investors on its acquisition of Wyeth, saying it would save money, add products, and combine research efforts.

Now, an analyst tells Bloomberg News that she thinks the company will chop $3 billion, or almost a third, of the annual research budget and kick thousands of scientists out on the street.

New York hedge fund manager Michael Krensavage, of Krensavage Asset Management, says that figure is plausible, and he tells me that the number shows how bloated big pharmaceutical-research departments have grown.

The proof is in the output: Pfizer hasn't brought to market any big products to shore up the loss of Lipitor when the cholesterol drug's patent protection expires in 2011. That drug accounts for $10 billion in annual sales.

"I don't think the industry really has a choice here," says Krensavage, whose firm holds Pfizer shares. "They're spending a lot of money for not a lot of productivity."

Pfizer, the world's biggest drugmaker, isn't the only company to slash R&D as big-selling products face generic competition, which reduces prices on brand-name medicines. Bloomberg cites Johnson & Johnson, AstraZeneca, and GlaxoSmithKline as other companies cutting research budgets. In all, products that generate $137 billion in sales will face generic competition in the next five years, Bloomberg says, citing IMS Health Inc.

Deutsche Bank analyst Barbara Ryan made the prediction about the $3 billion cut. Such a reduction would result in Pfizer spending about the same as it did last year for R&D, which was $8 billion, she says.

Martin Mackay, president of Pfizer Global Research and Development, told Bloomberg that reductions would be made but doesn't confirm the figure in the article.

It's safe to say least one group is very concerned: scientists.

“These big acquisitions don’t do a thing for research,” Kenneth Kaitin, director of the Tufts Center for the Study of Drug Development, tells Bloomberg. “I don’t think anyone should be fooled into thinking these big acquisitions have anything to do with innovation or increased research and development capacity.”