Esperion Spin-Off: Does It Signal the Start of a New R&D Era?

What a difference time makes. Pfizer (PFE) acquired Esperion roughly 4 years ago at a 53% premium and a price tag of $1.3 billion dollars. Yesterday, Esperion was spun off from Pfizer and raised ~$23m from VCs to continue operation, with no other financial terms disclosed.

Esperion had been operating as a separate research division inside Pfizer (Ann Arbor) and I doubt the move was a surprise. The company’s main focus was on modulating HDL, a task Pfizer failed miserably at with torcetrapib last year, and with big pharma being as risk-averse as the come [I hear you can’t even mention the words “irritable bowel” at Novartis (NVS)], it was probably a no-brainer for them to divest.

The thing I find interesting about this, aside from Esperion probably being the only series A funded start-up previously valued at $1.3B, is the signaling over the last year of big pharma’s willingness to divest, dis-integrate and part with intellectual property. Earlier this year, AstraZeneca (AZN) spun off its gastrointestinal research unit into a new company, called Albireo Pharma, in which it holds a minority stake.

Maybe this is the next big thing and a signal of things to come. Rather than kill an entire disease or target area due to a failed trial or compound, let a small (relatively), minority owned and specialized research shop continue advancement of compounds. There is little downside and it allows the parent company to profit from any potential success.

Of course, the two instances noted are far from a trend, but my hunch is you will see this happening more as a thinning late-stage pipeline and patent expiries combine to force executives into hard decisions about the future of their respective companies. The next 10 years in this industry will be radically different that the previous decade and this seeming willingness from big pharma to give up IP, I believe, signals that the industry is reaching an inflection point where the blockbuster business model is changing. Of course, I could be wrong.

Comments

[BioInvestor]

Pfizer is doing a sensible thing by transferring risk to the VC community where it belongs!

[Ketan Desai]

Good analysis. I would go further and say that Big Pharma may change so that each company becomes a holding company. Each therapeutic area could be spun off into a separate company. There are plusses and minuses to this. The advantage is that an individual therapeutic area does not feel it is being held down by another, or is getting a step-motherly treatment. The disadvantages are that cross-functional learning and applications will be lost, as will flexibility in terms of human resources, scale, etc.

[patrickb]

Another downside could be the loss of potential synergies of medicines. I heard of that new imitrex follow up that contained ibuprofin too I think. It was a way to bring imitrex from the metaphorical economic death that is generics. If you have other drugs that are patented that can be mixed to enhance effects before one of the patents are lifted then you can use that to enhance earnings. Divesting all your bases of drugs combinations reduces possible synergies