Pfizer: Pounds to Profits
By: Nicole Tessier & Camille Gilbert
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
The Rise and Consequent Fall: Pfizer’s Pandemic Odyssey
Pfizer, a global pharmaceutical powerhouse, boasts a diverse portfolio of vaccines and medications for infectious diseases, oncology, and diabetes treatment. The company is well-known for being a beacon of change during the COVID-19 pandemic by developing a highly successful vaccine, which previously sent earnings through the roof. This led to an almost 100 percent surge in revenue growth from 2020 to 2021. Although Pfizer’s historic success elevated its standing, the company has faced substantial revenue declines over the past year as demand for its COVID-19 products waned. Pfizer is now seeking new revenue streams as it ventures into the growing weight-loss drug market, which has proven to be more challenging than initially anticipated.
Big Pharma’s Overture in the Global Obesity Epidemic
The weight loss drug market represents a crucial battleground for Pfizer due to the rise of the global obesity epidemic, with obesity now ranking as the fifth-leading risk factor for death worldwide. Obesity rates have tripled since 1975 and the disease currently affects over 1 billion people around the globe, with 55 percent of adults expressing a desire to lose weight in the U.S. alone. According to the World Obesity Federation, more than half of the world’s population will be overweight by 2035 without significant action, leading to market growth estimates ranging from a shocking $77 billion to $200 billion by 2030. Goldman Sachs economists suggest that reducing obesity rates could alleviate the substantial economic burden associated with the disease, with obesity-related medical costs in the US reaching approximately $173 billion in 2019.
The current class of highly successful weight-loss drugs, including the popular Ozempic, Wegovy, and Moujaro, can be classified as glucagon-like peptide 1 (GLP-1) agonists. These medications are mainly used to regulate blood sugar (glucose) levels in individuals with type 2 diabetes and obesity and are presently only offered in an injectable format. It is important to note the significance of the regulatory landscape in this industry, with medications exclusively approved for either weight loss or type 2 diabetes. However, slow approval processes for new weight-loss variants – coupled with overwhelming demand – occasionally leads doctors to prescribe diabetes-approved drugs “off-label” for obese individuals over a threshold body mass index. The industry's evolution into a potential winner-takes-all scenario makes immediate strategic decisions crucial for Pfizer's future success.
The Race Begins
With overwhelming potential in the obesity market, Pfizer is racing against top competitors Eli Lilly and Novo Nordisk to develop an oral version of a weight-loss drug, and they are pushing full force. Lilly and biotech firm Fauna Bio recently struck a partnership deal to discover new anti-obesity drugs by studying animal hibernation, with a potential value of up to $494 million plus royalties. This will allow Lilly to access Fauna's artificial intelligence platform which contains biometric data from over 450 mammal species. The move reflects Lilly's growing focus on anti-obesity medications.
Meanwhile, Novo has seen continued success with soaring sales of its semaglutide products and plans to boost R&D spending by 35 percent this year compared to 2022. Novo has also engaged in strategic business development efforts, including a partnership with Swiss biotech firm, EraCal, aiming to expand its options for obesity treatments. Novo is offering EraCal up to $255 million for rights to a small molecule targeting a novel mechanism of action to control appetite. There is no doubt that the competition is making bold moves to enter the growing market.
Pfizer’s Financial Woes and Strategic Struggles
Pfizer is facing challenges on two fronts: declining revenue as COVID-19 cases decrease and difficulties entering the obesity market. Financially, Pfizer has experienced substantial setbacks, with 2023 fourth-quarter revenues dropping by 41 percent compared to one year prior – representing a total $10 billion decline. Its stock also plummeted by 49 percent, marking its worst year on record and wiping out approximately $140 billion in market value. In 2024, Pfizer continued to see weaker-than-expected sales of the COVID-19 vaccine, which drove the company to set a cost-cutting target of $4 billion for the year. Looking ahead, Pfizer cautioned that 2024 sales could fall as much as $5 billion below Wall Street expectations, highlighting the ongoing challenges the company faces in maintaining its market position and profitability.
Further adding to the challenges of Pfizer’s business operations, including significant fluctuations in sales and demand for existing products, is that its obesity trials are failing to meet the standards required for success. Setbacks began in June 2023 when the company halted the development of lotiglipron, an obesity drug candidate, due to concerns about liver toxicity detected during tests. Then, in December, Pfizer announced another setback with its oral weight-loss drug danuglipron, deciding not to proceed with late-stage studies due to adverse side effects including nausea, vomiting, and diarrhea.
Altogether, declining sales have trickled down to weaker gross margins and diminished investor confidence. To bounce back, Pfizer has shifted their strategic focus away from obesity drugs, putting themselves at risk of missing out on this significant market potential. Although the company is dedicating resources to R&D, its capital investments have not prioritized the development of a viable weight loss drug as heavily as its competitors have. This is evident through Pfizer’s lack of strategic partnerships and acquisitions related to weight loss solutions.
Partnering for Success
With Lilly and Novo maintaining a strong foothold, Pfizer urgently needs a strategic solution to navigate these setbacks and capitalize on the weight-loss drug market. Most approved drugs in today’s markets are associated with a licensing partnership or acquisition component. Of the recent molecules big pharmaceutical companies have launched, around 90 percent have had a significant component that was externally developed. Although acquisitions can be seen as opportunistic, in a press release earlier this year, Pfizer’s management indicated a willingness to explore licensing deals of earlier-stage weight-loss drugs rather than later-stage company acquisitions. By focusing on licensing, which typically requires a smaller investment, Pfizer can capitalize on emerging opportunities in the weight-loss market while managing financial risk effectively.
In 2020, Pfizer entered a multi-year R&D collaboration with BioNTech in developing the COVID-19 vaccine, which positioned it to gain an early advantage in the rapidly evolving COVID-19 market. They were able to leverage BioNTech’s expertise in exchange for an upfront payment and equity investment with future milestone and royalty payments. Similarly, in 2022, Pfizer made a $300 million deal with the UK’s Beam Therapeutics Inc. to target their DNA editing techniques as a part of their four-year collaboration to target liver, muscle, and central nervous system conditions. Therefore, considering Pfizer’s track record of formidable success through collaborations and the ongoing trend of competitors acquiring available pipeline assets in the weight loss market, there is now mounting pressure on Pfizer to seek further industry partnerships for success.
Pfizer should partner with Kallyope Inc., a private biotech firm based in New York. With a niche focus on diabetes, obesity, and gut disorders, Kallyope boasts a valuation of $1.14 billion and is advancing through promising early stage 2 clinical trials for two of its oral weight-loss drugs, K-757 and K-833, which it expects to complete in July 2024. K-757 and K-833 have a unique mechanism of action that targets a different pathway than existing obesity treatments being produced by competitors, which enhances the body's natural metabolic signals to stimulate the secretion of multiple appetite-suppressing satiety hormones. Overall, its novel approach to treating obesity, innovative drug discovery methods, and expertise in the gut-brain axis gives it a unique edge over larger companies.
Kallyope’s specialized approach also aligns with recent trends in the pharmaceutical sector that have shown a preference for partnerships with companies focused on specific drug candidates over those with broad platforms. Kallyope has been actively exploring the possibility of forming a strategic partnership with a larger firm, like Pfizer: "We've got capabilities, but we've got a bandwidth issue, a capacity issue, because of the productivity of the pipeline so far," said Jay Galeota, its CEO and president, referring to the need to partner with big pharma to help speed up and expand the scope of Kallyope’s R&D. To gain access to these assets, Pfizer should mirror the exclusive nature of the Pfizer-BioNTech COVID-19 vaccine partnership and negotiate for an exclusive license over K-757 and K-833. This exclusivity would give Pfizer sole rights to develop and commercialize the drugs, providing a clear path to market without competition from other large pharmaceutical companies.
We recommend that Pfizer offer an upfront payment to Kallyope based on their valuation of future cash flows, along with milestone payments tied to achieving specific development, regulatory, and commercial milestones. This could include submission of regulatory applications, completion of Phase 2 and Phase 3 clinical trials, approval of the drug by authorities (FDA, EMA), and the achievement of sales targets if development is successful. Additionally, Pfizer could agree to pay royalties as a percentage of net sales on the drugs, following a similar royalty structure to comparable deals in the industry. By licensing its IP, Kallyope can generate revenue to fund the company’s operations, support R&D efforts, and accelerate growth. It is important to note that this would allow Pfizer to develop and commercialize the specified drug candidates without forcing Kallyope to give up ownership of its core technologies, including those related to bioinformatics, sequencing, and imaging – all of which are critical to their research approach.
To further entice Kallyope to enter a licensing partnership, Pfizer should structure the shared development costs in a mutually beneficial format for Kallyope. For example, Pfizer could agree to fund a higher percentage of the early-stage development costs, when the risks are more severe, and then shift more of the costs and assumed risk to Kallyope as the drugs progress through the later stages of development and closer to commercialization. This would reduce the financial risk for Kallyope as an earlier-stage company while allowing Pfizer to benefit from the drugs' future success. Additionally, Pfizer could offer Kallyope access to its extensive resources and expertise in drug development, regulatory affairs, and commercialization, providing valuable support and guidance throughout the drug development process. While there are no guarantees regarding the success of clinical trials, the collaboration will expedite the development timeline for Kallyope, and as proven with past partnerships, will increase the likelihood of Pfizer obtaining approval for a drug, potentially benefiting both parties in the long run.
From R&D to Production: Strategic Rollout
If Kallyope's candidates successfully navigate through clinical trials, Pfizer will still need to set itself apart from its larger and more agile competitors like Novo Nordisk and Eli Lilly.
Analysis from major consulting firms, including the Deloitte Center for Health Solutions, suggests that product advantages and niche marketing strategies are crucial for drug launch success. Moreover, advantageous products for weight loss drugs are those with fewer side effects, shorter treatment durations, and higher percentage changes in body weight. The problem is that in-depth product comparisons and their relative advantages have yet to be discovered. Given this knowledge gap in the market, we believe Pfizer can distinguish itself by marketing its drug as a novel solution that addresses the pressing need for better-tolerated, widely accessible, and low-cost solutions for obesity.
With an oral weight loss pill, Pfizer will already hold an advantage over injectable treatments, as oral formats are widely preferred by both patients and physicians. When it comes to competing pills, K-757 and K-833 already appear to be favourable, as their method of action serves as a significant differentiator from other GLP-1 agonists. This is because Kallyope's approach mimics the hormone release associated with bariatric surgery, a medical procedure that alters the digestive system to induce weight loss, which many consider the gold standard for sustainable weight management. Therefore, Kallyope anticipates that this approach will be advantageous for both weight loss and glycemic control and may be easier to administer and tolerate compared to GLP-1s. Here lies the potential for product advantage.
In terms of marketing, we propose that Pfizer position its drug as a low-cost obesity solution when entering the market. Pfizer should start the rollout of their new drug in North America, particularly the U.S., not only due to the region's large and lucrative market for pharmaceuticals but also because both Pfizer and Kallyope are headquartered there. Following a successful North American launch, Pfizer can consider a long-term rollout in Europe before expanding globally to maximize the drug's reach and impact. Additionally, there is a higher prevalence of obesity among low-income demographics, with 59 percent of obese adults in the U.S. belonging to households with incomes below the poverty line. A flexible pricing model would increase the drug's accessibility and would enable healthcare providers to adopt the drug without the barrier of high upfront costs. The objective would be not merely to reduce the price but to facilitate manageable payment terms, thereby promoting widespread adoption and benefit realization.
Case Study: Pfizer’s Lipitor Launch
An example of this type of successful launch was Pfizer’s Lipitor. Pfizer was able to price these drugs at an affordable price to end-consumers by implementing discounts for patients, insurers, and prescription processors, making it competitive with generic alternatives. Therefore, although it was the fifth statin approved, Lipitor’s broad acceptance enabled it to generate U.S. sales of $1.54 billion in its first 12 months on the market.
Pfizer should establish similar payment terms for their novel weight loss drug, which involve providing discounts or rebates directly to patients to reduce their out-of-pocket costs. Pfizer could also offer discounts to insurers to encourage coverage of the drug, making it more accessible to a larger population. This approach would be particularly effective in addressing the higher prevalence of obesity among low-income demographics, as it would help reduce the financial barriers to accessing the drug.
By establishing itself as a budget-friendly oral treatment with the potential to deliver significant weight loss and glycemic benefits with gastrointestinal tolerability, Pfizer would introduce an obesity management pill with an enticing value proposition. By leveraging their vast resources and strong brand name, they would be well-positioned to not only enter but outpace competitors in the race to tackle the global obesity epidemic.
