When it comes to pulling the ripcord on a parachute, late is a whole lot better than never.
Pfizer's somewhat disappointing third-quarter earnings report on Tuesday was overshadowed by the company's announcement that it's giving up on a cholesterol-lowering drug called bococizumab after deciding the drug lacks commercial potential. Pfizer shares fell as much as 3 percent Tuesday.
Investors might wish Pfizer had come to this realization before spending several years and millions of dollars developing the drug. And the news enhances the narrative that Pfizer's pipeline isn't the strongest. But investors shouldn't punish the company too much for making a correct decision, even if it's belated.
Pharma companies can be pretty bad at understanding sunk cost; they're often loath to give up on drugs in which they've invested heavily. It's why firms seek approval of drugs even with shaky clinical or commercial prospects (see BioMarin's Kyndrisa, Dendreon's Provenge and Pfizer's own inhaled insulin).
This may not be as obvious or easy a choice as it seems. In a press release Pfizer said its decision was motivated by an unexpected decline in bococizumab's efficacy and unfavorable side effects. But Pfizer probably could have convinced itself to keep going, based on better results from past trials, hope of better data to come, or a dearth of other potential blockbusters. Many firms pick through failed or shaky clinical trials with a fine-toothed comb, hoping to find some way to move forward with a drug, even if they ride it into a scientific, regulatory or commercial crater.
Helping convince Pfizer was the fact that two drugs in this class are already on the market, Amgen's Repatha and Sanofi-Regeneron's Praluent, and they don't have much market to share. Both are expected to be blockbusters, but have run into restrictions from pharmacy benefit managers scared of their price tags. The drugs may ultimately get help from studies looking for long-term heart benefits, but Wall Street estimates of future sales have plunged as the drugs have so far failed to live up to expectations:
Pfizer now has a relatively bare near-term new-drug cupboard, even after its acquisitions this year of Anacor and Medivation for a combined $18 billion. But it was far better to give up on Boco now than spend even more time and money on the drug, the best likely outcome for which was third fiddle on an increasingly shabby stage.
Pfizer's decision doesn't deserve full-throated applause from investors, but should warrant at least an understanding golf clap. And it should prompt others in large pharma and beyond to think more critically about their own late-arriving, borderline drugs.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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