We've all cringed at stories of people dumping their partners via text message but in the world of business, Pfizer seems to have taken things to a new level when its Exubera partners were allegedly left to find out the product was being scrapped through a press release.
Nektar Therapeutics, West Pharmaceutical Services and Consort Medical say they have been left in a state of limbo and searching for some answers after the drug giant's suprise announcement last week.
"We first learned this morning of Pfizer's decision to walk away from Exubera from their press release," said Howard Robin, president and CEO of Pfizer's long-time development partner on the product, Nektar, in a statement last week.
An investor relations spokesperson from Nektar told In-PharmaTechnologist.com that the firm was "shocked" and "bitterly disappointed" in the manner in which Pfizer chose to conduct themselves over this matter, "as were many others who were close to the product."
Indeed, the two Exubera device contract manufacturers, West Pharma (through its business unit The Tech Group) and Consort Medical (formerly called Bespak) expressed similar sentiments when contacted.
A spokesperson for Consort confirmed with In-PharmaTechnologist.com that the first it knew of Pfizer's decision was through the press release, while West's chairman and CEO Donald Morel issued a statement saying: "We were surprised and disappointed by Pfizer's announcement and are in the process of evaluating its impact on the company."
The pair have been involved in the manufacturing of the device since 1999, although it is Nektar in particular that has been left with a bitter pill to swallow and a potential large financial burden to bear.
The small biotech firm (called Inhale at the time) originally developed the Exubera inhaled insulin formulation using its pulmonary and PEGylation technology and in 1998 formed a joint partnership with Pfizer and Hoechst Marion Roussel (which later morphed into part of Sanofi-Aventis) to help the firm bring the product to fruition.
Under the deal, Pfizer and Hoechst jointly constructed a manufacturing plant especially for the insulin powder, were to help foot the bill for the clinical development programme, and be responsible for the eventual marketing. Pfizer eventually took over sole responsibility for these functions when in early 2006 it bought the rights to Exubera off Sanofi-Aventis for $1.3bn (€0.9bn), as well as the Frankfurt production plant. Meanwhile, Nektar was to be responsible for supplying the delivery devices and was to receive a share of the royalties on sales, which largely failed to materialise.
Today Nektar said it has been left feeling very frustrated and let down by Pfizer: "Nektar has been very disappointed in Pfizer's performance in marketing Exubera. Pfizer has publicly acknowledged its organisational difficulties and resulting poor performance in launching Exubera. This has culminated in their announcement," said the company's CEO in statement.
"We are evaluating all of our options with respect to Pfizer's Exubera announcement to protect the interests of Nektar."
However, the Nektar spokesperson said that the firm remains very much in the dark over Pfizer's intentions for the abandoned product. All that is known from Pfizer's statement is that it will phase the product out over a period of three months.
"What remains unclear is their course of action after this," said the spokesperson.
"We need clarity from Pfizer about what their plans are - as yet we have been unable to get any answers. But we will continue to seek this clarity, and will ask them for an answer every day until we receive one."
When asked if Nektar has any plans to buy back the rights to the product and try to continue marketing it with a new partner, the spokesperson said that "it is an option."
Andrew Forman, analyst at WR Hambrecht has said that he thinks Nektar may easily be able to find a new partner for the product: "There's an opportunity here for a company that is more patient." Thanks to Nektar's much lower marketing overheads he also believes that "Nektar can launch this as a discounted product and lower the price 30 percent or more to get it moving."
It is unclear whether this will actually happen. In August Nektar's CEO told analysts that Exubera "is not strategically relevant to the future success of Nektar." However, Nektar still has a lot riding on the product. Not only hopes and dreams of potential royalties, but it is Nektar, not Pfizer who has invested millions of dollars into developing manufacturing capability for the device and remains tied into supply contracts with West and Consort, for which it remains largely financially liable and may want to at least try and reap some cash back considering there is already a huge pile of finished inventory just waiting to be sold.
Nektar and West custom built a plant dedicated to the Exubera device. West said that it has now been left with investments related to the Exubera project of $15m of current assets and production facilities and $13m of intangible assets.
But West's vice president and treasurer, Michael Anderson, told In-PharmaTechnologist.com that he believes the $15m is "fully recoverable" because Nektar "is contractually obligated in this regard."
"They have a contractual interest in the machinery, equipment and inventories, which they have either funded or are obligated to fund."
Anderson said that it is too soon to reach conclusion as to whether the $13m in intangible assets will have to be written off, as "that will depend on whether our customer finds an alternative to the terminating Pfizer arrangement."
The firm did concede that it has developed no specific plans in regard to filling capacity at the Exubera plant with other manufacturing work, and that the facility would likely require substantial refitting in order to produce a different product or products there.
Meanwhile, what started out as a potentially very lucrative deal for the firm has ended up as a disappointment. Once the product got the green light from the Food and Drug Administration (FDA) in mid 2006, West hired and trained over 100 new staff dedicated to making the Exubera device and added extra shifts. A year on and things are very different - in August Nektar asked the firm to scale back production to one shift per day.
Now, West still has 200 staff still dedicated to the Exubera contract, and while production of the device is still continuing on a skeleton basis, the company said it will "have substantial protection from financial loss under the contract" should production cease altogether and are only at risk of losing the revenues that it had hoped for.
"Costs incurred are accumulated and billed to the customer [Nektar] plus a margin. The customer bears the risk (and exercises a high degree of control over) of capital and operating costs. The apparent logic behind the arrangement is that a project like this is very complicated product requiring many years to develop and then produce [the contract dates to 1999] and which is highly speculative at that stage of development," Anderson told In-PharmaTechnologist.com.
"No manufacturer could agree to anything like a typical fixed unit price arrangement to produce something that's never been produced by anyone, isn't like anything they have produced, for which no volumes may be required for two, four or six years, which may never be approved for sale and, even if approved, may not succeed."
Looking forward, West said that "The actual effects on our business will depend on how Nektar decides to proceed in the wake of this change. We will continue to work with and support Nektar as they evaluate their options."
Meanwhile, the deal in place with Consort is of a similar nature. Both contract manufacturers share a fairly even split of the production under contracts that currently run until mid next year.
Although Consort did not construct an entirely new facility to make Exubera, it did make significant alterations to an existing product line, some of which Nektar paid for and remains liable for.
Likewise with the staff. After sluggish sales Bespak said in June that it would reduce the 160-strong team involved in the Exubera contract, making "a significant number of redundancies." At present, along with West, it continues to make small numbers of the device until further notice.
As is the case with West, the company said the costs of past and future staff reductions are recoverable by Bespak under the terms of its contract with Nektar.
So as Nektar continues to foot the bill for its share of the bargain, it nervously awaits to find out exactly where it stands with Pfizer and how big the financial fallout from all this will actually be, answers which, according to the spokesperson, are not yet forthcoming.
The Nektar spokesperson also alleged that Pfizer has "operated outside of its contractual arrangements" with the firm on several counts, including its marketing efforts and the "process they were supposed to go through before terminating the product."
When asked if the firm was considering legal action, the spokesperson said they could not comment.
Pfizer said last week that its decision to can Exubera has forced it to write down a whopping $2.8bn in charges but it is uncertain if any of this is has been earmarked to provide Nektar with compensation.
Pfizer failed to return repeated phone calls asking for comment placed by In-PharmaTechnologist.com with five of its media officers.
Meanwhile, it appears through this Exubera debacle, Pfizer, the world's number one pharma company, has not only taken a huge knock financially, having spent billions all up during the process, but its partnering reputation may also have taken a knock.
Morgan Stanley's Jami Rubin said that "while we are not surprised by Pfizer's decision … we were taken aback by the manner in which Pfizer management handled the situation."
"Such tactics can't be good for your 'partner of choice' reputation," she wrote in a research note.
Other analysts have expressed similar sentiment. Jim Reddoch, analyst at Friedman, Billings, Ramsey said: "They may have made it hard for themselves in the area of diabetes".
Pfizer has defended its decision not to forewarn its partners because to do so would have involved disclosing material financial information related to its quarterly earnings.
But Natixis Bleichroeder analyst Jon LeCroy said: "If it's your partner, it's financially material to both. I just find that an odd explanation of how you could leave your partner out of the loop like that… If you're a small biotech and you've seen how they've treated their tiny partners, I would argue that you probably wouldn't want to partner with Pfizer right now."
Indeed, as more and more pharma companies, including Pfizer, are gearing their business models towards relying more heavily on outsourcing relationships and small biotechs to develop innovative compounds which they can then in-license, competition amongst big pharma for partnering deals is reaching fever pitch and a dented reputation is not going to help.
However, Edward Jones analyst Linda Bannister said that she still thinks there would be "a lot of companies that have products in development who would be willing to strike a deal with Pfizer because they know Pfizer has a lot of marketing muscle".
Time will tell. Meanwhile, the chain of uncertainty around Exubera continues. West and consort and its employees wait anxiously to hear of Nektar's plans, while Nektar nervously awaits news of its fate. Only Pfizer knows the answers at this point.