Humdrum, stodgy Pfizer suddenly turns heads with partial drug-pipeline spinoff; old dog apparently can learn new tricks.

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The News:

Pfizer Inc. (NYC) on Monday (September 25, 2017) announced that it is spinning off a new company, SpringWorks Therapeutics LLC, to develop several drugs for rare diseases that the drug giant did not want to move forward internally. The new firm will be funded with $103 million from Pfizer, Bain Capital Life Sciences, Bain Capital Double Impact, Orbimed and Lifers, according to Forbes.

“We’re left with some compounds that we think have great promise for patients but are not necessarily core,” Freda Lewis-Hall, executive vice president and chief medical officer at Pfizer, said. “We originally conceived of this as kind of a new and innovative way for us to advance the investigational therapies that we thought hold significant promise for underserved populations.”

Over the past decade, many Pfizer drugs have found success outside the company:

“Pfizer perhaps has learned from the fact that it’s had a lot of compounds on its shelf that others capitalized on,” says John LaMattina, senior partner at PureTech Ventures and former head of R&D at Pfizer.

Pfizer also isn’t the first drug giant to spin out a smaller drug company and collect funds from venture capitalists, Forbes points out. In June, Johnson & Johnson (New Brunswick NJ) did this with a company called Provention Bio, which raised $28.4 million.

But the Pfizer deal “is the biggest one of these that we’ve seen,” says David Grainger, partner at Medicxi Ventures (London).

SpringWorks founder and president Lara Sullivan and Lewis-Hall worked on the idea for the new company for the past two and a half years, at first after hours from Sullivan’s work as a vice president at Pfizer managing compounds in the research pipeline through Phase 2 trials.

The two identified some compounds in the company’s portfolio that showed promise in rare diseases or for underserved patient populations and thought . . .

“a more partnered development paradigm and channel would be optimal to help those compounds go forward more quickly,” Sullivan said.

New York-based SpringWorks is starting out with four compounds licensed from Pfizer, half of them poised for Phase 3 trials.

One of the compounds, the Gardos channel inhibitor senicapoc, previously failed to meet efficacy hurdles in a Phase 3 trial for sickle cell anemia. SpringWorks plans to test senicapoc in hereditary xerocytosis, a rare genetic form of anemia in which red blood cells become dehydrated, causing a range of symptoms including jaundice, tiredness, an enlarged spleen and gallstones.

SpringWorks has plans to start Phase 3 trials for nirogacestat, a gamma-secretase inhibitor Pfizer had been developing for breast cancer, in patients with noncancerous connective tissue growths called desmoid tumors.

Also ready for Phase 3 is a MEK inhibitor for neurofibromatosis type 1, a genetic disorder in which noncancerous tumors grow next to nerves.

SpringWorks’ final compound is a FAAH inhibitor it plans to test in post-traumatic stress disorder. Pfizer was developing the compound for pain when a Phase 1 trial of another FAAH inhibitor from the Portuguese pharma company Bial SA caused brain death in one patient and neurological damage in others. The FDA reviewed data on the FAAH inhibitor SpringWorks now has, Sullivan said, and said they can proceed.

Steve’s Take:

So you can’t teach an old dog new tricks, eh?

Months, or even years, go by where observers like me don’t really pay any attention to the NYC-based pharma goliath. Why? Well, with a mammoth market cap of $210 billion, a beta south of 1.0, 316 consecutive quarterly dividends, an annual dividend of $1.28 (yield of 3.63%) and a 1-year share-price change of a whole +4.71%, what’s to get excited about?

Actually, this SpringWorks deal is a hopeful, reassuring sign Pfizer hasn’t lost its sense of adventure into the realm of sound, forward-looking business logic.

This isn’t a small experiment, Xconomy points out. Springworks plans to develop not just the four Pfizer drugs–which are all set for either mid- or late-stage clinical trials—but also experimental therapies other pharma companies abandon for one reason or another. The yardstick? SpringWorks favors drugs ready for Phase 2 that it can develop for diseases with either no approved therapies, or “minimal to no competition from others.”

Pharma companies scrap development of experimental drugs all the time and Sullivan saw this up close at Pfizer, where she helped decide which early-stage drugs to put resources into, and which to discard or license out to someone else. Two things she and Pfizer chief medical officer Freda Lewis-Hall noticed: More programs were fighting for funding than Pfizer could handle, and outside groups were increasingly interested in snatching up the drugs falling through the cracks.

Sullivan says the difference between SpringWorks and other efforts to push forward stalled pharma drugs is both its broad scope and the incentives it will hand to those it does deals with. Those incentives include, potentially, a piece of SpringWorks equity, not just downstream payments, which may help subdue a company’s fear of dumping a program that may later prove very valuable, Sullivan says.

“We will have the ability and structure to allow our partners to share in our future success,” Sullivan says.

The hope, according to Sullivan, is the startup may eventually provide a “systemic solution” for stalled drug programs at Pfizer and elsewhere. But SpringWorks must chalk up some victories in clinical testing first to prove that.

Pfizer’s move to create an independent company–deliberately safety net-free–suggests the biggest wheels of the drug industry have learned an important lesson, said Bernard Munos, a former R&D executive at Eli Lilly who now consults for pharma companies.

“I think the industry has realized that they have not really been true to their words in terms of embracing innovation,” Munos said. “So this is very encouraging, frankly, especially coming from Pfizer.”

What do the analysts think?

As of Sep 22, 2017, the consensus forecast among 22 analysts covering Pfizer advises that the company will Outperform the market. This has been the consensus forecast since the sentiment of investment analysts improved on Dec 03, 2008. The previous consensus forecast advised investors to Hold their position.

Share price forecast

The 20 analysts offering 12-month price targets for Pfizer have a median target of $37.00, with a high estimate of $54.00 and a low estimate of $31.00. The median estimate represents a 4% increase from the last price of $35.43.

Bottom Line:

Damian Garde at Stat posits the popular theory about the limitations of global pharma companies:

“For all their skyscrapers and strategy reviews and private jets, they’re simply too knotted up in bureaucracy to realize how many great drugs are gathering dust in their vaults. Now, the biggest of Big Pharma is out to do something about that.”

This may seem odd in that Pfizer spends literally billions of dollars a year advancing treatments of its own. But the company’s executives say they simply don’t have the resources to advance all the promising compounds that catch their eye–and they believe an independent company with the plucky culture of a startup will be in a better position to take on that task.

Steve's Take: Springworks spinoff has a lot of upside for @Pfizer with little capital risk Click To Tweet

Pfizer is forgoing up-front cash by not licensing these drugs to an unrelated party, but this is a better option, says Max Nisen at Bloomberg. It’s not the best time to get a choice licensing deal; multiple companies are overhauling R&D efforts and selling off drugs.

Pfizer will get milestone and royalty payments if the drugs succeed, as it would under a standard licensing agreement. But it gets extra upside through its equity stake in the spinoff.

Given the participation of Bain Capital and other investors, Pfizer’s cash outlay probably wasn’t significant. And the company has a chance of a return on drugs that may have otherwise languished on the shelf.

This spinoff move has a lot of upside for Pfizer with relatively little capital risk. Most significantly for investors, however, it signals that the old pharma goliath can join in the new strategic thinking about drug development with a solid, 2017-era tactic.