Medical Device Daily Executive Editor

In early 2006 when Pfizer (New York) received approval of Exubera, the first-ever inhaled insulin on the U.S. market, Medical Device Daily predicted potential blockbuster status for the product and a huge boost to Nektar Therapeutics (San Carlos, California), the company helping to develop the drug and the specialized inhaler device to deliver it in a non-needle way (Medical Device Daily, Jan. 31, 2006).

Underline “potential,” forget “blockbuster” and watch out for “specialized” device.

The Nektar device, variously described as somewhat less bulky than a tennis can is being cited as one of the reasons why Pfizer (New York) last week scuttled all further efforts to make and market Exubera. As a result it will take a $2.8 billion charge, including a write-off of $661 of Exubera inventory.

With its approval, Exubera was predicted to produce up to $10 billion annually, and with Pfizer granting 10% to 20% in sales and royalties to Nektar, potentially reaping for that company more than $1 billion annually.

But a whole laundry list of reasons now has been cited by the company and analysts for abandonment of the project by the large pharma:

• the inability of the system to provide dosage consistency;

• a slight decrease in breathing ability by those using the drug/device system;

• standard needle insulin delivery systems becoming easier and less painful to use and so stronger competitors;

• a lack of reimbursement by insurers;

• a price about double that for injected insulin ($5 vs. $2-$3);

• and the user-unfriendliness of the inhaler system, requiring manipulation of a blister package and handling of the large inhaler.

All of these added up to miniscule sales for the product— less than half of 1% for the entire insulin market — in stark contrast to initial company projections of blockbuster status given that the inhaled delivery system could free patients from the dreaded needles. That blockbuster potential also had been punctuated by Pfizer’s acquiring Exubera from Sanofi-Aventis for $1.4 billion.

Besides dropping the product, Pfizer returned its marketing rights to Nektar.

Howard Robin, president/CEO of Nektar, in a statement responding to the moves, said that the company “has been very disappointed in Pfizer’s performance in marketing Exubera.” He said that Pfizer had “publicly acknowledged its organizational difficulties and resulting poor performance” in product launch, which he suggested had resulted in abandoning the product.

He said that Nektar is evaluating various options in the wake of Pfizer’s action and that it continues “to believe Exubera is an important advancement for diabetic patients.”

The company made no reference to any difficulties with or reactions to use of the inhaler system.

Nektar is one of two tech groups of West Pharmaceutical Services (Lionville, Pennsylvania), which also issued a statement.

Donald Morel Jr, PhD, West’s CEO and chairman, said he was “surprised and disappointed” by Pfizer’s decision and that it too was evaluating its options in the aftermath of the action.

“The actual effects on our business will depend on how Nektar decides to proceed in the wake of this change,” he said. “We will continue to work with and support Nektar as they evaluate their options.”

While Nektar’s statement did not report the amount of its investment in the product, West, in its statement, said that investment was about “$15 million of current assets and production facilities, which it believes are fully recoverable, and approximately $13 million of intangible assets.”

West said that Pfizer’s move is not likely to impact its 3Q results for the quarter ended Sept. 30, or EPS guidance for the full year of $2.27 to $2.37 per diluted share, excluding, discrete tax items and now excluding any impairment to its intangible assets associated with the Exubera business. It said that the potential for impairment will be evaluated as further information is available concerning Nektar’s plans for Exubera.

West said it will provide further information during its 3Q analyst call on Nov. 1.

Nektar noted that it provides a variety of revenue sources and a pipeline of other therapeutic products to defray the impact of Pfizer’s move. These include NKTR-102 (PEG-irinotecan) for the treatment of solid tumors, NKTR-118 (PEG-naloxol to treat opiod bowel dysfunction and other PEGylation-based products.

While some analysts were surprised that Pfizer had withdrawn from the product fairly quickly, the consensus was that it was the right move due to lack of performance.

But the action further underlined Pfizer’s recent difficulties.

The company has cut its workforce by 11,000 over the past year, including massive layoffs in Michigan where it shuttered all of its facilities, including some with multi-billion-dollar construction costs.

During its analyst call to report the Exubera move, it said that pharmaceutical sales had fallen 4% to $11 billion for the quarter and that sales of Lipitor, a major seller targeting high cholesterol, fell 13% as the result of patient shifts to a generic competitor.