Exdoomera: Why Is Sanofi-Aventis Smiling?

Pfizer CEO Jeff Kindler must have been gritting his teeth as he read out loud the costs of the now-terminated Exubera inhaled insulin product.

Pfizer announced pre-tax charges of $2.8 billion related to the Exubera exit, with approximately $1.1 billion of intangible assets, $661 million of inventory, $454 million of fixed assets and $584 million of other exit costs.

That's a lot of zeros. Exubera, along with the now defunct cholesterylester transfer protein (CETP) agent torcetrapib, were supposed to lead Pfizer into an new age of blockbuster products. Now both programs are in rubble.

There has been a lot of buzz about the titanic failure of Exubera to meet expectations, but seeing the numbers in black and white is, nonetheless, staggering.

Less than two years ago, in January 2006, Pfizer paid Sanofi-Aventis a king's ransom--$1.3 billion--for the full rights to Exubera. Then the company brilliantly navigated the product, which had respiratory safety concerns that stalled its development for years, through an FDA advisory committee and US approval by focusing on a comprehensive risk management plan.

At one point, the drug was projected to be a $2 billion-a-year franchise. In the third quarter, Exubera generated $7 million in revenue. Pfizer took one last shot at jump starting the launch by unveiling a national direct-to-consumer ad campaign earlier this year, but that was throwing good money after bad.

Exubera may have failed for any number of reasons: patients were overly concerned about respiratory side effects; the failure of a primary care sales & marketing effort to make a mark in a specialty pharmaceutical category; or it was simply a bad product for the subset of Type 2 diabetic patients it was trying to serve. And it may have been all of those things together.

In the end though, it looks like Sanofi-Aventis pulled a fast one on Pfizer, Gordon Gecko-style (you have to have seen the movie "Wall Street" to understand this reference), giving up its right to a potential blockbuster only if Pfizer paid a huge premium for the French company's troubles. Someone's laughing all the way to the bank. However, that hit may be a tad easier to take if Pfizer chooses to make a significant run at taking a stake in the French drug maker, as rumor would have it.

For Kindler, this hardly seems like a fair shake for his first year as CEO. Will investors view him as a stoic leader making tough decisions to clean up someone else's mess? They may. However, this could be the last time Kindler gets the benefit of the doubt.