Wyeth's Multibillion-dollar Biotech Bet

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Photograph by Bob O'Connor

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From left: Wyeth's Hubert Scoble, Kevin Hanley, Jeff Deetz, and Mike Kamarck have led a charge that has seen lucrative biotech products emerge from the firm's labs. | Photograph by Bob O'Connor

It seemed like a disaster. In July, Wyeth BioPharma -- which everyone, inside the company and out, calls Wyeth Biotech -- released clinical results showing that its much-touted Alzheimer's drug, bapineuzumab, had failed to meet expectations. Papers screamed with headlines like Wyeth May Be Dead Money After Alzheimer's Setback. Some analysts raised doubts that the drug, which had been seen as a potential blockbuster, could get FDA approval. Its parent company's share price dropped more than 10% in a day.

Yet the mood at Wyeth Biotech's Andover, Massachusetts, research campus remained upbeat, the vibe more rah-rah startup than uptight, market-obsessed Big Pharma. Huge gambles and the constant possibility of failure are integral to the unit, the product of an unconventional decade-long experiment at its parent, pharma giant Wyeth Pharmaceuticals. Most pharmaceutical companies steered clear of biotech back when its methodology -- cultivating living cells and using them to churn out complex, large-molecule drugs -- was still being perfected. But Wyeth took a big risk. In the 1990s, it acquired two of the country's most promising biotech companies, Genetics Institute and American Cyanimid. Over the following years, it combined them into Wyeth Biotech and spent more than $3.5 billion to grow them.

The result has been a rich symbiotic exchange. Fed by the resources of its parent, Wyeth Biotech has blossomed. And the upstart unit has changed Big Wyeth, too, persuading managers to emulate its ambitious approach and rewarding employees not for showing up but for performance. It has also produced some of Wyeth's best-known, most-lucrative drugs, including the pneumococcal vaccine Prevnar ($2 billion in revenue per year) and rheumatoid-arthritis injection Enbrel ($3.5 billion). Even with disappointment over bapineuzumab, there are scores of biotech products in the pipeline, from anti-inflammatory drugs to treatments for cancer, and "40% to 45% of our revenues now come from biotech," says Mike Kamarck, Wyeth's president of technical operations and product supply. "In a year or two, it'll be more than half." Wyeth as a whole is performing well despite challenging market conditions. Profits have risen 12% in the past two years. In July, the company hiked its earnings guidance for 2008, and in October, it confirmed it was on target to make those numbers.

Perhaps the best measure of Wyeth's biotech success is that other Big Pharma companies are now trying to follow suit. In October, Eli Lilly won a bidding war with Bristol-Myers Squibb for ImClone, a prominent biotech company with several cancer drugs in its pipeline, with an offer of $6.5 billion. In July, Roche made a gargantuan $44 billion bid to gain full ownership of biotech leader Genentech, in which it had a partial stake. And GlaxoSmithKline announced that it would focus more on growth areas like biotech. But in a Credit Suisse report issued last fall, research analyst Catherine Arnold gave Wyeth an edge, calling it "one of the most attractive targets in the global pharmaceutical space" and citing the strength of the company's biologics products as well as its research pipeline.

Wyeth's biotech focus was born of uncertainty within the company. In 2002, a government-sponsored trial of one of Wyeth's flagship products, Prempro -- a drug designed to relieve menopausal symptoms -- ended prematurely for safety reasons. "It was one of our biggest products," Kamarck says, "and it had its legs taken out from under it."

Amid the turmoil, Bernard Poussot, then president of Wyeth's pharmaceutical division and now CEO of the entire company, pondered the firm's biotech gamble -- and decided to double down. He felt that large-molecule drugs, which can be endlessly customized, would eventually transform the industry. "The small-molecule world was shrinking in terms of innovation," Poussot says. "With large molecules, you can be a lot more specific in your treatment approach -- you can correct a lot of deviations at the cell level."

But when Poussot floated his biotech hunch in meetings with senior management, he met resistance. "The question was, 'Can we actually do this?' " Kamarck says.

Poussot parried the naysayers with a vehement "Yes!" and an unprecedented gambit. In 2003, to build the company's biotech focus, he created a new business unit devoted to marketing Wyeth Biotech's products -- a move meant to send a message about the future of the company as a whole. The biotech-business culture that had fostered so much innovation needed to be allowed to flourish. "It's almost like academia," says biotech-project specialist Lisa Housiantis. "You're given the freedom to try out your ideas."