PFIZER HAS AGREED to buy Wyeth in a $68 billion deal that will create a pharmaceutical behemoth with strengths in small-molecule drugs, biologics, and vaccines. The combined company will have roughly $71 billion in annual revenues from businesses spanning prescription drugs, consumer products, and animal health.
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Pfizer says the purchase, which it expects to complete in the third or fourth quarter, will bring diversification and reduced dependence on small-molecule drugs, which currently represent 90% of its business. "This is very, very different from prior pharma mergers," Pfizer CEO Jeffrey B. Kindler told reporters last week. "This is not about a single product, this is not about cost-cutting, although there will be productivity improvements. It is about creating a broad portfolio."
With the Wyeth acquisition, Pfizer is sticking to its mantra of "bigger is better," despite industrywide evidence to the contrary. Although mega-mergers swept through the drug industry from the late 1990s through 2003, companies still struggled to keep their pipelines full of innovative products. New drug approvals reached a 24-year low in 2007.
Yet Pfizer sees little choice but to think big: The company has been scrambling to avoid the revenue cliff it will reach in late 2011, when its top-selling drug, Lipitor, is scheduled to lose patent protection. In 2008, Lipitor brought in $12.4 billion, more than 25% of the company's sales. Shareholders expect a solution, and as Deutsche Bank analyst Barbara Ryan put it last year, Pfizer is "very much between a rock and a hard place."
Wyeth does not add any one blockbuster product of the type Pfizer sought in earlier deals. Rather, Wyeth's $23 billion in annual sales will diversify Pfizer's portfolio further into biopharmaceuticals and animal health, two areas that it has earmarked for growth. With the acquisition barely filling the gap left by Lipitor and other product challenges the two companies face, 2012 sales are expected to be on par with their combined 2008 results.
Deutsche Bank's Ryan estimated that Wyeth's biologics and vaccines portfolio will add about $5 billion in sales in 2012. In addition to diversifying revenues, biologic products also have a longer life span because generic competitors currently have no easy route for approval. Ryan noted that Wyeth's biologics-manufacturing capabilities could also enable Pfizer to enter the biosimilars business in coming years, a strategy several of its competitors are pursuing.
Along with the acquisition, Pfizer plans to cut 10% of its workforce, or some 8,000 jobs, and shed five manufacturing sites by 2011. Combined with further cuts after the deal closes, Pfizer expects to eliminate 15% of the companies' combined workforce of about 128,000. The measures will contribute to the roughly $4 billion in savings that Kindler plans by 2012.
Pfizer does not have the best track record when it comes to smoothly integrating big businesses. Many scientists privately complained that innovation and productivity were hindered by bureaucracy after its earlier purchases of Warner-Lambert and Pharmacia. In the past two years, however, Pfizer has worked to revamp its research organization to become more nimble and effective (C&EN, Sept. 1, 2008, page 27).
The question is whether this latest acquisition will undo that progress. "We obviously learned a lot from our prior acquisitions," Kindler said. He conceded that the turmoil following the earlier deals "definitely hurt morale and productivity" among scientists. However, he said, recent efforts to restructure the research organization with fewer layers of bureaucracy will not go to waste.
"We have no intention of changing that model," he said of Pfizer's new approach to R&D. Indeed, Kindler claimed that the newly streamlined science team will enable Pfizer to bring Wyeth into the fold with minimal disruption.