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Pfizer hit hard with the surprise purchase of Wyeth. But will the pharma giant strike out in the long run? Analysts ponder the long and short-term ramifications of this monster acquisition.
Pfizer CEO Jeffrey Kindler revealed on Monday that the biggest pharma company in the world just signed a deal to purchase Wyeth for $68 billion. In one fell swoop, Pfizer offered one answer to the question on analysts’ minds: How can the company survive after so many recent failures and the looming loss if its superstar cholesterol drug Lipitor?
According to reports, Lipitor accounts for approximately 25 percent of the firm’s annual sales. The loss of patent exclusivity for Lipitor in 2011 would have bumped Pfizer from the top of the Big Pharma food chain down to number five. But with Wyeth now in tow, Pfizer might be able to weather the storm.
“In our view, Pfizer’s acquisition of Wyeth is a sound strategic and financial move, which will enhance rev[enue]s and earnings per share in the cliff period, and diversify its portfolio into biologics and vaccines,” stated Deutsche Bank Analyst Barbara Ryan in a letter to investors.
Others aren’t so sure that the purchase of Wyeth alone will cover the potential profit loss.
“The merger won’t immediately solve Pfizer’s revenue issue,” said Simon King, senior analyst at DataMonitor. “We think that the combined company will still see a decline in prescription pharma revenues through 2013 because Lipitor is such a big earner. Once Lipitor goes off patent, no one product will account for more than 10 percent of total sales.”
All or Nothing
However, the sheer scale of the deal should allow Pfizer to maintain its position as top dog in pharma. “Prior to the acquisition of Wyeth, we expected Roche (with Genentech included) to overtake Pfizer by 2012,” King said. “We also expected Novartis, Sanofi, and GSK to all overtake the company by 2013. Based on this deal-and if the other companies do not partake in M&A activities-we expect Pfizer to stay in the top spot in 2013.”
This purchase allows Pfizer to branch out beyond its small-molecule niche, and immediately push into vaccines. In addition, Wyeth has at least 10 drugs in development for CNS/Alzheimer’s-a particular passion of former CEO Robert Essner, and an area that could pay off big if one or more of those drugs prove effective.
Wyeth currently markets two of the biggest selling biological drugs-the multivalent vaccine Prevnar and rheumatoid arthritis treatment Enbrel. The Wyeth acquisition also gives Pfizer a sizable veterinary drug division and a consumer division. (Pfizer sold its consumer unit to Johnson & Johnson two years ago.)
“This is a good move for the industry, because now the biggest player in pharmaceuticals will have the technology for biologics and vaccines,” said Mike Luby, TargetRx. “Pfizer won’t be dabbling in this field-they are now a major player.”
A cause for concern \ is the number of positions that will be eliminated as part of the acquisition. Pfizer stated on Monday that it expects to reduce its workforce by approximately 10 percent. The Wall Street Journal reported that the company also plans to cut another 15 percent as part of the merger, estimating a total loss of nearly 19,500 jobs. For a sense of scale, that would be the equivalent of laying off roughly 40 percent of Wyeth’s employees. Pfizer told the Journal it hasn’t confirmed any figures.
Michael Steiner, a group leader at executive counseling firm RegentAtlantic, told Pharm Exec that he has received calls from some in upper-middle management at Wyeth who are weighing their options.
“What makes a merger like this so attractive is the ability to maintain revenue levels and cut costs by eliminating redundancies,” Steiner said. “You don’t need a headquarters on 42nd Street and another in Madison, NJ-25 miles away.”