Pfizer's Wyeth purchase: Shopping for salvation
Pfizers deal to buy Wyeth for $68 billion is big news and well beyond pharma circles. Some experts are predicting that it may be the spark that will begin to thaw investment banking activity. And while that stands to be good news for the overall economy, theres plenty of debate about whether Pfizers acquisition of Wyeth is a smart or desperate move.
In the face of dwindling pipelines and looming patent expirations namely Pfizers bread and butter Lipitor some say the marriage makes good sense. As Douglas McIntyre of Time magazine rightly points out, putting the two companies together will allow them to fire tens of thousands of people and cut other overlapping costs.
But as Sanford Bernstein analyst Tim Anderson says, while the pairing helps sooth the pain of the gap in revenue Pfizer faces in 2011, when Lipitor goes off patent, it only serves as a partial salve. By Andersons calculations, the combined companys revenue will fall to $62 billion in 2015 from $73 billion in 2010. Earnings, he says, over the period would be flat, even with aggressive cost cutting.
Forbes describes the Wyeth acquisition as helping Pfizer plug the dike in terms of sales losses, but it speculates that it wont necessarily make Pfizer into a growth company again.
As Catherine Arnst of BusinessWeek points out, even if the Wyeth deal allows Pfizer to bulk up, it faces an increasingly constrained marketing environment.
Arnst says: The fact is, its getting a lot harder to market products both companies have right now. Congress is widely expected to restrict direct-to-consumer advertising by drug companies this year, and much stricter limits were put in place last year on how the industry markets to doctors.
But thats certainly true for Pfizer without Wyeth and for every other pharma out there.
Whats perhaps more worrisome is that Pfizers track record with big mergers isnt very encouraging. Many would argue that neither the Warner-Lambert acquisition in 2000 nor the Pharmacia deal in 2003 turned out quite like they were billed. Granted some of the problems werent anything Pfizer might have predicted like the damage caused to Celebrex on the heels of the Vioxx safety crisis but it does make one wonder if Pfizer is truly up for another mega-merger, or likely to gain any real boost.
CEO Jeff Kindler makes no bones about needing a quick fix to Pfizers Lipitor predicament and clearly sees value in expanding his companys revenue base with products like Wyeths Prevnar vaccine against childhood pneumonia and its rheumatoid arthritis medication Enbrel, a big-selling biotechnology product.
The Wyeth deal also would help Pfizer diversify a bit by adding Wyeths animal health and consumer health businesses to the mix. But whether that will only serve to distract the new company from the challenges of a successful merger and delivering on the promise of its combined potential remains to be seen.
Long-time eyeforpharma friend Fonny Schenck, a former executive director of CRM strategy at J&J and Janssen-Cilag EMEA and managing director of consultancy Across Health, has an interesting view. Schenck says that despite all the mergers in the past, the combined share of the top-10 companies has remained low compared to other, more concentrated industries.
Pfizer is now setting the stage for the Final Countdown, he says. In this scenario, we will see potentially a few of these large-scale companies dominating distribution channels and promotion worldwide, with some local or specialized players left (who may be very successful too!). At these mega-corps, R&D will be partly in-house, but largely left to boutique companies.
Schenck says the model looks very much like the movie industry, where the creativity (read R&D) comes from many places, but the distribution is handled by just a few majors. The threat of digitization (home/internet video) is not present in pharma, so the opportunity (from a strategic perspective) looks even bigger, he predicts.
The one thing nearly everyone analyzing the deal seems to agree on is that Pfizer had to do something big and it had to do it soon. Now that it has decided that the "something big" will be buying Wyeth, Pfizer has to hope for two things: that its merger is approved and allowed to proceed, and that its shopping spree proves to yield more than a quick fix that doesnt hold up in the wash.