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Ahead of the Bell: Will Pfizer buy Wyeth?
Friday January 23, 8:51 am ET
Wyeth shares rise in premarket trading on report of potential $60 billion sale to Pfizer
NEW YORK (AP) -- Pfizer Inc., the world's largest drugmaker, may be seeking to buy rival Wyeth in a deal that could be valued at more than $60 billion. The move would bolster Pfizer's array of products and help the company deal with expiring patents and diminishing returns on research.
The Wall Street Journal reported Friday that the companies have been in talks for months, although any deal is not near completion and the state of the global markets could undo any plans. If Pfizer does buy Wyeth, it would add Wyeth's antidepressant Effexor and biotech drugs like rheumatoid arthritis and psoriasis drug Enbrel and Mylotarg for cancer.
Representatives for both Wyeth and Pfizer declined to comment.
Pfizer is the world's top drugmaker by revenue, lead by the blockbuster cholesterol drug Lipitor, which tallies about $13 billion in annual sales. However Lipitor is likely to face generic competition in late 2011. Wyeth, the twelfth-largest drugmaker, is in a similar position, as Effexor will lose patent protection in 2010. Patent protection on the antibiotic Zosyn and heartburn drug Protonix ended in 2008.
Earlier this month, Wyeth said most of the company's revenue now comes from sales of vaccines and biotech drugs and veterinary medicines, rather than from sales of traditional pharmaceuticals.
Analysts have predicted tie-ups in the pharmaceutical industry in recent months as the companies prepare for a wave of major patent expirations over the next few years. Pfizer and Wyeth have slashed jobs and costs to prepare for that period.
At the same time, the Food and Drug Administration has become more reluctant to approve new drugs, leading to greater research costs. Pfizer and Wyeth have responded by focusing on specific areas: in September, Pfizer said it would concentrate on Alzheimer's disease, cancer, schizophrenia, pain, inflammation and diabetes, leaving other fields like heart drugs behind.
Wyeth also chose six core areas: cancer vaccine and drugs, neurological disorders, inflammation, metabolic disorders and muscoloskeletal conditions.
At more than $60 billion, the price tag would dwarf Eli Lilly & Co.'s buyout of biotech cancer drug maker ImClone Systems in October. Like Pfizer, Lilly is looking at a major patent expiration in the coming years, as its antipsychotic drug Zyprexa will be vulnerable to generic competition in 2013.
Shares of Madison, N.J.-based Wyeth jumped $4.72, or 12.2 percent, to $43.55 in premarket trading. The stock closed at $38.83 Thursday and has traded between $49.80 and a 12-year low of $28.06 in the past 12 months. Wyeth's market capitalization is $51.7 billion.
Pfizer shares declined 37 cents, or 2.2 percent, to $16.84. In November, Pfizer shares set an 11-year low of $14.26. The stock was worth $17.21 at the end of trading on Thursday. The New York-based company has a market capitalization of about $116 billion.
Pfizer Said to Be Closing In on Deal for Wyeth
By ANDREW ROSS SORKIN
Published: January 23, 2009
This article was reported by Duff Wilson, Natasha Singer and Andrew Ross Sorkin and written by Mr. Sorkin.
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Tim Cook/The Day, via Associated Press
Pfizer employees near one of the company’s research facilities in Groton, Conn.
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Is the long-awaited drug industry consolidation under way?
That was the question Friday as word spread that Pfizer was near a deal to buy Wyeth for more than $60 billion in cash and stock. With teams of bankers and lawyers racing to complete that deal over the weekend, the blockbuster transaction could be announced within days, according to people involved in the talks.
A combination of Pfizer and Wyeth, which has been long envisioned throughout the industry, would make Pfizer, already the world’s biggest drug company, even larger. Pfizer had revenue of more than $48 billion in 2007, and Wyeth’s sales exceeded $22 billion. Their combination would put pressure on rival companies to seek their own mergers.
“The dance needs to get started,” said Catherine J. Arnold, an analyst for Credit Suisse. “I think this action would do that,” she said. “There’s overcapacity in the pharmaceutical sector at large.”
Under the terms of the deal being negotiated, Pfizer would pay about $50 a share for Wyeth, these people said. Pfizer would pay about two-thirds of the price tag in cash and one-third in stock. Pfizer would finance the deal, in part, through its own cash reserves — some of which are abroad and need to be repatriated, probably incurring tax penalties — and the rest through loans from banks.
People involved in the deal cautioned that the talks could still collapse, in part because there are so many moving parts: the buyer, the seller and at least five banks that all need to agree on financing conditions in a very difficult credit market. The boards of both companies have scheduled special meetings for Sunday to vote on the deal in anticipation of continued negotiations through the weekend.
Other companies that have long been seen as take-over candidates include the conventional drug giants Bristol-Myers and Schering-Plough and the biotechnology players Amgen and Biogen Idec.
The negotiations between Pfizer and Wyeth appear to be driven by cost savings as much as by sales and research opportunities. Pfizer is heading toward a big patent cliff with the expiration of its rights to Lipitor, the best-selling drug in the world, in November 2011. Sales of the drug, $12.7 billion in 2007, account for a quarter of the company’s total revenue. And by 2015, patent expirations will mean Pfizer will have lost 70 percent of the revenue it would have had in 2007.
As patents expire, generic drug makers can swoop in with low-priced versions. Indeed, the growing market share of generic drugs is one of the big problems for many makers of brand-name pharmaceuticals.
Wyeth has a big vaccine and biologics business that is not facing the same level of patent pressures, because it is much more complicated and cost-prohibitive to make generic versions of such drugs. So a merger would add diversity and bring stability to Pfizer’s drug sales.
Still, because much of Pfizer and Wyeth’s portfolios overlap, there is potential to save billions of dollars through cutting duplicative costs, analysts say.
“If Pfizer and Wyeth combine sales forces and other operations, they will have a sleeker cost structure,” said Erik Gordon, a professor at the Ross School of Business at the University of Michigan. “Most other large companies have cut just everything they can. The only way to come up with new cuts without endangering their future is to merge in a way that creates redundancies that give the companies new job-cutting opportunities.”
Two weeks ago Pfizer said it would lay off 800 researchers, and it hinted at further job cuts. Last year, it did away with more than 10,000 jobs and announced it would focus on six therapeutic areas — cancer, pain, inflammation, diabetes, Alzheimer’s disease and schizophrenia.
It remains an open question whether mergers in the pharmaceutical industry work at all. Pfizer is itself a product of a series of mergers, with mixed results. It bought Warner-Lambert, which owned Lipitor, for more than $90 billion in stock in 2000 and three years later bought Pharmacia for stock valued at $60 billion.
"Pfizer’s tried it before, and it really hasn’t worked with other firms," said Edward F. X. Hughes, a professor who teaches pharmaceutical business at the Kellogg School of Management at Northwestern University.
The deal may also demonstrate that pharmaceutical companies feel the need to be more diversified beyond prescription drugs. A Pfizer-Wyeth tie-up would be one way for Pfizer to get back into the consumer health business. Wyeth owns brands like Advil and Centrum vitamins. In 2006, Pfizer sold its consumer business — which included such household names as Sudafed, Listerine, Nicorette and Lubriderm — to Johnson & Johnson, which because of that acquisition has managed to weather the financial storm better than its rivals.
For Pfizer, which is led by Jeffrey B. Kindler, 52, a lawyer who previously worked for McDonald’s, the transaction would also bolster the company’s presence in biologic drugs, which are made from living cells, instead of the chemicals on which conventional pharmaceuticals are based. Wyeth’s Prevnar, a childhood vaccine against pneumonia and meningitis, is made from living cells and is generally considered more immune to competition from generics. Wyeth also makes Enbrel, one of the world’s biggest biologics with about $3 billion in global sales for the first nine months of 2008. Enbrel is a drug that treats adult rheumatoid arthritis and plaque psoriasis.
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Pfizer to buy Wyeth for $68 billion
Cash-and-stock deal will keep Pfizer the No. 1 drugmaker. Company announces sharp drop in profit.
By Aaron Smith, CNNMoney.com staff writer
Last Updated: January 26, 2009: 8:55 AM ET
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NEW YORK (CNNMoney.com) -- Pfizer announced Monday that it has signed a deal to acquire the smaller drugmaker Wyeth for $68 billion.
New York-based Pfizer, already the world's leading drugmaker, becomes even larger following the cash-and-stock deal with Wyeth, based in Madison, N.J.
The deal values Wyeth shares at $50.19 each, a nearly 15% premium to Friday's closing price. Pfizer agreed to pay $33 in cash and 0.985 share in Pfizer stock for each Wyeth share.
Pfizer said the deal would be financed through a combination of cash, debt and stock. The company said it is borrowing $22.5 billion from a consortium of banks.
The board of directors also decided to cut Pfizer's quarterly dividend in half to 16 cents a share.
Pfizer announced that it would ramp up its focus in treatments for Alzheimer's disease, inflammation, cancer, pain and psychosis, and continue to focus on vaccines and biotechnology.
"The new company will be an industry leader in human, animal and consumer health," said Pfizer chief executive Jeffrey Kindler, in a press release. "Its geographic presence in most of the world's developed and developing countries will be unrivaled."
Pfizer also reported a 90% plunge in quarterly net profit. The company said its diluted earnings per share plummeted to 4 cents in the fourth quarter, from 40 cents the prior year.
The company blamed a $2.3 billion charge to resolve allegations from federal prosecutors that it had promoted Bextra for uses not approved by the FDA. Bextra, an anti-arthritis drug, was pulled off the market after Merck's (MRK, Fortune 500) Vioxx was withdrawn in 2005.
Pfizer also reported a slight decline in fourth-quarter revenue to $12.9 billion, from $12.3 billion the year before.
This is the first big merger since 2006, when the telecom giant AT&T (ATT) merged with BellSouth for $67 billion. After that deal, AT&T cut 10,000 jobs.
Miller Tabak analyst Les Funtleyder, author of "Healthcare *********," said that a Pfizer-Wyeth merger could lead to more job cuts, especially considering Pfizer's plan to reduce costs by $4 billion. Pfizer recently announced that it was cutting up to 8% of its research staff, or up to 800 jobs.
Funtleyder said that Wyeth has a "decent pipeline" but with "nothing that immediately jumps out at me as blockbuster." Most promising, he said, is Wyeth's plan to roll out a new form of Prevnar, which combats meningitis and blood infections, with sales totaling $2.1 billion in 2008.
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