A Pfizer-Wyeth Merger Isn't the Cure-All

(page 2 of 2)

Shoring Up the Top Line

Despite long-term patent and marketing challenges that no single merger can address, most industry observers believe Pfizer has little choice but to do some kind of major acquisition, given the imminent loss of income on Lipitor. Certainly, the company has the wherewithal to do a deal. At the end of 2008, Pfizer was sitting on about $25 billion in cash, along with a AAA credit rating. "Pfizer is in the most desperate state of anyone in the industry in terms of patent expirations," says Standard & Poor's analyst Herman Saftlas. (S&P, like BusinessWeek, is a unit of The McGraw-Hill Cos. (MHP).) "We feel that it is in the best interests of Pfizer to do a deal like this in order to shore up the top line."

Pfizer also needs to reassure investors that it can get back on track. The company froze its dividend at the end of December, after 41 annual increases, and in early January it announced it would lay off 600 researchers, 8% of its scientists. Pfizer's stock price has slid more than 50% since its last major acquisition in 2003, when it purchased Pharmacia, also for $60 billion. Pfizer closed the week at 17.45, up 24¢, while Wyeth rose 13%, 4.91, to close at 43.74.

Consolidation Spark?

Pfizer has a history of big mergers, having acquired Warner-Lambert in 2000, three years before the Pharmacia deal. But the Pharmacia acquisition turned out to be a disappointment because its biggest drug, the Cox-2 inhibitor Celebrex, was severely damaged by the fallout over Merck's (MRK) similar drug, Vioxx, which was pulled from the market due to safety concerns. Some analysts say Pfizer may have better luck with Wyeth because of the company's strong presence in biotech drugs, an area where Pfizer has had little success.

At any rate, the merger, if it goes through, could mark the start of a wave of consolidation in the beleaguered pharmaceutical industry, according to Credit Suisse (CS) analyst Catherine Arnold. In a note to investors, she suggests that Bristol-Myers Squibb (BMY) could be the next acquisition candidate.

Arnst is a senior writer for BusinessWeek based in New York.