Pfizer Buys Wyeth in $68 Billion Consolidation Move

Combined pharmaceutical company to layoff more than 19,000 workers to scale back costs.

According to Market Watch  Pfizer Inc., the world's top drug maker, said Monday it will buy rival Wyeth for $68 billion in the biggest pharmaceutical merger in eight years.  Wyeth is Lee County's largest employer, and the impact in terms of loss of jobs is at this point unknown.  Even without the merger changes, the nature of the industry would likely put some employees at risk.

At the same time,  Pfizer Inc. reported a 90% plunge in fourth-quarter profit, stemming mostly from a large legal settlement. The company also announced a 10% reduction in its workforce and said it would cut its dividend payment in half in order to help pay for the Wyeth acquisition. The layoffs will be folded into a larger round undertaken by the combined company, which expects to shed more than 19,000 workers -- amounting to about 15% of its combined workforce.(Read More From Market Watch)

But Pfizer CEO Jeffrey Kindler, who took the top job in 2006, insists the Wyeth deal is different from its earlier mega-mergers with Warner-Lambert in 2000 and Pharmacia in 2003.

Kindler told a news conference that the Wyeth merger is not about "a single product or cost-cutting," as with past deals. Instead, "it's about creating a broad, diversified portfolio."

Nevertheless, cost-cutting there will be. Pfizer expects to achieve about $4 billion in "synergies" by 2012, enabling it to reduce the combined workforce of the two companies by 15%, or some 20,000 jobs. As part of those synergies, Pfizer announced Monday that it will eliminate 8,000 jobs, 10% of its workforce. It is also closing five of its 46 manufacturing plants.

Pfizer announced today that it plans to cut another 10 percent of its workforce, or 7,800 jobs. Analysts,pharma watcher Daniel Hoffman and Sanford C. Bernstein analyst, Timothy Anderson told the Philadelphia Inquirer that the job-shedding that will attend the merger will likely hit Wyeth harder than Pfizer. "Generally, in this kind of deal, you would be looking at 25 to 30 percent cost reduction," Hoffman told the paper, "but here it's going to be more like 50 percent." Timothy Anderson, however, predicts Pfizer would cut 70 percent of Wyeth's current $10 billion spending on R&D and marketing/administration.
 
In an article written in speculation of the merger, Business Week offered this analysis:

The general reaction: Acquiring Wyeth might boost Pfizer's fortunes in the short term, but it won't solve the long-term problems that are roiling the major pharmaceutical makers. As many observers have noted, Pfizer and the rest of the drug industry suffer from a lack of promising new products to replace older ones going off patent. What is less widely understood is that Pfizer also will face an increasingly constrained marketing environment, even if it succeeds in bulking up with Wyeth. 

Industry Analysis:  Biotechnology Firms Outpacing Big Pharmaceuticals Pfizer alone spent $8 billion last year which was greater than the sum spent by biotech’s top five companies. What this tells us is that pharmaceutical companies are grossly unproductive when it comes to drug discovery and development. This would explain why nearly three-quarters of all new medicines approved for sale in the US last year originated at biotechnology companies. 

It is becoming increasingly apparent that biotechnology companies are much more efficient at R&D than pharmaceutical companies. More importantly this suggests that something must change so that pharmaceuticals can continue to receive adequate ROI on internal discovery programs. Perhaps big pharmaceuticals ought to spend a greater portion of its R&D budget on biotech mergers and acquisitions rather than continuing to invest in inefficient and failing internal R&D programs.

While biotechnology companies are exceptional in drug discovery, they are severely lacking when it comes to clinical development of new drugs. This is largely due the high costs of conducting human clinical trials (which are required for regulatory approval of all new medicines). Most biotechnology companies are strapped for cash and don’t have sufficient funds to conduct clinical trials on their own.

Not surprisingly, given the recent financial downturn, there has been a recent spate of deals in which pharmaceuticals have been willing to pay large sums of money for clinical development rights to promising new biotechnology drugs. Moreover, a majority of the almost 160,000 employees layed off by pharmaceuticals companies in the past few years have been R&D scientists.  Unfortunately, this paradigm shift doesn’t bode well for doctoral students and post-doctoral fellows who are training in the life sciences. This is because many entry-level biotech positions, traditionally filled by newly-minted PhD's and postdoctoral fellows will likely be filled by experienced, pharmaceutical employees who lost their jobs in the recent rounds of layoffs.
Source: BioJob Blog

Editor's Note: Two Videos on the Pfizer-Wythe Merger have been added to the video page. In one two experts discuss the impact of the merger and in another Jeffrey Kindler, CEO of Pfizer, puts a brief spin on the merger. (click here)