Will bigger be better?

January 26, 2009 – 5:33 pm by Michael Christel

Chalk another one up to the “timing is everything” argument. On the same morning Pfizer announced a 90% profit fall in fourth-quarter 2008 and a slight drop in full-year ’08 revenues, the drug giant pulled the proverbial rabbit from the hat for all to see. As The New York Times reports, the Pfizer-Wyeth deal marks the biggest merger since AT&T and BellSouth joined forces for $70 billion in March 2006. But there will be casualties. Pfizer executives said today that the company expects to lay off 15% of the combined company’s workforce, or 19,000 people. How those losses will affect future R&D at the soon-to-be pharma superpower will be the big question.

First, of course, there will be transition, and it won’t be smooth. Tim Anderson, an analyst with Sanford C. Bernstein, notes in a report on Bloomberg.com that acquiring Wyeth creates a pharmaceutical behemoth that will be very difficult to grow without consolidating. To achieve that, he says, Pfizer would need to cut 70% of Wyeth’s current $10 billion spending on R&D, marketing, and administrative costs.

“Research and development is the core of any biopharmaceutical company,” Jeffrey Kindler, Pfizer’s chairman and CEO said during a joint remote press conference with Wyeth chairman, president, and CEO Bernard Poussot. “We both respect that and our intent is on ensuring that that R&D engine continues to be robust and successful. In that regard, we are going to be very thoughtful about how we go about integrating the two companies, with a very clear understanding that we want to protect that mission and ensure that the great scientists at both companies are doing their job of bringing new medicines forward.”

Mr. Kindler called Wyeth “ a perfect fit” because of its strong presence in biologics and vaccines. Enbrel, which treats rheumatoid arthritis and psoriasis, is the world’s top-selling biotech drug, while Prevnar is the No. 1-selling vaccine. Mr. Poussot said Wyeth’s focus in Alzheimer’s disease research, where he says the company has more than 10 projects in the works, including small molecules, biologics, and vaccines, is an attractive compliment to Pfizer’s R&D model.

The Wyeth CEO made clear to reporters that his company’s decision to join Pfizer was not chiefly money motivated. He noted that Wyeth “reached record revenues and income” in fourth-quarter and full-year 2008 figures, and that the company and its board had a clear plan to go forward as an independent entity.

“We had various discussions and it became very apparent that Jeff was determined to find the best match for Pfizer to lead its organization to a higher level from many angles, including research commitment, and including the kind of vision that we have had at Wyeth,” Mr. Poussot said. “We realized that if the proposal would be attractive, this was a way to accelerate or vision and to bring those technologies and to put together all those talented resources to get to market faster and be the company we dream to be, one that people rely on to bring innovation at a sustainable pace.”

Disease prevention was the theme of the moment for executives on both sides. Mr. Poussot called prevention-focused research an important tradition at Wyeth, citing the company’s past contributions in eradicating small pox and polio and more recently its work in providing meningococcal vaccine to children.

“Today, this country spends 3 cents of every dollar on prevention,” Mr. Kindler said. “That’s wrong. We as a company and combined with Wyeth are going to be in a great position to be supportive of government policies that want to advance prevention and wellness and treat illness effectively and efficiently. I think that will inure to the benefit of society as a whole as well as to our shareholders.”

Of course, there’s the little matter of Lipitor’s 2011 patent expiration to factor in. Datamonitor analyst Simon King said in a released comment, “Clearly, while the acquisition will dilute Pfizer’s expiry threat slightly, it will not solve the primary underlying commercial challenge faced by Pfizer over the period 2007–2013.”

He does forecast sales for a combined Pfizer-Wyeth company in excess of $54 billion by 2013 and says, “The merger/acquisition of Wyeth by Pfizer will create a prescription pharmaceutical company of unprecedented industry scale, enhancing Pfizer’s status as the sector’s leading player.”