MERGERS AND ACQUISITIONS: Pfizer and Wyeth Combine

Strengths

Pharmaceutical majors Pfizer (New York, NY; www.pfizer.com) and Wyeth (Madison, NJ; www.wyeth.com) have

entered into a merger agreement under which Pfizer will acquire Wyeth in a cash-and-stock transaction valued at

approximately $68 billion. The combined company will be one of the biggest in history, with a global portfolio of

products for Alzheimer's disease, autoimmune disease, inflammation, oncology, and pain, as well as other therapies.

The firm will benefit from Wyeth' s strong positions in vaccines, biotherapeutics, veterinary medicine and animal care,

and consumer products - areas where Pfizer has little presence.

For Pfizer, the strategic move launches a new business model, wherein no individual product would generate more

than 10% of the company's total revenue. Pfizer intends to move away from dependence on single blockbuster

molecules, as was the case with its cholesterol treatment drug Lipitor, which accounts for 25% of the company's

revenue.

With sales of $13 billion per year, Lipitor is the world's best-selling drug. But with its patent due to expire in 2011,

Pfizer faces imminent competition from generics, which find an easy entry into the so-called "small-molecule" drug

market.

Many traditional large pharmaceutical companies like Pfizer have concentrated on these small-molecule drugs -

medicines made of small chemical molecules and usually dispensed as pills. A problem with such drugs is that when

their patents expire, it is easy for other companies to replicate the chemical formula and claim market share by

introducing lower-priced generic versions of the original.

Pfizer expects to face challenges not only from generics but also from investors because of the decline in R&D

productivity. And although Pfizer has 200 products, there are no current blockbusters in the pipeline to replace the

nearly $30 billion in revenue that will be lost when 13 of its drug patents expire by 2014.

Several years ago, in part as a hedge against competition from generics, Wyeth decided to reduce its reliance on

small-molecule drugs. It turned more attention to biologics - drugs made not from small molecules but from living

cells, and often given by injection or infusion. In contrast to small chemical molecules, biological molecules are much

larger and more complex - and therefore much more difficult and expensive to replicate.

Even with its strengths in biologics, Wyeth also faces challenges from generic drugs when its antidepressant drug

Effexor and the heartburn drug Protonix go off patent in 2010 and 2011, respectively.
Wyeth had recently been planning an acquisition of its own - of Crucell, a Dutch vaccine company - but cancelled

those plans after Pfizer announced the takeover.

The combined company (Pfizer and Wyeth) will be the world's largest in terms of biopharmaceutical revenue

including a 12% market share in the U.S. The companies' combined presence will be significant in emerging markets,

such as Latin America, the Middle East and China, where Wyeth has a strong presence in infant nutrition and Pfizer

is a recognized leader in pharmaceuticals.

For a discussion of how chemical engineers can help the pharmaceutical industry improve its competitiveness by

reducing manufacturing costs, see the article on pp. 34-37.