IHS Global Insight Perspective | |
Significance | Pfizer and Wyeth are rumored to be in negotiations over a potential takeover deal that is expected to cost the acquirer a whopping US$60 billion. |
Implications | The deal is yet to be confirmed by both firms. If it does go through, the combined firm will only increase the gulf between Pfizer and its nearest rival in the top-five pharma firms by sales. Synergy-wise, the emphasis will clearly be on Wyeth's biological drugs portfolio, with Prevnar leading the list that may have fuelled Pfizer's interest. |
Outlook | The emergence of a possible mega deal in the pharma industry accentuates the scope of a wide-ranging consolidation through the sector, with primarily the biotech sector being the target for growth. |
U.S. pharma majors Pfizer and Wyeth are holding talks to thrash out a potential takeover deal, the Wall Street Journal reports, quoting "people familiar with the matter". The source suggested that the deal, if it goes through, will attract a total financial consideration of over US$60 billion. More specifically, the talks, ongoing for some months according to the report, centre on Pfizer acquiring Wyeth. Despite this, however, it is understood a deal may not be imminent. Speculation has so far not been confirmed or denied by either firm, who have emphasised "they do not comment on market rumours". IHS Global Insight's email query to a Wyeth spokesperson was unanswered at time of publication.
Synergies
Since both firms have yet to declare their full-year 2008 financial results, the previous year's figures provide the basis for expected financial valuations and size of a potential merged entity. Going by the performance of the two firms in the first three quarters of 2008, it can be safely said that a combined entity will feature revenues closer to US$72-75 billion. This would provide a strength and presence wide ranging throughout the pharmaceutical industry.
Pfizer: Selected Results, 2007 | ||
US$ mil. | % Growth Y/Y | |
Revenues | 48,613 | 1 |
Pharmaceutical Revenues | 44,619 | -1 |
U.S. Total Revenues | 23,348 | -10 |
International Total Revenues | 25,265 | 12 |
Cost of Sales | 11,239 | 47 |
Selling, Informational, Administrative Expenses | 15,626 | - |
R&D | 8,089 | 6 |
R&D as % of sales* | 16.6 | 0.9 pp higher |
Operating Income* | 13,659 | -22.1 |
Operating Margin* | 28.1 | 8.2 pp lower |
Net Income | 8,298 | -57 |
Source: Pfizer/IHS Global Insight | ||
Wyeth: Selected Results, 2007 | ||
US$ bil. | % Change Y/Y | |
Net Revenue | 22.39 | 10.06 |
Cost of Goods Sold | 6.313 | 13 |
Selling, General and Administrative (SG&A) Expenses | 6.75 | 3.87 |
R&D Expenses | 3.2 | 4.75 |
Operating Income* | 6.07 | 17.93 |
Net Income | 4.61 | 10 |
Source: Wyeth, except: * IHS Global Insight estimate, calculated by revenues minus R&D, cost of sales and SGA expenses | ||
In terms of specifics, Pfizer's interest in Wyeth could be primarily in its biotechnology-based assets and product portfolio. The latter firm's number one product, Prevnar, the pneumococcal vaccine, has already attained blockbuster status and is marketed in 90 countries worldwide. However, both Pfizer and Wyeth are beset with generic drug challenges for key drugs in coming years, which will be factored into any prospective deal. For Wyeth, Effexor and Protonix are the top drugs facing genericisation, with the latter product market already flooded with cheaper generics. There is also a cloud over product litigations, primarily with the Premarin family, and if Pfizer was to take over Wyeth it would be interesting to see how this would be dealt with.
Outlook and Implications
The speculation over a possible merger deal between Pfizer and Wyeth has generated a lot of interest, and indicates an accelerating trend towards consolidation in the sector. Whether the said deal goes through or not, it is possible a mega deal is on the horizon as other global pharma majors have indicated acquisitions as one of their main strategies for inorganic growth in the current year. One of the reasons is diversification into other regional markets and therapeutic segments that have registered good growth as opposed to pure play pharmaceuticals. This includes emerging market expansion and the increased interest in the biotechnology market and oncology segments on the therapeutic front. Also, pharma firms have indicated that, given recessionary conditions worldwide, valuations of target firms have fallen, sparking renewed interest from cash-rich firms. The series of mergers and acquisitions in recent times, by companies such as Johnson & Johnson, Abbott, and even Pfizer, has confirmed this expected trend. Furthermore, possible target firms that have been identified largely for their potential in the biotechnology segments have been Amgen, Crucell, and even Bristol-Myers Squibb, although the latter does not hold particular strength in the segment.
In terms of the prospective deal outlined above, Pfizer has indicated that it is ready for such a mega deal, and is already known to be interested in firms such as Elan (Ireland). The firm has recently restructured its operations providing for greater presence in certain therapeutic segments, and is understood to be looking particularly at the biotech market as an area for growth. However, the mega deal concept itself would represent a shift in strategy, after Pfizer involved itself in a series of acquisitions of small biotechs and product franchises over the past year. Hence, a potential deal with Wyeth comes with mixed feelings, as both firms will face or can expect to face similar pressures in ensuing years, namely in terms of generic challenges. In that respect, the deal seems primarily aimed at presenting a mammoth pharma firm with a scale and reach in terms of operations and revenue significantly higher than any other pharma firm.
Related Articles
- United States: 12 January 2009: Elan Denies Takeover Talks with Pfizer
- United States - Netherlands: 8 January 2009: Potential First Big Pharma-Biotech Deal of 2009 as Wyeth Eyes Crucell
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