Why a Pfizer-Wyeth Merger Doesn't Make Sense
Pfizer is the largest pharmaceutical company in the world. It was able to garner that distinction by going on a decade-long buying spree that began in the mid 1990s. To date, Pfizer has acquired Warner Lambert, Pharmacia and a host of smaller specialty pharmaceutical and biotechnology companies. Despite these acquisitions, which yielded top selling blockbuster drugs like Lipitor and Celebrex, Pfizer’s stock has never performed up to analyst’s expectations. In fact, while it’s smaller and more nimble pharmaceutical competitor’s stock prices were soaring, Pfizer’s stock price was either flat or falling. While conventional wisdoms suggest that “bigger is always better” this has proven not to be the case when companies, like Pfizer, attempt to win greater market share through mergers and acquisition and also loss sight of their core business.
In my opinion, Pfizer’s acquisition of Warner Lambert in the mid 1990s was a well executed, strategic move—the transaction gave Pfizer rights to Lipitor, currently the world’s top selling prescription drug. At that time, Pfizer’s internal drug discovery pipeline was essentially running on empty and it needed a blockbuster to insure its future growth. Despite the benefits of the Warner Lambert deal, it took Pfizer many years and hundreds of millions of dollars to fully integrate the two companies into a fully functional one.
Several years later, Pfizer acquired Pharmacia to gain access to Celebrex, a Cox-2 inhibitor that had the potential of becoming a blockbuster drug to treat inflammation and chronic pain. Unfortunately, Pfizer’s ROI on Celebrex hit a sales-stopping road block when the safety of Cox-2 inhibitors was called into question after Merck withdraw its Cox-2 inhibitor, Vioxx from the market in 2005. While Pfizer directly benefited from Celebrex sales, it again took the company many years, at great expense, to fully integrate Pharmacia into Pfizer’s day-to-day operations.
During its decade long expansion, Pfizer’s internal drug discovery programs were largely ignored and had begun to fail largely because of management’s inexorable focus on acquiring blockbuster drugs rather than developing them internally. In the early 2000s, recognizing that blockbuster drugs were becoming harder to purchase, the company bet its financial future on a new cholesterol-lowering drug called torcetrapib (which, by the way, was developed by Pfizer scientists). The buzz surrounding torcetrapib—a potential blockbuster drug that was expected to replace Lipitor—reached a fever pitch in 2006 as Pfizer’s stock price soared. Unfortunately, Pfizer was forced to abandoned clinical development of torcetrapib in late 2006 because it exhibited potential life-threatening side effects in pivotal Phase 3 clinical trials This failure, coupled with the impending loss of patent protection for several of its top selling drugs, most notably Lipitor, has placed Pfizer in its current precarious financial situation.
Like many of its competitors, Pfizer believes that biotechnology is the “next big thing” and its executives have publicly disclosed their intentions to get into “protein-based therapeutics.” While this strategy may represent a way for Pfizer to correct its current downward trajectory, the company, as a whole, lacks the requisite biopharmaceutical experience and expertise to commercially compete in this space. To obviate this, Pfizer has hinted that it would consider purchasing a large biotechnology company or a pharmaceutical company that has biotechnology products on the market. Enter Wyeth—another pharmaceutical company that is trying to reinvent itself as a biopharmaceutical company. However, unlike Pfizer, Wyeth markets and sells two successful biotechnology products—Enbrel, a treatment for rheumatoid and psoriatic arthritis and Prevnar a blockbuster anti-pneumococcal vaccine. However, it is important to note that neither Enbrel nor Prevnar were developed at Wyeth. Further, while Wyeth has achieved commercial success with both Enbrel and Prevnar, several of its non-biotechnology drugs have recently hit regulatory snags and their future approval is uncertain.
On the surface, a Pfizer-Wyeth merger may make sense—both companies are struggling, Pfizer needs an entrée into biotech and Wyeth has marketed biotechnology products and biomanufacturing capability. However, a closer examination of the deal reveals some major flaws. First, Wyeth’s internal biotechnology discovery pipeline is sparse (although it does have a few, niche protein-based products in early stage clinical development). While Enbrel sales are increasing and consistently have topped $1 billion in annual sales in recent years, Wyeth only owns the non-US rights to Enbrel (Amgen owns the US rights). Second, Prevnar is coming off patent soon and GlaxoSmithKline (GSK) has developed a competing vaccine that is expected perform as well or better than Wyeth’s next generation version of Prevnar. Finally, Prevnar has been a huge money maker for Wyeth because there are currently no other approved pneumococcal vaccines on the market. The introduction of GSK’s competing vaccine will undoubtedly have a negative impact on the sale of Prevnar and its successor. If neither company has strong internal drug discovery pipelines and both lack sufficient expertise in biopharmaceutical product development, why are Pfizer and Wyeth actively engaged in M&A discussions?
For the past several months, rumors have been circulating that Pfizer might acquire Amgen. While a Pfizer-Amgen deal makes more sense to me that a Pfizer-Wyeth one, I don’t think that acquiring another large pharmaceutical company is in the best interests of Pfizer shareholders (they are still paying for the past two mergers!). That said, if Pfizer does acquire Wyeth, the combined entity will still hold the distinction of being the world’s largest pharmaceutical company—at least there is that!
Until next time...
Good Luck and Good Job Hunting (hope that a merger doesn’t take place—there will be layoffs!)
You seem to lack some real knowledge about vaccines. Patent expiry?? Prevenar will soon be replace by a much better version.
I do hope there is a way to stop the latest Pfizer acquisition. History clearly shows that Pfizer could not handle the merger of Warner-Lambert. They could not handle the take over of Pharmacia and since nothing has really changed in the management of the company, it will certainly not be able to handle the acquisition of Wyeth. They will pillage it the way they pillaged before.
The problem starts at the top and Kindler despite experience as Pfizer's worldwide legal, compliance, communications, government relations, policy development and global security really had and still has no knowledge of the intricacies of what it takes to successfully develop drugs and run worldwide clinical studies. Unfortunately, neither do a great deal of the people advising him.
He listens to and is supported by the same people that brought Pfizer to its current abysmal state. The next layer of middle management at Pfizer consists primarily of the people Steve Jobs referred to in the following quote "When you are growing (too big), you start adding middle management like crazy. These people in the middle have no understanding of the business, and because of that, they screw up communications. To them, it's just not just a job (my words -it is a power base to be held on to at all costs). The company ends up with mediocre people that form a layer of concrete."
Mediocre management has downsized so many Pfizer employees that they lost significant history and knowledge. A majority of those remaining were there only because they had honed their political skills and connections and little else. There is now and has been for years, so many layers, so many processes developed by so many incompetent people who don’t understand the nature of the jobs they are overseeing that the company hardly functions. They have devolved into positions they are totally unprepared to handle. These are people that insist cumbersome and ineffective process be rolled out and always before they are even close to perfection. They do this because their job ratings and their bosses’ job ratings are based on timelines and some other invalid formula, not if the processes work or even make sense. These are people who are totally without creativity and therefore unable to recognize talent in others.
The people running Pfizer today and easily for the last eight years, are the embodiment of the Peter Principal - every employee tends to rise to his level of incompetence. Unfortunately, so many people advanced to their level of incompetence at Pfizer there is hardly anyone in a senior position competent enough to evaluate someone’s ability to do their job.
Pfizer doesn’t need to get larger. It needs to employ individuals in upper management who understand that no creativity can take place when jobs pigeonhole people and limit their ability to work outside a proscribed defined area. These people destroy creativity and innovation and there can be no forward motion or growth in such an atmosphere. One could say that Pfizer, the world’s largest pharmaceutical company in the free market, has managed to create an old fashion Soviet – communist like work environment where thinking outside of the box is not only discouraged but stifled.
The word that comes to mind when attempting to describe Pfizer’s past and present work environment is ‘unhealthy’. How strange that a company devoted to health and curing disease is ailing and cannot find the cure for or a way to eliminate its own disease except by purchasing another company (that it will most likely infect and ultimately destroy). Pfizer is a pharmaceutical leader but not in the best sense of the word. It is a massive, unchanging, diseased organism that swallowed up two large companies that employed thousands of people world wide and then downsized them It should not be allowed to do this again particularly in these economic times.
Pfizer leaders need to go back to the Pfizer core values and remember that their primary mission should be to provide the world with new, safe and innovative means of healing illness not to solely generate profits. Perhaps when Pfizer places importance on its employees rather than the processes and the bottom line, its research will thrive, innovation will occur and ultimately great profits will come.