In among the top M&A deals ever, Pfizer Inc is reported negotiating to acquire rival drug maker Wyeth in a blockbuster deal potentially worth more than $60 billion that could alter the global drug industry, The Wall Street Journal reported today.
The last pharmaceutical deal worth more than that was when Pfizer bought Pharmacia Corp. for $60.3 billion in April 2003. Merck & Co., GlaxoSmithKline Plc and Abbott Laboratories also have said they're interested in deals as prescription sales wither from generic competition.
At more than $60 billion, Wyeth's price tag would dwarf Eli Lilly & Co.'s largest buyout last year of biotech cancer drug maker ImClone Systems. Like Pfizer, Lilly is looking at a major patent expiration in the coming years, as its antipsychotic drug Zyprexa will be vulnerable to generic competition in 2013. (See: Eli Lilly to acquire ImClone for $6.5 billion)
News of the possible deal sent Wyeth shares up 13 per cent in pre-market trading Friday, while shares of Pfizer slipped about 2.7 per cent.
Pfizer would likely use a combination of cash and stock for the acquisition, according to the report. While Pfizer shares have fallen nearly 5 per cent in the past three month, those of Wyeth have risen over 15 per cent. With its shares closing at $38.83 yesterday, Wyeth has a market capitalisation of roughly $51.7 billion.
A combination of these two US pharmaceutical giants would redraw the boundaries of the global drug industry, which has suffered from flagging product development and high fixed costs in recent years.
The two companies have been in discussions for months and a deal isn't imminent. Given recent market volatility and overall economic uncertainty, the talks are especially fragile and could collapse, sources warned.
Analysts have predicted tie-ups in the pharmaceutical industry in recent months as the companies prepare for a wave of major patent expirations over the next few years. Pfizer and Wyeth have slashed jobs and costs to prepare for that period.
Pfizer is the world's top drugmaker by revenue, lead by the blockbuster cholesterol drug Lipitor, which tallies about $13 billion in annual sales. However Lipitor is likely to face generic competition in late 2011. Wyeth, the twelfth-largest drugmaker, is in a similar position, as anti-depressant Effexor will lose patent protection in 2010. Patent protection on its antibiotic Zosyn and heartburn drug Protonix ended in 2008.
By acquiring Wyeth, Pfizer's earnings may fall as little as 10 per cent rather than 23 per cent when it loses patent protection in 2011 on Lipitor.
A deal would be the biggest pharmaceutical acquisition in at least five years and may signal consolidation in the drug industry as companies including Pfizer, Merck & Co. and Eli Lilly & Co. seek to recover losses they'll face in the next four years for branded medicines with $121 billion in annual sales.
Roche, for its part, has been in talks to fully acquire biotechnology Genentech Inc. since July. Roche already owns a majority of Genentech, which so far has rejected an offer to buy the remaining shares as too low. Investors are also worried whether Roche will manage to complete the $44 billion deal because capital markets have deteriorated since it was first announced (See: Roche confirms plans to acquire remaining 44 per cent in Genentech)
Also last year, Japanese major Daiichi Sankyo acquired a majority stake in India's biggest drugmaker Ranbaxy in a bid to capture the generics market. (See: Daiichi Sankyo completes Ranbaxy acquisition)