Pfizer and Wyeth have announced that they have entered into a definitive merger agreement under which Pfizer will acquire Wyeth in a cash-and-stock transaction currently valued at $50.19 per share, or a total of approximately $68 billion.

Last week the two companies wre reported to be in merger talks (See: Pfizer in talks to acquire Wyeth for $60 billion) The world's top drugmaker, Pfizer has been wrestling with a dearth of new drugs and expecting a major revenue hit next year when its cholesterol-fighter Lipitor faces generic competition, attempted to strengthen its business by acquiring Wyeth, which will give it more than a single blockbuster drug to help ride out the coming los in revenues once generic manufacturers start making their versions of Lipiitor.

Wyeth's management team is expected to depart following the merger. The combined company could save $4 billion annually through the streamlining of operations.

Though Wall Street has given the merger a thumbs up, the deal is just said to have brought some time for Pzifer to retain its number 1 position. The real survival and growth will have to come from new drug discovery and launch which is a lengthy and expensive procedure.

It takes 15 years and $800 million to bring a drug to market. In the 1990s, the sector boomed thanks to a succession of "blockbuster" drugs, each with sales of more than $1 billion per year.
Mergers and in-licensing have given a short-term boost to pharmaceutical companies' depleted new-drug pipelines.

The cash-and-stock deal, one of the industry's biggest ever, is expected to close late in the third quarter or in the fourth quarter. Pfizer said it was financing one-third of its $68 billion takeover of rival Wyeth with debt and had received a commitment from a syndicate of five banks - J P Morgan Chase (JPM), Bank of America Merrill Lynch (BAC), Barclays, Citigroup (C) and Goldman Sachs (GS) -- for the financing.

Jeffrey B. Kindler, chairman and chief executive efficer of Pfizer, said, "The combination of Pfizer and Wyeth provides a powerful opportunity to transform our industry. It will produce the world's premier biopharmaceutical company whose distinct blend of diversification, flexibility, and scale positions it for success in a dynamic global health care environment. The new company will be an industry leader in human, animal and consumer health. With our combined biopharmaceuticals business, it will lead in primary and specialty care as well as in small and large molecules. Its geographic presence in most of the world's developed and developing countries will be unrivaled."

Bernard Poussot, chairman, president and chief executive officer of Wyeth, said, "Wyeth's commitment to scientific innovation has enabled us to build a diversified biopharmaceutical company with leadership in attractive growth areas such as vaccines, nutritionals and biologics. For example, Wyeth developed Prevnar, the first pneumococcal vaccine for infants.

"In addition, because we were early to see the potential of biotechnology to create life-changing medicines, we now have a strong franchise which includes Enbrel, the number one biotechnology product in the world. With our business focused on prevention and wellness, Wyeth is well positioned in today's rapidly changing health care environment. Our employees should be enormously proud of what we have built and confident that combining with Pfizer will accelerate our pursuit of innovative new medicines to meet critical unmet patient needs.

"Wyeth and Pfizer are highly complementary businesses, and together we can build the best diversified health care company in the world. We believe we can better execute our strategy and can accomplish far more together in the years ahead than either company could have achieved on its own."

Analyst say that with Wyeth, the combined company might earn $2.48 in 2012, still down from Pfizer's prior year, but only by 11 percent and just a touch below what the two companies might have earned if they'd merged at the start of 2009, $2.46 per share.

Deal details

Pfizer's past mergers
In 2000, Pfizer merged with Warner-Lambert and acquired full rights to Lipitor the blockbuster statin previously jointly marketed by Warner-Lambert and Pfizer. Warner-Lambert was based in Morris Plains, New Jersey, where former headquarters became a major base of operations for Pfizer.

Parke-Davis was acquired by Warner-Lambert in 1970, which in turn was merged into Pfizer in 2000. The headquarters of Parke-Davis was sold several years ago. The Parke-Davis research facilities in Ann Arbor, Michigan are planned to close in 2008.

Agouron Pharmaceuticals was acquired by Warner Lambert in 1999 and is now a subsidiary of Pfizer. Nelfinavir (Viracept), an antiretroviral drug used in the treatment of the human immunodeficiency virus (HIV), was developed by Agouron Pharmaceuticals as part of a joint venture with Japan Tobacco, Inc.

In 2002, Pfizer merged with Pharmacia, a competitor, to become the largest pharmaceutical company in the world. The merger was again driven in part by the desire to acquire full rights to a blockbuster product, this time Celebrex, the COX-2 selective inhibitor previously jointly marketed by Searle (acquired by Pharmacia) and Pfizer. In the ensuing years, Pfizer commenced with a massive restructuring resulting in numerous site closures and loss of jobs.

Impact on India
In the Indian market, cheaper generic drugs made by smaller but aggressive companies like Cipla, Ranbaxy, Dr Reddy's, Aurbindo, Sun Pharma, Cadila, Lupin and several others, dominate the highly-fragmented Rs35,000 crore drug retail market, and the merger will hardly shake up the competitors or customers.

The Indian market share of the two companies hold a 3 per cent of the . While PfizerIndia holds a 2.2 per cent share, Wyeth India holds a share of 0.8 per cent.

It is expected that there will be cost cutting exercise and there will be job cuts especially at the top management level.