Pfizer push to acquire Wyeth could cost thousands of jobs
Analysts say that if an accord is reached, cuts would hit Wyeth harder. It employs 5,000 in the Phila. region.
By Miriam Hill
Inquirer Staff Writer
A $60 billion purchase of drugmaker Wyeth by rival Pfizer Inc. is not a certainty, but if it does happen, it could lead to thousands of job cuts throughout Wyeth, including at its extensive Philadelphia-area operations.
No one from the two pharmaceutical companies would comment yesterday on reports of ongoing acquisition talks. Industry observers said Pfizer was desperate to do a deal to replace the billions in sales it would lose when the patent on its blockbuster cholesterol drug, Lipitor, expired in two years.
Making a deal profitable would demand steep job cuts at both companies, these analysts said. Cuts likely would fall more heavily on Wyeth, which employs 47,000 people worldwide, 5,000 at facilities in Malvern and Collegeville.
"They're slash-and-burn. To be taken over by Pfizer is not a fun thing," said Peter Rost, a former Pfizer vice president who was fired after accusing the company of marketing its drugs for unapproved uses and is campaigning to head the Food and Drug Administration.
Daniel Hoffman, who runs a pharmaceutical-research firm in Glenmoore, Chester County, said several factors would drive pressures to cut costs. Generic drugs, a weakening economy, and likely health-care changes already have put drug companies in a bind.
"Generally, in this kind of deal, you would be looking at 25 to 30 percent cost reduction," Hoffman said, "but here it's going to be more like 50 percent."
Sanford C. Bernstein & Co. Inc. analyst Timothy Anderson predicted that Pfizer would cut 70 percent of Wyeth's current $10 billion budget for research and development, and for marketing and administrative expenses.
He based his estimates on an eventual sale price of $65 billion.
At the Wyeth Pharmaceuticals campus in Malvern yesterday, workers, most of whom declined to give their names, said they had heard almost nothing.
"It's just wait and see," one man said as he walked from one of the two red-brick-and-glass buildings to the parking lot. "There's very little information, so there is nothing to comment on." A woman said she viewed the news as positive because it offered opportunities to innovate.
Wyeth, based in Madison, N.J., completed a 7 percent reduction in its workforce late last year. Pfizer, based in New York, employs 83,400. The company has cut 15,000 jobs since January 2007 and is in the process of cutting more.
The harsh conditions in the pharmaceutical industry resonate deeply at Pfizer because of the approaching expiration of the patent on Lipitor.
The best-selling cholesterol drug accounts for almost 25 percent of Pfizer's revenue, which was $48.4 billion in 2007. The company has developed few of its own top-selling drugs and has relied on acquisitions for new products.
Wyeth, which makes Prevnar, a popular pneumococcal vaccine, as well as Robitussin and other consumer products, could give Pfizer a steadier source of sales.
"Theoretically, this is the best of the three bad options Pfizer had," said Les Funtleyder, an analyst with Miller Tabak + Co. L.L.C. and author of Healthcare Investing. "They could buy something big, buy a bunch of small things, or do nothing and let Lipitor go off patent."
In 2000, Pfizer bought Warner-Lambert for $116 billion because it made Lipitor. Analysts have roundly criticized Pfizer over the years, saying it paid too much in that deal and for other acquisition mistakes.
Pfizer cut ruthlessly after the Warner-Lambert deal, said Rost, the former Pfizer vice president.
After several years of eliminating jobs that once totaled 3,600 at that company's Ann Arbor, Mich., facility, Pfizer announced its closing in January 2007. Among those put out of work was Bob Sliskovic, a scientist credited with developing Lipitor.
Rumors of a Pfizer acquisition of Wyeth or another company have been circulating for months. The Wall Street Journal confirmed talks yesterday. Pfizer is expected to use a combination of cash, stock and debt if it completes the deal. Carol Levenson, an analyst with the research firm Gimme Credit L.L.C., said the acquisition could damage Pfizer's credit outlook.
"We don't see why Wyeth is a solution to Pfizer's problems - it has plenty of lingering legal and patent-expiration problems of its own," she said in a note to clients. Wyeth last year lost patent protection on the antibiotic Zosyn and the heartburn drug Protonix.
Analysts said a slight thaw in the credit markets recently might have pushed the talks forward.
Wyeth shares rose $4.91, or 12.6 percent, closing yesterday at $43.74.
Pfizer shares closed up 24 cents, at $17.45.