Pfizer: Try, Try Again

Hartfourd Courant
by Dan Haar

January 29, 2009
A guy climbs up a ladder to fix his roof, falls off and breaks his leg, then does the same thing again a few years later. What are you supposed to think when he mounts the ladder a third time?

Pfizer is on that ladder, headed up to the roof again. The pharmaceutical giant is buying Wyeth for $68 billion in cash and stock, a blockbuster deal that echoes Pfizer's earlier megamergers: Warner Lambert for $93 billion in 2000 and Pharmacia for $57 billion in 2003.

Those earlier deals -- just like this one -- were designed to jump-start Pfizer's dangerously shrinking drug pipeline and to create savings from larger scale.

Each of those deals, like virtually all corporate mergers, was hailed as a match made in heaven. This time, Pfizer has a different CEO, Jeffrey Kindler, who claims he's skeptical of big mergers. As near as I can tell, he didn't utter the words, "match made in heaven."

Instead, Kindler called it a "perfect fit."

Maybe it is. Pfizer, based in New York, with its research headquarters and 5,000 people in Groton and New London, specializes in chemical-based pharmaceuticals for cancer, infectious disease, geriatrics and neurological disorders. Its $13 billion-a-year meal ticket -- best-selling Lipitor -- is a cholesterol medication, but Pfizer said it's getting out of the cardiovascular trade after Lipitor.

Wyeth has some overlap with Pfizer, but also a strong franchise in women's health, consumer products (which Pfizer recently exited) and, most important, a platform in biologic drug invention, medicines made of large, complex proteins that are hard to make but offer the most promise these days.

Great. Let's call it a perfect fix -- though the repair won't work smoothly for the 19,000 workers slated to lose their jobs of the combined companies' 129,000 total.

On the way to the merger shop, consider Pfizer's megadeal history.

Before the company overpaid for Warner Lambert in 2000, its shares peaked above $48. By the time of the Pharmacia announcement in 2002, Pfizer was trading at just over $30. Five bull market years later, when the market peaked in late 2007, the shares were at $25, and on Wednesday they closed at $15.44 amid doubts about the latest deal.

Pfizer shareholders, for the record, have no say in the Wyeth deal.

Stock prices fall for all kinds of reasons. But despite a research budget that was at $7 billion, and despite its buying sprees, Pfizer still finds itself with a pipeline too weak to support its heft -- raising questions about size and innovation.

Erik Gordon of the University of Michigan's Ross School of Business is among the experts who say it's mainly been a run of bad luck in a high-risk industry -- not necessarily bad strategy. Would-be blockbuster torcetrapib, for example, the hailed successor to Lipitor, died in late trials two years ago after Pfizer sank nearly $1 billion into it.

Beyond that, Gordon said, "I think the Wyeth thing will be handled better. You've got a smarter company with different leaders."

And so, Kindler climbs the ladder up to the roof.