PETER ROST: PHARMA MARKETING EXPERT WITNESS. AWP, MEDICAL DEVICE EXPERT.: The reason Pfizer is pushing like crazy to buy Wyeth. And why all the pundits are wrong.

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The reason Pfizer is pushing like crazy to buy Wyeth. And why all the pundits are wrong.

The fact that Pfizer is trying to acquire Wyeth was splashed on WSJ's front page on Friday. An article like that doesn't end up in that space by mistake. Someone leaked the information and had good reason to do so.

There is really no reason for Wyeth to leak the info, so that leaves a party associated with Pfizer.

Someone wanted to put pressure on Wyeth's Board of Directors, making it more likely they will accept a deal.

By showing that the stock market loves the deal, driving up Wyeth stock 10% and not even penalizing Pfizer, the stock market has responded and told Wyeth that shareholders would be really upset if the deal doesn't happen.

So Pfizer or their investment bankers leaked the deal to pressure Wyeth to sign on the dotted line, probably this weekend.

A lot of pundits whom I respect claim it is crazy for Pfizer to buy Wyeth.

Jim Edwards, formerly of Brandweek and now of BNet writes "what would the new company be called, Pfyeth? Wyther? Wyzer?"

Answer is none of those. It will be called Pfizer because this is not a merger, it is an acquisition.

Jim also writes "Unless these R&D departments are filled with paper-pushers and not scientists, then slashing R&D can ultimately lead to only one thing: reducing the number of new drugs you produce. It doesn’t matter if the expenses are internal or for acquisitions. Drugs costs money. No R&D money, no new drugs. So, again, that raises the question of whether merging for a one-time saving on the elimination of duplicate tasks is really worth it."

But what is important to Pfizer CEO Jeff Kindler today is not the drugs his company may launch ten or fifteen years from now. His interest is survival and increasing the value of his stock options. That's the reason he does the deal. It is short term, but so is most of business.

And, very few of those scientists have come up with great new drugs. Most big Pfizer drugs have been bought or inlicensed, so Jeff probably couldn't care less if he has to cut scientists. After all he just dumped 800 scientists over at Pfizer.

Jim also writes that "Pfizer is historically bad at deals" and "don’t forget Pfizer’s acquisition of Pharmacia. That was the company that made Celebrex – whose sales promptly tanked as soon as the Vioxx scandal broke."

But that doesn't mean Pfizer was bad at doing deals; the fact that they bought something that blew up in their face. That's not an indictment of doing more mergers. It simply is--bad luck.

And Fred Hassan was real lucky to sell Pharmacia when he did. I've written it before, he'd been carried out of this industry covered with tar and feathers if he'd still been at Pharmacia. He got lucky, which is a trait many successful men share.

Jim ends his article with the following quote, "“Pfizer still has significant problems, so from Pfizer’s perspective this is a good idea,” said Chris Albani, a Tokyo- based partner at PRTM who has advised pharmaceutical companies for about 20 years. “From Wyeth’s perspective, if I were them, I would try to get out of it.”"

Wyeth should try to get out of this deal?

Huh? Who is "Wyeth"?

A major premium on share price, why would share holders NOT want this deal?

Wyeth shareholders would love this deal because they will make more money than if they sat on their hands and waited for Bernard Poussot to pull a rabbit out of his hat.

The fact that Wyeth employees wouldn't be happy, nor that science would be well served by Pfizer slashing and burning costs, is a different story.

The people that own "Wyeth" do so to make money. And they would be more happy with more money than less money.

And there are plenty of other pundits who disagree with the Pfizer-Wyeth lock-up.

One of them is Fortune writer, John Simons who penned the article, “Why a Pfizer-Wyeth merger is a bad idea.” His basic concept is that “Pfizer's new size was its chief advantage, but also its Achilles Heel.”

And he’s right about that.

Bigger means you need bigger drugs to succeed, which makes success more elusive.

Getting smaller, however, is not rewarded by Wall Street, and so the only way forward for Pfizer is to get even bigger. And to do this organically is all but impossible.

Jeff Kindler needs to continue to buy every pharma company in the business, to fuel the stock markets expectations of continued growth. The day he stops he is out of a job.

Which means twenty years from now Big Pharma will look like Big Auto. Three companies left standing, asking for government hand-outs.

Then the whole thing will explode, and the cycle will start again. That's capitalism--devouring your own, dying, rebirthing.

Fortune also pointed out that “Wyeth's fortunes aren't much better [than Pfizer’s].”

But if two big pharma companies are going down, they’d go down more slowly if they could devour each other and cut costs in the process.

After all, all Jeff needs to do is to continue to buy time, make sure Pfizer doesn't sink.

He's not hunting Wyeth to build a great new empire. He's doing it to stay afloat when he loses 25% of his sales when Lipitor goes down the tube.

And when that happens, he'll go out and shop for another big company. Maybe Glaxo.

He'll make money doing this, the investment bankers will make money, shareholders will make money and that's how our system works. The losers will be the employees and their families.

So far, we haven't found a better system, which may be kind of sad, but I don't see anyone voting for socialism in this country, especially not in the drug industry, so it is kind of hard for the free-market loving pharma employees to whine when the free market whacks their heads off.


Anonymous Anonymous said...

Acquiring in order to financially exploit areas of redundancy? Even Jerry Gallivan at Merck thought that was acceptable (and that was 1996...) business behavior. But I disagree on the next target - GSK. It will be Lilly. They don't possess the "oomph" to offset the olanzapine costs and loss in 2011. Their other in-line products don't meet profit-plan expectations. Their oncology portfolio plans are underfunded.

Anonymous Anonymous said...

You may be right that someone on the Pfizer side or their banks leaked the news to WSJ. Today during an employee townhall, someone asked why this is such a good deal if PFE is trading lower. Jeff mentioned that when the news of the deal leaked on Friday, PFE shares closed higher. Later Sally Susman (SVP Comms) corrected Jeff and mentioned that the leak occurred on Thursday around midnight. Either she was acutely monitoring the news or someone in her organization did the leaking perhaps? Also wouldn't be surprised if PFE or its bankers did a share buyback just before the markets closed on Friday to drive up the price. PFE closed lower in European trading and traded lower most of the day in the US as well. Kindler wanted this deal to close this weekend real bad to divert attention from the $.23b fine Pfizer paid for Bextra (much of which happened during Kindler's tenure as GC). None of this would surprise me.


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