Pfizer seems ready to battle patent expiries, declining sales and grim predictions from analysts after announcing it has entered into a definitive merger agreement with Wyeth. Prior to the announcement, Datamonitor had predicted that Pfizer would fall from its industry-leading perch by 2013, but the agency now anticipates that PfizerWyeth will become a prescription pharmaceutical company of "unprecedented scale" by 2013. Despite this huge potential future, investors seem wary about the deal and shares for Pfizer have fallen because of concerns regarding the additional debt required to fund the deal. Datamonitor also believes that the merger will not be an instant fix. "This deal gives Pfizer scale, but will not resolve the company's negative pharma sales outlook," says Simon King, Senior Analyst at Datamonitor.
Pfizer is expected to be the hardest hit by the impending 'patent cliff' of expiries between 2008 and 2012. "Most significant for Pfizer is the loss of patent protection for Lipitor, which comes off patent in the US in 2011," says King. "Lipitor alone accounted for approximately $13 billion (10 billion euro) in global revenues for Pfizer in 2007; more than 28% of the company's total prescription sales that year."
Based on current Datamonitor forecasts, 38.5% of Pfizer's 2007 prescription sales will face expiry prior to the Wyeth acquisition in 2013. Post acquisition, it is forecast that 34.7% of the companies' combined 2007 prescription sales will be exposed to expiry threat between 2007 and 2013. The acquisition will dilute the threat, but it will not solve the underlying commercial challenge looming in front of Pfizer.
It will, however, provide the opportunity for cost savings through elimination of duplicate activities in both companies. Pfizer will also gain access to biologic and vaccine capabilities. King says: "Pfizer's traditional focus has been on small molecules and the cardiovascular market. This acquisition allows it to greatly improve its presence in the immunology, inflammation and infectious diseases sectors, and integrates Wyeth's expertise in the biologic and vaccines markets."
The announcement of the merger agreement coincides with Pfizer's presentation of its Q4 financials, which revealed a 90% drop in net income, and restructuring plans that include cutting 10% of its global workforce.