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Linda A Johnson
26 Jan 2009 16:46
Pfizer Inc is buying rival drug maker Wyeth in a $68-billion deal that will increase its revenue by 50 percent, solidify its No 1 rank in the troubled industry and transform it from a pure pharmaceutical company into a diversified health-care giant.
At the same time, Pfizer announced cost cuts that include slashing more than 8 000 jobs as it prepares for an expected revenue crash when its cholesterol drug Lipitor—the world’s top-selling medicine and source of one-quarter of Pfizer’s revenue—loses patent protection in November 2011.
The cash-and-stock deal, expected to close at the end of the third quarter or in the fourth quarter, comes as Pfizer’s profit takes a brutal hit from a $2,3-billion legal settlement over allegations it marketed certain products for indications that have not been approved.
The New York-based company is also cutting 10 percent of its work force of 81 900, slashing its dividend, and reducing the number of manufacturing sites from 46 to 41. Those closures, and reducing its facilities square footage by about 15 percent, will cost about $6-billion before taxes, of which $1,5-billion has been incurred, Pfizer said.
The company did not specify which plants it would close.
Job cuts at Pfizer will begin in the first quarter and are to be complete by 2011, according to company spokesperson Ray Kerins.
Cuts will include most departments, from administration in sales to manufacturing and research.
“It will be done in a methodical way,” Kerins said.
Pfizer said it anticipates the new cost-cutting programme will reduce spending by about $3-billion, $1-billion of which will be reinvested in the business. That’s on top of an existing cost-cutting programme that has produced about $2,8-billion in annual savings, compared with 2006 levels.
Like Pfizer, Wyeth—the maker of blockbuster antidepressant Effexor and children’s vaccine Prevnar—has its own cost-cutting programme in place, dubbed Project Impact.
“No specific decisions have yet been made about job reductions [at Wyeth] in connection with the transaction,” said company spokesperson Doug Petkus.
Early on Monday, Pfizer, the maker of Lipitor and impotence pill Viagra, said it will pay $50,19 a share under for Wyeth, valuing Madison, New Jersey-based Wyeth at a 14,7 percent premium to the company’s closing price of $43,74 on Friday.
Both companies’ boards of directors approved the deal but Wyeth shareholders must do so, antitrust regulators must review the deal and a consortium of banks lending the companies $22,5-billion must complete the financing.
The deal is being financed by five banks, according to Kerins. They are Bank of America Merrill Lynch, Barclays, Citigroup, Goldman Sachs and JP Morgan Chase.
Pfizer has been under pressure from Wall Street to make a bold move as it faces what is referred to as a patent cliff in the coming years.
As key drugs lose patent protection they will face generic competition and declining sales. Lipitor is expected to face generic competition starting in November 2011. It brings in about $13-billion a year for the company.
Acquiring Wyeth helps Pfizer diversify and become less-dependent on individual drugs—Lipitor now provides about one-fourth of all Pfizer revenue—while adding strength in biotech drugs, vaccines and consumer products. Wyeth makes the world’s top-selling vaccines, Prevnar for meningitis and pneumococcal disease, and co-markets with Amgen Inc the world’s No 1 biotech drug, Enbrel for rheumatoid arthritis.
“The combination of Pfizer and Wyeth provides a powerful opportunity to transform our industry,” Pfizer chairperson and chief executive Jeffery B Kindler said in a statement. “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.”
Together, and the two companies will have 17 different products with annual sales of $1-billion or more, including top antidepressant Effexor, Lyrica for fibromyalgia and nerve pain, Detrol for overactive bladder and blood pressure drug Norvasc.
Shortly after announcing the Wyeth deal, Pfizer said fourth-quarter profit plunged on a charge to settle investigations into off-label marketing practices. The company earned $268-million, or 4 cents a share, compared with profit of $2,72-billion, or 40 cents a share, a year prior. Revenue fell four percent to $12,35-billion from $12,87 billion.
Excluding about $2,3-billion in legal charges, the company says profit rose to 65 cents a share.
Analysts polled by Thomson Reuters expected profit of 59 cents a share on revenue of $12,54-billion.
Looking ahead, New York-based Pfizer expects earnings per share between $1,85 and $1,95 in 2009, below forecasts for $2,49.
Wyeth said its fourth-quarter profit declined 5,6 percent, to $960,4-million, or 71 cents a share, down from $1,02-billion, or 75 cents a share, in the 2007 quarter.
Excluding productivity-initiative charges, the company earned 78 cents a share in the latest quarter. Worldwide revenue fell seven percent to $5,35-billion, dragged down partly by unfavorable currency exchange rates.
Analysts on average expected Wyeth to earn 79 cents a share on revenue of $5,79-billion.
Wyeth said it isn’t giving financial guidance for 2009.—Sapa-AP
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