Pfizer to buy Wyeth for $68B; cut 8,000 jobs

ByABC News
January 26, 2009, 11:09 PM

— -- Pfizer, the No. 1 drugmaker, said Monday that the largest pharmaceutical merger in eight years would create the world's "premier biopharmaceutical" company, with $71 billion in annual revenue.

The merger would be a break from Pfizer's past reliance on traditional drugs, which are made from chemicals, and catapult it into expanding arenas of biotech drugs, which are made with living cells, and vaccines.

"This positions Pfizer to be the leader of the next health care revolution," says Michael Luby, co-founder of industry consulting firm TargetRx. He says the lines between makers of traditional and biotech drugs will continue to blur as others seek deals to diversify and guard against generic rivals.

Pfizer was under pressure to do something big. For the past two years, it has cut workers and other costs but failed to articulate a strategy to replace cholesterol fighter Lipitor, which will face generic competition in 2011. With annual sales of $12.4 billion, it produced 25% of Pfizer's revenue last year.

With Wyeth, Pfizer would get several new blockbusters, including arthritis drug Enbrel, which Wyeth co-markets with Amgen, and Prevnar, a vaccine to battle childhood infections.

Wyeth also has several promising drugs in its pipeline, an area where Pfizer has stumbled. In 2006, Pfizer suffered a big blow when it halted testing of a new cholesterol fighter, torcetrapib, because of safety concerns.

Pfizer's 2008 revenue of $48 billion, reported Monday, was flat with 2007. Fourth-quarter net income plunged 90% year-over-year, in part because of $2.3 billion in legal charges.

Wyeth's 2008 revenue was $22.8 billion.

"Pfizer had to do something. This buys them time," says Steven Sean Hill, portfolio manager of First Investors, which owns shares in Pfizer and Wyeth.

In the cash and stock deal, Pfizer agreed to pay $50.19 a share for Wyeth, 29% above Wyeth's closing price Thursday before news spread of the deal, which needs approval from Wyeth shareholders. Pfizer expects big cost savings but also 18,000 job cuts between the two companies, which employ 129,000. It'll also halve its dividend payment to 16 cents a quarter.