Pfizer/Wyeth Consolidation?

Today's New York Times reports that Pfizer is close to purchaing Wyeth for more than $60 billion. Pfizer is already the world's largest drug company with revenues of $48 billion in 2007. Here's an excerpt:

Still, because much of Pfizer and Wyeth’s portfolios overlap, there is potential to save billions of dollars through cutting duplicative costs, analysts say.

“If Pfizer and Wyeth combine sales forces and other operations, they will have a sleeker cost structure,” said Erik Gordon, a professor at the Ross School of Business at the University of Michigan. “Most other large companies have cut just everything they can. The only way to come up with new cuts without endangering their future is to merge in a way that creates redundancies that give the companies new job-cutting opportunities.”

Two weeks ago Pfizer said it would lay off 800 researchers, and it hinted at further job cuts. Last year, it did away with more than 10,000 jobs and announced it would focus on six therapeutic areas — cancer, pain, inflammation, diabetes, Alzheimer’s disease and schizophrenia.

It remains an open question whether mergers in the pharmaceutical industry work at all. Pfizer is itself a product of a series of mergers, with mixed results. It bought Warner-Lambert, which owned Lipitor, for more than $90 billion in stock in 2000 and three years later bought Pharmacia for stock valued at $60 billion.

"Pfizer’s tried it before, and it really hasn’t worked with other firms," said Edward F. X. Hughes, a professor who teaches pharmaceutical business at the Kellogg School of Management at Northwestern University.

ECB