E-DRUG: Pfizer buys Pharmacia?
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[Another mega-merger which will create the biggest drug company, unless GSK
and BMS merge as well?? Copied as fair use. Thanks to Andy for spotting it.
WB]
http://www.nytimes.com/2002/07/15/business/15DRUG.html
Pfizer Said to Buy Large Drug Rival in $60 Billion Deal
By ANDREW ROSS SORKIN
The drug giant Pfizer Inc. has agreed to acquire the Pharmacia
Corporation for $60 billion in stock, making it by far the most dominant
drug maker in the world, according to executives close to the deal.
The transaction, which was approved yesterday by the boards of both
companies and is expected to be announced today, these executives said,
would be the largest of the many recent mergers in what remains a
troubled and fragmented industry.
Drug companies, under intense pressure from politicians, employers and
managed care companies to limit price increases, are having a hard time
finding breakthrough products that would assure the robust earnings
growth investors demand. Pfizer's acquisition of Pharmacia, resulting in
a company that would still control only 11 percent of the global market,
is likely to hasten the industry's continued consolidation.
The merger would create a behemoth with $48 billion in projected sales
and many of the nation's most widely used drugs. Pfizer - which already
owns Zoloft, the antidepressant; Lipitor, the nation's most widely
prescribed cholesterol-lowering drug; and Viagra - would also gain
control of Pharmacia's Celebrex and Bextra, two high-selling arthritis
drugs, and Detrol, a drug that treats bladder problems.
Pharmacia, formerly Pharmacia & Upjohn, is also the maker of the
Nicorette gum smokers use to help them quit, the Rogaine baldness
treatment and Luden's throat drops.
Executives close to the deal said that by creating economies of scale,
the merger would help Pfizer to limit price increases. Pfizer is already
being conservative about raising its prices, they say, noting that it
has increased its price for Lipitor only modestly since acquiring it in
the 2000 acquisition of Warner-Lambert.
Pfizer's headquarters would remain in Midtown Manhattan. Pharmacia is
based in Peapack, N.J. It is unclear how many of the combined company's
150,000 employees would be let go.
Pharmacia recently completed the purchase of AT&T's former headquarters
in Basking Ridge, N.J. It is unclear what would happen to its plans to
relocate 2,500 employees there.
The Pharmacia acquisition would lengthen Pfizer's lead as the largest
drug maker in the United States and would vault it to the top spot in
Europe, Japan and Latin America.
Pfizer's proposed acquisition requires approval by regulators in both
the United States and Europe. Pfizer currently has about 8 percent of
the global market, while GlaxoSmith- Kline, the second-largest drug
company, controls 7.3 percent.
Analysts and investors have long speculated that many pharmaceutical
companies would be engulfed in a rash of mergers, leaving only a handful
of gigantic survivors. But so far, the largest expected mergers have not
materialized, analysts said, because the companies and investors have
questioned the long-term benefits.
Pfizer's deal could pressure rivals like GlaxoSmithKline, which has
been struggling to discover enough new drugs to make up for those now
losing their patent protection, to make acquisitions simply to remain
competitive.
GlaxoSmithKline's chief financial officer, John Coombe, said last month
that his company had been eyeing Bristol-Myers Squibb, itself plagued by
problems.
Pfizer's proposed acquisition of Pharmacia would help sustain its
growth, the executives contend, because 11 of its 12 combined
blockbuster drugs will be protected by patents through 2010. Its
pipeline of drugs in late stages of development would be expanded with
several promising Pharmacia drugs, including eplerenone, a new category
of treatment for cardiovascular diseases; parecaxib, an injectable
athritis treatment; and CDP-870, another drug that treats rheumatoid
arthritis.
With an enlarged research and development budget, Pfizer hopes to
discover and develop more new drugs faster than its competitors. The
combination would have nearly 120 new chemical entities in development
and 80 so-called drug enhancement projects.
The deal would also introduce Pfizer to two markets it has never been
in before: cancer treatment and ophthalmology.
Analysts have questioned the value of the drugs Pharmacia has in
development. "Although the company's pipeline contains a number of
interesting new products," Peter Norman, a pharmaceutical consultant and
analyst, wrote in a recent report, "none have clear blockbuster
potential."
A swirl of controversy surrounds one and possibly two of Pharmacia's
top selling arthritis drugs, Celebrex and Bextra. Last month, Express
Scripts, one of the largest pharmacy benefit-management companies, said
that Celebrex and a rival Merck drug, Vioxx, were being overly
prescribed and have only a narrow benefit over older drugs like
ibuprofen and naproxen, which are available in generic and
over-the-counter versions for a fraction of the price.
Express Scripts said it was recommending that its clients, which
include many employer health plans, require patients who are not at risk
of ulcers to try generic pain relievers first, possibly denting sales of
Celebrex and Bextra, which is similar.
Washington lawmakers have been vocal in recent months about rising drug
prices and their cost to uninsured senior citizens and states that have
to pay escalating Medicaid bills.
But the deal will probably be approved by regulators because the
companies have few overlapping drugs. The only possible overlap may be
between Pharmacia's Detrol and a competing drug that Pfizer is currently
developing. Executives close to the transaction expect the deal to be
completed by the end of the current year.
The executives said they expected the deal to create as much as $2.5
billion in annual savings by 2005. They expect savings of $1.4 billion
in 2003 and $2.2 billion in 2004. The savings will come from cuts in
administrative costs, purchasing, manufacturing, distribution and
research and development.
Pfizer's absorption of Warner-Lambert was widely admired as a model of
how to fully exploit an acquired portfolio of blockbuster drugs.
Pfizer's chairman and chief executive, Henry A. McKinnell, who
conceived of the deal, would run the combined company. Fred Hassan,
Pharmacia's chairman and chief executive, would become vice chairman of
Pfizer and get a seat on the board.
Under the deal, Pfizer would trade 1.4 of its shares for each share of
Pharmacia, according to the executives. That price of $45.08 a share,
based on Friday's close, represents a 38 percent premium over
Pharmacia's stock price of $32.59. Pfizer shareholders would own 77
percent of the combined company, the executive said, while Pharmacia's
shareholders would own 23 percent.
Prior to the completion of the deal, Pharmacia plans to proceed with
its previously announced spinoff to its shareholders of its remaining
stake in Monsanto, the executives said. As a result of the spinoff,
Pharmacia's shareholders would actually receive the equivalent of about
a 44 percent premium, they said.
Pfizer also plans to announce today that it will expand its $10 billion
stock repurchase to $16 billion, a measure that may help stabilize the
value of its stock. After most merger announcements, the acquirer's
stock at least temporarily declines.
Pfizer was advised by Lazard and Bear, Stearns & Company and
represented by the Cadwalader, Wickersham & Taft law firm.
Pharmacia was advised by Goldman, Sachs and represented by the Sullivan
& Cromwell law firm.
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