Eben Tessari

5 Reasons Pfizer Shouldn't Buy Wyeth

quite


On Jan 26 07:48 AM RandDChemist wrote:

> Astonished???

5 Reasons Pfizer Shouldn't Buy Wyeth

I disagree with the premise that Wyeth fill the $11B hole left by Lipitor (even slightly). Wyeth has its own patent cliff to deal with in 2010 and 2011, and there's little in the Ph III pipeline to take over.

It's a fools errand to duct tape the dam together but ignore the gaping hole in the middle that is R&D productivity. I don't disagree that there are cost savings with a merger but that won't fix the gaping hole.


On Jan 25 04:56 PM PharmaBanker wrote:

> The above article is nonsense.
>
> Consolidation of Big Pharma is inevitable. Reduced R&D productivity
> over the past 10 years has set up a scenario where there is too much
> sales/distribution capacity for the future fewer drugs that are making
> their way through the FDA approval process. Mergers are a way for
> management and investors to quickly take capacity out. Sorry to the
> sales folks who won't continue pulling in $150k+, but they need to
> find something else to do....I would transition into HCIT and try
> to get hired by Cerner, Allscripts, etc....companies that are perfectly
> positioned to help electronify physician's offices with the help
> of Obama's $40k plus subsidy over five years.
>
> Pfizer faces a massive patent cliff in 2011 with Lipitor (a Wyeth
> deal helps plug the hole and is an excuse to right size). Wyeth has
> faced uncertainty on viability of pipeline, including the hailed
> Alzheimer's programs (de-risk the possibility of development failure).
> Wonder what happens to Elan?
>
> Synergies in this deal are worth at least $19B alone, assuming $3B
> run rate cost savings (~30% of WYE combined SG&A and R&D),
> restructuring expenses of 1.5x * run rate spread over first two years
> with heavier weighting on first year, 30% blended tax rate, and discounted
> at a 9% cost of capital...take that out of the $65B Ent Val and you
> are below $50B unaffected trading value at a time when valuations
> are at historically reasonable levels (approximate average historical
> PE is 15x). Feels like a good deal.
>
> To come -- Sanofi acquisition of BMS, GSK acquisition of WYE Consumer
> (if they can get it unlike their past attempts...JNJ could spoil
> with a last minute $1B bump too) then AZ.
>
> Bank on. ;)

5 Reasons Pfizer Shouldn't Buy Wyeth

These are all fair points (the MS Office reference was particularly brilliant).

I too, plead ignorance (mostly) as to the details of the merger (I employed by no party in these negotiations), and I'll be the first to admit I'm wrong if this merger is a success, but for the time being I'm going resist the urge to have my de facto position be one of confidence in the Pfizer management team.

I guess we'll find out sooner or later.. and again, phenomenal comment.


On Jan 26 05:51 AM donzelion wrote:

> I'm cautiously optimistic about this merger, but I plead (and vehemently
> affirm) ignorance - because:
>
> (1) Do I know more than Pfizer management about what's in Wyeth's
> pipeline and what the potential value could be? (Anybody who knows
> better than Pfizer management is entitled to an opinion; anyone else
> is an arm-chair quarterback)
>
> (2) Do I know more than Pfizer management about what the potential
> costs and cost savings from the merger? (mergers destroy shareholder
> value - in the sense that one $110 billion company + one $60 billion
> company will not result in one $170 billion company...but that's
> a pretty weak concept of shareholder value...)
>
> (3) Do I know the full scope of the opportunities out there? Pfizer
> could buy 10-50 companies for the money they're looking to spend
> on Wyeth. But that doesn't mean they should...
>
> Two turkeys together may not fly like an eagle - but if you take
> the worst word processor (Microsoft Word version 3.0) and mix it
> with the worst spreadsheet (Excel v. 2.0), use consistent icons and
> keyboard shortcuts - you can take over the world. For a time.

Big Pharma in Effort to Stimulate Innovation

DRich,
I don't disagree that Pfizer shareholders don't have a valid gripe and that the company is floundering. I was speaking strictly from a revenue growth perspective. I don't think I made that clear in the post.

Drug discovery and development is difficult (and recently it's been made only more so by the FDA), even for Pfizer.

Expecting one or two blockbuster drugs a year is unreasonable. The low hanging fruit has been picked. It is just unreasonable to think that 50B in revenue can grow at 10%/yr given all the variables, but that is what people expect.

Again, this doesn't mean that Pfizer doesn't need some managment changes or a rethinking of their strategic plan, just that we as investors should re-evaluate what we need out of pharma stocks.

Big Pharma in Effort to Stimulate Innovation

The Real Expert,
Where is your site? Where is your analysis? Are you just one of those losers who rips everyone else apart without bringing anything to the table?