Pfizer should buy Wyeth. Here's why

Barbara Ryan, an analyst at Deutsche Bank who rates Pfizer stock a "buy," says she expects Pfizer to "trade like a treasury bond" until Pfizer takes a big strategic step, like a major acquisition.

Due to a raft of upcoming patent expirations, the future is bleak for Pfizer. Among others, Pfizer will lose the blockbuster Lipitor, as early as 2010. Lipitor generated 2006 revenues of $13.6 billion, which was 28% of Pfizer's $48 billion in revenues. And Lipitor is already being hurt by generics, because Lipitor's competition is their losing patents. In Pfizer's most recent quarterly report, U.S. sales of Lipitor dropped 25% from a year ago; worldwide, Lipitor sales were down 13% to $2.7 billion.

So what would you do if you were Pfizer?

There is no magic in business. Pfizer needs another major acquisition to go anywhere and Pfizer's new CEO Jeff Kindler doesn't have a choice, if he want to become as rich as his predecessor Hank McKinnell who walked into the sunset with close to $200 million in his knapsack.

"As we wrote in our March 20 note "Global Pharma M&A," we believe WYE is one of the two (with BMY) most likely takeout candidates in the US and EU major Pharmaceutical groups. Pfizer in particular would be a fitting takeover partner." This statement comes from Credit Suisse analyst Catherine Arnold, in an August 20th research report entitled, "What To Do With Wyeth . . ."

She also wrote that "The recent share price decline could increase Wyeth's acquisition attraction and our SOTP analysis implies a take-out value of $69/share. Our March 2007 M&A report highlighted Wyeth's strategic and financial prospects as a target for Pfizer, GlaxoSmithKline & Novartis. A Pfizer acquisition is particularly interesting as Wyeth would provide significant access to biologics, yet provide upside to its primary care business including franchises in depression and osteoporosis."

But there are plenty of people who disagree. One of them is Fortune writer, John Simons who today penned the article, "Why a Pfizer-Wyeth merger is a bad idea." His basic concept is that "Pfizer's new size was its chief advantage, but also its Achilles Heel."

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- Peter Rost, M.D. is a former VP of Pfizer and the author of Killer Drug and The Whistleblower.