Pfizer's proposed $68 billion acquisition of Wyeth brings the return of a consumer health division and with it a pipeline structure for potential Rx-to-OTC switches.

The merger, officially announced Jan. 26, strengthens Pfizer's position in biotech and vaccines, and makes it a "leader in human health, animal health, consumer health and nutritionals," said Jeffry Kindler, Pfizer CEO and chairman.

As the largest pharma merger in history, the deal will expand Pfizer's footprint in the market and create a drug powerhouse with combined sales of more than $71 billion, based on 2008 revenues.

Pfizer's acquisition of such a "well-diversified" company also "is wise given deteriorating fundamentals in the pharmaceutical space," Sanford Bernstein analysts say in a Jan. 26 note.

The inclusion of new biologics, vaccines and a consumer health division in the deal could buffer Pfizer from a potential loss of 70 percent of its 2007 revenues by 2015, at which time many of the firm's blockbuster drugs will no longer have patent exclusivity. These include Pfizer's cholesterol-lowering drug Lipitor , which accounts for more than $12 billion in sales.

The deal "creates a more desirable balance in our portfolio, reducing small molecule dependence from 90 percent to 70 percent by 2012," Kindler said.

The acquisition does not position Pfizer for near-term growth, though. Rather, it allows the company to maintain its 2008 revenues and earnings-per-share levels through 2012.

Consumer Offers "Tremendous Opportunities"

Wyeth's consumer health division offers Pfizer "tremendous opportunities," and is "a terrific business" that "is very complementary with our portfolio," Kindler said during a Jan. 26 call.

A spokesman added that Pfizer is "very excited because Wyeth's consumer division has outstanding products like Robitussin , Advil and Chapstick ," which "are terrific, world-class brands."

The spokesman said Pfizer is "excited about taking our years of experience in consumer marketing and looking at [Wyeth's] world-class [consumer] products."

Wyeth's consumer health, animal health and infant nutritionals pulled in nearly $5.4 billion of the company's total $22.8 billion in sales in 2008, according to the firm's fourth-quarter and full-year earnings reports released the same day.

Likewise, Wyeth Nutritionals sales increased 13 percent in 2008 to $1.6 billion, offsetting a 1 percent drop in consumer health care sales to $2.7 billion, according to Wyeth. The firm's formula products include SMA , Promil and Visoy .

Wyeth's consumer division will make up only 3.8 percent of the combined companies' revenues. This is slightly smaller than Pfizer's old consumer business, which produced $3.9 billion in revenues in 2005 and accounted for 7.6 percent of Pfizer's total $51.3 billion in revenue.

Pfizer sold its consumer business to Johnson & Johnson in 2006 for $16.6 billion in order to focus on core pharma (¹ Also see "J&J, Pfizer Satisfy FTC Conditions To Clear Deal; EC Signs Off" - Pink Sheet, 18 December, 2006., p. 9).

"Pfizer's own consumer health business ... was kind of seen as one of the strongest in the industry, had a lot of very well-known brands in it," said Simon King, an analyst at DataMonitor in the U.K. The brands included Listerine and Nicorette . J&J also successfully switched Pfizer's Zyrtec . The OTC rights were included in that deal.

With this in mind, many analysts criticized Pfizer for selling the consumer group. However, Kindler said the decision to sell "was made at the time based on the view that prevailed at the time."

His current excitement about Wyeth's consumer group may indicate that Pfizer will keep it, but a spokesman said Pfizer has not made any specific announcements about the consumer group.

If Pfizer takes a "U-turn" and keeps the consumer health division, as it appears it will, they will do so at a "fairly good price," added King.

Deal Opens Door For Internal Switches

A decision to keep the consumer group would give Pfizer a way to extend the life cycles of some blockbuster drugs through potential in-house switches.

"Pfizer has a great lineup for switches. I believe they do have six or seven good switchable drugs. They may be hard to switch but they should be considered for switch potential," said consultant Joseph McGovern of Doylestown, Pa.-based firm The Atlantis Group.

Among the potential short-term switch candidates are Lipitor, Pfizer's blockbuster statin, and its incontinence drug Detrol , Morgan Stanley analysts predict (² Also see "OTC Switch Offers Firms Opportunities To Diversify Earnings – Morgan Stanley" - Pink Sheet, 4 February, 2008., p. 3).

However, a Lipitor switch would need to overcome many barriers that blocked J&J's and Merck's attempt to switch their statin Mevacor , said Randy Juhl, vice chancellor for research conduct and compliance at the University of Pittsburgh and one-time chair of FDA's Nonprescription Drugs Advisory Committee.

He explained that to switch Lipitor, Pfizer would need to show that consumers know how to safely use the product, would regularly check their cholesterol levels and could identify when to stop taking the drug.

The advisory committee reviewing the Mevacor switch application said Merck did not adequately show consumers could meet those requirements, said Eric Brass, former NDAC chairman and current chair of the Department of Medicine at University of California, Harbor-UCLA Medical Center.

Pfizer may have more luck switching Detrol, which Juhl says "there was some interest" in by other companies.

Wyeth's proton pump inhibitor Protonix (pantoprazole sodium) also has a "fair" shot at switching in 2010 when its patent expires, Morgan Stanley analysts predicted.

However, any switch would be tricky, time-consuming and expensive, warned Juhl.

"A global problem in switch is ... the easier ones have been done," and the carrot of three-years exclusivity may not be enough of an enticement to offset the cost of developing a switch, he said.

Like statins, the triptan class of migraine drugs is another group that has been cited for some potential to switch OTC. No triptan has been switched in the U.S. But GlaxoSmithKline's Imigran (sumatriptan) was switched to behind-the-counter sale in the U.K. Pfizer's primary patent for Relpax (eletriptan hydrobromide) expires in 2013.

Cost-savings Figure Prominently In Merger

In addition to the new revenue potential offered by the merger, the deal also promises cost savings.

Pfizer executives expect to save about $4 billion by reducing selling, information and administrative functions, research and development and manufacturing.

The combined company also will reduce its workforce by about 15 percent. It would cut roughly 50,000 jobs at Wyeth and 80,000 at Pfizer, according to Pfizer.

Among those potentially losing their jobs could be Wyeth CEO Bernard Poussot, who said he will work through the transition, but did not mention any longer-term commitment to stay with the firm.

The potential loss of Poussot in a senior position "may not be ideal," said Credit Suisse analyst Catherine Arnold in a Jan. 26 note. She explains the loss would be "disappointing as he has decades of industry experience and the integration could benefit from the same."

Pfizer's Diverse Financing Plan

Pfizer says it will finance the acquisition with roughly equal parts cash, debt and stock.

Pfizer rounded up about $22.5 billion in debt from five banks. Partnering with multiple banks provides Pfizer with some protection if one bank is unable to provide the money last-minute, a Pfizer executive said during a luncheon Jan. 27.

Under the terms of the transaction, Pfizer will convert Wyeth shares to $33 cash plus 0.985 of a share of Pfizer common stock, worth $17.45 at closing Jan. 23, Pfizer Chief Financial Officer Frank D'Amelio said.

The total value of $50.19 for Wyeth shareholders is a 15 percent premium over Wyeth's closing price of $43.74 on Jan. 23, which was boosted by merger speculation earlier in January.

- Elizabeth Crawford (e.crawford@elsevier.com)

Pfizer’s Wyeth Buy Rebuilds OTC Switch Potential

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