By Ransdell Pierson and Jessica Hall
NEW YORK/PHILADELPHIA (Reuters) - PFIZER (PFE.NY)Inc
The deal could be valued at more than $60 billion, according to The Wall Street Journal. Wyeth's market capitalization as of Thursday, before news of the talk lifted the stock 8.2 percent, was about $52 billion.
Such a mega-deal would help Pfizer, whose shares fell 2.5 percent, manage its revenue "cliff" in 2011 when its blockbuster Lipitor cholesterol treatment loses U.S. patent protection.
It would diversify Pfizer into vaccines and injectable biologic medicines, two enticing areas, by adding Wyeth's big-selling Prevnar vaccine for childhood infections and Enbrel rheumatoid arthritis treatment, while generating major cost savings by eliminating overlaps between the two huge organizations.
"It sort of takes out the cliff and it balances their revenues with a portfolio of products that have a different profit lifecycle" than traditional pills, said Barbara Ryan, an analyst with Deutsche Bank who has predicted the pharmaceutical industry's woes would lead to large-scale consolidation.
"I think it's imminently doable," Ryan said. "The question is whether others enter the fray. It's going to come down to price. The deal is attractive at this price, it's not attractive at any price."
Ryan said Pfizer could pursue Bristol-Myers Squibb
Pfizer and Wyeth have been in talks for months, but no deal is seen as imminent due to the difficulty Pfizer may have getting funding for the deal in the currently tight credit markets, sources said.
One source said any deal could be "weeks, if not months" away due to the difficulty getting funding. A second source added that pressure on the deal could intensify, and potentially speed up negotiations, now that news hit the public markets.
Pfizer would likely use a combination of cash and stock to acquire Wyeth. Details on pricing have not been worked out, The Wall Street Journal said.
Spokesmen for Pfizer and Wyeth declined to comment, citing company policies not to comment on market rumors.
Wyeth itself has also been in talks to buy Dutch vaccine firm Crucell
Wyeth has been talking to both Pfizer and Crucell in recent months, exploring both possible avenues, one source said.
ANOTHER DEAL FOR PFIZER?
Pfizer became the world's largest drugmaker with its purchase in 2000 of Warner-Lambert Corp and the $60 billion acquisition three years later of Pharmacia Corp.
The question for investors, many of whom continue to hold the stock largely because of its industry-topping dividend, is whether another acquisition of that scale will revive Pfizer over the long term, or only temporarily boost results and ultimately make it harder for the larger company to grow.
Pfizer exemplifies the overriding problem for many large drugmakers, which face patent expirations to top products and have struggled to produce enough new drugs from their research laboratories.
Recent stock market turmoil has made assets attractively priced for cash-rich drugmakers, prompting a number of recent deals.
But arguably nobody needs to move as much as Pfizer.
"We have, for many quarters now, said that Pfizer essentially has no realistic way of replacing the many drugs that are scheduled to go generic apart from doing a mega-merger," Sanford C. Bernstein analyst Tim Anderson said in a research note.
Wyeth's market capitalization as of Thursday was about $52 billion, so at $60 billion, the deal would represent a 15 percent premium.
Based on Thursday's closing share price of $17.21, Pfizer was valued at nearly $118 billion.
Shares of Wyeth rose $3.17 to $42 in early trading on the New York Stock Exchange. Pfizer fell 2.5 percent to $16.79.
COST SAVINGS
Aside from Prevnar and Enbrel, for which Wyeth shares rights with Amgen, Wyeth also is developing experimental Alzheimer's disease drugs which could be a major opportunity, although some believe such drugs are a longshot.
Wyeth also faces its own patent cliff in 2010, when its Effexor anti-depressant is expected to lose U.S. patent protection. Moreover, its big ulcer drug Protonix unexpectedly was hit with generic competition a year ago, and a number of its experimental medicines have failed to reach the market.
Pfizer's fortunes rose initially after its Warner-Lambert and Pharmacia deals thanks to huge merger-related cost savings, and outright ownership of Lipitor from Warner-Lambert.
More recently its performance has flagged and its shares dropped to more than 10-year lows in late 2008, after the savings dried up and its $7 billion-a-year research budget failed to bear much fruit.
Pfizer, which reports fourth-quarter earnings next week, has said it expects full-year 2008 revenue to be roughly similar to its 2007 revenue of $48 billion.
But it expects 2008 earnings to show respectable growth thanks to continuing layoffs globally which are expected to help produce $2 billion in cost savings by year-end, compared with the end of 2006.
(Additional reporting by Lewis Krauskopf in New York, Ben Hirschler in London and Ajay Kamalakaran in Bangalore, editing by Dave Zimmerman)
