The deal will help Pfizer diversify its offerings and fill a gap for new drugs as its cash-cow cholesterol drug Lipitor nears the end of its patent protection. It also would create a dominating pharmaceutical giant. Pfizer had revenue of more than $48 billion in 2007, and Wyeth had more than $22 billion.
The Lipitor patent runs out in 2011, at which point the drug company will face competition from generic drug makers, and the company is expected to lose patent protection on products, including Viagra and Zoloft, representing more than 70 percent of its 2007 revenue by 2015, the Associated Press reported.
Pfizer is acquiring Wyeth's popular Prevnar pneumonia vaccine for children, the depression drug Effexor and Enbrel, a rheumatoid arthritis treatment. Pfizer also gets partial rights to the experimental Alzheimer's disease treatment bapineuzumab, which could generate $8 billion in peak annual sales by 2015 if approved, Bloomberg News reported.
The move also broadens Pfizer into the areas of veterinary medicines and consumer health products.
The company will save money by consolidating and streamlining operations and areas of overlap. The deal is expected to result in a cost savings of $4 billion by the third year.
"This type of a move is needed to drive shareholder value for Pfizer, given the patent cliff the company faces beginning in 2011," Seamus Fernandez, a Leerink Swann analyst in Boston, said in a note to clients today, Bloomberg reported. "We believe Pfizer is motivated to pursue this type of strategic mega-deal because of Wyeth's strong presence in biologics and vaccines, and the diversity of its businesses."
For each share of Wyeth, Pfizer will pay roughly $50.19 -- $33 in cash and 0.985 of a share of its stock. At $50.19 a share, it is 29 percent more than the $38.83 closing price for the stock on Jan. 22, the day before talks were reported, the companies said Monday in a statement. Wyeth's stock surged 12.6 percent on Friday on news of a possible deal.
Five banks pledged $22.5 billion in financing to support Pfizer's bid. Speculation that other pharmaceutical companies will consolidate in response has already begun.
In early trading Monday, Wyeth stock was up a fraction of a percentage point while Pfizer's stock dipped more than 8 percent.
Wyeth was in talks to acquire Dutch vaccine-maker Crucell NV before this deal came along, and the New York Times reported Bristol-Myers and Schering-Plough and the biotechnology companies Amgen and Biogen Idec have all long been seen as takeover candidates.
Drug giants GlaxoSmithKline and Bayer have indicated they don't have interest in making acquisitions yet, but Glaxo's chief, Andrew Witty, said that may change as their rivals gain increasing heft.
"If one big company makes a move, I can absolutely imagine that triggering off a series of moves," Witty told Bloomberg in a Jan. 8 interview. "The industry has historically, habitually demonstrated its inability to sit on its hands when someone moves. The question is whether somebody big is going to finally pull the trigger."
The deal would be the largest acquisition in the drug industry since Pfizer took over Warner-Lambert Co. for $93.4 billion in 2000.