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Pfizer acquires Wyeth: Impact on India
Feb 3, 2009

The mother of all deals in the global pharma space took place last week when the world’s biggest drugmaker Pfizer announced its intention to buy Wyeth for a staggering US$ 68 bn making it the fourth largest company by market value after Exxon, Wal-Mart and P&G. In this article, we shall examine the rationale for this merger and its impact on India.

The global picture
The reasons why US based Pfizer Inc. went in for the acquisition of Wyeth, are manifold. Given that global pharma majors are finding it increasingly difficult to replenish their pipelines with new path breaking drugs, many of them had already started looking to acquire either a portfolio of products or acquire smaller companies which had a few promising drugs in their pipelines but did not have the requisite funding.

Secondly, Pfizer’s major drug ‘Lipitor’, which is the largest drug in the world with global revenues of US$ 12 bn is set to lose its patent in 2011. And the company does not have another blockbuster to fill Lipitor’s shoes. Thirdly, Wyeth has some strong drugs in its pipeline such as blockbusters ‘Enbrel’ and the vaccine ‘Prevnar’ and more importantly a portfolio of biotech products and vaccines where the chances of generic competition are lower. This mammoth deal will most likely trigger a wave of consolidation in the industry as rival companies also look to grow in size to compete.

Impact on Pfizer and Wyeth in India

In India, Wyeth is the 51% subsidiary of Wyeth, US and is the sixth largest company among multinationals. The company derives its revenues from pharmaceutical and OTC segments with focus on various therapeutic areas such as oral contraceptives, anti-infectives, hormone therapy and vaccines. The company is a market leader in the oral contraceptives, folic acid and depilatory cream segments.

Pfizer and Wyeth in India: A comparison
  Pfizer India* Wyeth India
Sales in FY08/CY07 (Rs m) 6,939 3,313
Sales growth (4 yr CAGR) 8.3% 1.0%
EBIDTA growth (4 yr CAGR) 25.3% 12.0%
Avg. EBIDTA margin 19.2% 26.5%
Net profit growth (4 yr CAGR) 23.6% 9.0%
Avg. net profit margin 9.8% 23.1%
Avg. RONW 16.4% 27.1%
* Excludes extraordinary income

A merger of these two companies will eventually take place in India too though it is not clear as to when that is likely to happen. That said, Pfizer India will also stand to benefit by merging Wyeth’s Indian operations with itself and will consolidate its position in antibiotics, vaccines, women and animal healthcare with Wyeth products. The global parent Pfizer indicated that while merging with Wyeth, it was planning to cut US$ 4 bn in combined spending by 2012 which will involve slashing 15% of the companies’ combined workforce. Similarly, the possibility of rationalisation of workforce between the two Indian operations also cannot be ruled out.

What to expect?

At the current price of Rs 512, Pfizer India’s stock price is trading at a price to earnings multiple of 10.5 times our estimated CY10 earnings. We have not yet factored in the merger between the two companies in our numbers as there is not much clarity on the same as yet. Once the management of Pfizer India gives more details on the acquisition between the Indian operations, we shall incorporate the same in our numbers. Meanwhile, we shall keep you updated on any further developments on this front.

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