In the face of a big disappointment, should Pfizer buy its long-time rival Merck? Two days after the world’s largest drug firm promised growth for its arthritis drugs Celebrex and Bextra, the U.S. Food and Drug Administration said that Celebrex should get a serious warning and that Bextra should be pulled from the market entirely. Both drugs have been dogged by an apparent link to heart attacks, but the ruling still came as a surprise to many physicians and drug industry watchers (see: “Doctors Back Bextra Ban”). That leaves Pfizer, which just made rosy earnings projections for 2006 onward based on cost cuts and sales growth, in a tough position. One idea, advanced by Deutsche Bank analyst Barbara Ryan in a research note before the Bextra news broke, would be a hostile takeover of Merck. At first the idea might sound like a joke, and for long-time drug industry watchers makes the brain seize up. Pfizer and Merck are the two pillars of the American pharmaceutical business. For years they have competed head-to-head in many areas. Merck’s arthritis drug Vioxx dueled it out with Pfizer’s Celebrex, and Merck’s Zocor with Pfizer cholesterol pill Lipitor. Antitrust reasons alone would have long made such a deal impossible. But Vioxx is gone, and Zocor loses patent protection next year, probably driving sales of $5 billion to almost nothing. Pfizer’s hypertension drug Norvasc loses patent protection around the same time, perhaps easing the concerns of regulators who would worry about a conflict with Merck’s blood pressure drug Cozaar. (Pfizer would still be selling Caduet, which combines Liptitor and Norvasc.) More pointedly, Merck’s shares have fallen twice as much as Pfizer’s over the past two years, and Merck’s market value, based on its current share price, is only $75 billion, less than that of Pfizer, GlaxoSmithKline, Sanofi-Aventis, or Novartis. Pfizer, though its stock has been hit hard, is still the most valuable company in the group, with a market capitalization of $198 billion, and the drug giant is flush with cash--about $20 billion in cash and short-term investments. Suddenly, Pfizer could afford to buy its long-time rival. More...
