August 15, 2002
4 min read

Pfizer and Pharmacia announce plans to merge

The new entity will have more than $48 billion in revenue and a research-and-development budget of more than $7 billion.

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NEW YORK — After 18 months of “discreet talks,” Pfizer and Pharmacia Corp. have signed a definitive agreement that will allow Pfizer to acquire Pharmacia in a stock-for-stock transaction valued at $60 billion.

Pharmacia also announced that its board of directors intends to proceed with a previously announced spinoff of its 84% ownership of Monsanto to its current shareholders. After the Monsanto spinoff, Pfizer will exchange 1.4 shares of Pfizer common stock for each outstanding share of Pharmacia stock in a tax-free transaction valued at $45.08 per Pharmacia share, based on Pfizer’s July 12 closing stock price of $32.20. This transaction will represent a 44% premium based on the average closing prices of the two stocks over the preceding 30 days, adjusted for the Monsanto spinoff.

Pfizer and Pharmacia will have combined annual revenues for 2002 of approximately $48 billion, including $39 billion in prescription sales. Company officials anticipate the deal to be finalized by year end 2002.

Best of both worlds

Hank McKinnell, PhD, chairman and chief executive officer of Pfizer, said the deal combines two innovative pharmaceutical companies and positions Pfizer for sustained long-term leadership of the global pharmaceutical industry.

“By combining with Pharmacia, we are ensuring that our core capabilities in the discovery, development and commercialization of new medicines are strong around the world. … Our new company will be positioned to deliver a stream of innovative new products and cost-effective health care solutions. With Pharmacia, we will have the products, pipeline, scale and financial flexibility to extend our leadership,” Dr. McKinnell said.

Fred Hassan, chairman and chief executive officer of Pharmacia Corp., said Pharmacia and Pfizer already have a working relationship, having partnered previously on COX-2 inhibitors. He believes the combination with Pfizer will give Pharmacia the opportunity to maximize the potential of both its current and pipeline products.

Upon closing of the transaction, Mr. Hassan will become vice chairman of Pfizer, assisting with integration of the two companies. He will also become a member of the Pfizer board of directors.

Dr. McKinnell said the combined company will support several complementary products and as many as 12 products with annual revenues greater than $1 billion. Both pharmaceutical companies manufacture products used in cardiology, endocrinology, neuroscience, rheumatology, urology, ophthalmology, oncology and other branches of medicine.

The combined company will have an R&D pipeline containing nearly 120 new chemical entities in development and more than 80 additional projects for product enhancements. According to Pfizer, the companies’ combined R&D budget for 2002 exceeds $7 billion, which the company says is the largest privately funded biomedical research organization in the world.

With Pharmacia, Pfizer plans to file 20 new drug applications with global regulatory authorities over the next 5 years.

Pfizer’s late-stage pipeline will be enhanced by major Pharmacia drugs that include the investigational compound eplerenone, a potential new treatment for cardiovascular disease; parecoxib, an injectable selective COX-2 inhibitor; and CDP-870, which may help manage rheumatoid arthritis.

Pfizer is already the leading pharmaceutical company in the United States and Canada. With the addition of Pharmacia, it will move from fourth to first in Europe, from third to first in Japan and from fifth to first in Latin America in pharmaceutical sales, according to a press release.

“[Pfizer] met or exceeded all of our targets in the integration of Warner-Lambert, and we anticipate another successful integration given that our two organizations have worked so successfully on Celebrex [celecoxib] and Bextra [valdecoxib],” Dr. McKinnell said.

Two years ago Pfizer acquired partner Warner-Lambert in a $115 billion deal that gave it full control over the cholesterol-lowering drug Lipitor.

Pharmacia, originally a Sweden-based company, merged with U.S. pharmaceutical manufacturer Upjohn in 1995 to become Pharmacia & Upjohn.

Financial nuts and bolts

David Shedlarz, executive vice president and chief financial officer of Pfizer, said the acquisition of Pharmacia will strengthen the combined entity’s global pharmaceutical business and increase efficiency and productivity.

According to Mr. Shedlarz, Pfizer’s shareholders will own approximately 77% of the combined company and Pharmacia’s shareholders will own approximately 23%. The transaction is expected to close by year-end 2002, subject to approval by shareholders of both companies, governmental and regulatory approvals and other customary closing conditions.

From 2002 to 2004 on a stand-alone basis, Pfizer expects an 11% compounded annual revenue increase and a 14% increase in net income.

Mr. Shedlarz said the combined entity will have $11.9 billion in adjusted earnings and $47.9 billion in revenues in 2002. It is forecast to have a compounded annual growth from 2002 to 2004 of 10% for revenues and 19% for adjusted earnings. Pro forma revenue of the entity is forecast to increase to $57.8 billion and adjusted earnings to $16.7 billion ($2.18 per share) by 2004.

Key products and R&D

In 1999, Pfizer and Pharmacia jointly introduced the anti-inflammatory Celebrex, a selective COX-2 inhibitor. Karen Katen, executive vice president of Pfizer and president of Pfizer’s global pharmaceutical business, said Celebrex has become the primary branded treatment for arthritis in the world, prescribed to more than 35 million patients worldwide. The drug was recently approved in the United States for acute pain and dysmenorrhea.

Pfizer and Pharmacia sales representatives began promoting the two companies’ second selective COX-2 inhibitor, Bextra, in April 2002. Celebrex and Bextra now account for more than 23% of new NSAID prescriptions, Ms. Katen said. In addition, launches of Bextra and parecoxib (branded Dynastat in Europe) are in progress in a number of international markets. Pharmacia is currently conducting studies to support the regulatory filing for parecoxib in the United States.

Pharmacia’s Xalatan (latanoprost ophthalmic solution), Ms. Katen said, is now the leading ophthalmic prescription medicine in the world.

Ms. Katen said most major Pfizer products are patent-protected through this decade, including U.S. patents for Lipitor, which expires in 2010, and Viagra, which expires in 2011. Pharmacia’s most significant U.S. patents expire in the next decade (Celebrex in 2013, Bextra in 2015).

Peter B. Corr, PhD, senior vice president of science and technology for Pfizer, said the practical impact of combining with Pharmacia is simple.

“[The combined company] will have many more pharmaceutical candidates, more financial flexibility and human resources to support them and the best chance to find the maximum number of innovative medicines. We will also expand our presence into new therapeutic categories, including the addition of strong oncology and ophthalmology products to Pfizer’s existing R&D programs in these areas,” he said.