Jan. 23 (Bloomberg) -- Pfizer Inc., seeking to replace revenue it will lose within three years to generic competition, is in talks to buy Wyeth, according to three people familiar with the discussions. Wyeth shares jumped the most in a decade.

A deal may be worth more than $60 billion, based on a 20 percent premium over Wyeth’s share price yesterday. Pfizer, the world’s biggest drugmaker, has been negotiating with Madison, New Jersey-based Wyeth for months, one person said. A combination would help Pfizer offset some of the $12 billion in sales it will start losing in 2011 when its top-selling Lipitor cholesterol pill gets generic competition.

With $25.5 billion in cash and short-term assets as of Sept. 30, New York-based Pfizer is one of the world’s most cash-rich companies. It would gain Wyeth’s Prevnar vaccine, recommended by the U.S. government as a childhood shot against pneumonia, and dependable sales not threatened by generics. The combined company would have annual sales of more than $70 billion, 55 percent more than the world’s second-biggest drugmaker, GlaxoSmithKline Plc.

“Wyeth represents perhaps the best take-out play if one assumes there will be at least some big pharma consolidation over the next one to three years,” said Tim Anderson, an analyst at Sanford Bernstein & Co., in a note.

The deal could be completed as early as next week and may cost Pfizer as much as $70 billion, the Wall Street Journal reported, citing unidentified people.

Wyeth rose $4.91, or 12.7 percent, to $43.74 at 4:01 p.m. in New York Stock Exchange composite trading, the biggest gain since Jan. 20, 1998. Pfizer rose 24 cents, or 1.4 percent, to $17.45.

Ray Kerins, a spokesman for Pfizer, said the company won’t comment on “market speculation.” Doug Petkus, a spokesman for Wyeth, didn’t immediately return a call.

Other Deals

A combination of Pfizer and Wyeth could spark other deals as drugmakers face competition from generic medicines and pressure from health insurers to lower prices amid the recession. Merck & Co., Johnson & Johnson, Abbott Laboratories, Eli Lilly & Co. and Bristol-Myers Squibb Co. also are poised for possible big deals, analysts have said.

Drug companies, rich in cash from medicines people still need in a recession, have access to loans while other companies struggle for financing, said Deutsche Bank analyst Barbara Ryan in a Jan. 20 conference call with clients.

“There are very few companies in the world that are going to get money in this environment, but these companies are going to get it,” Ryan, who is based in Greenwich, Connecticut, said in the call. “When we have conversations in private with these CFOs, I am being told they have access to money.”

With Wyeth, Pfizer’s earnings may fall as little as 10 percent rather than 23 percent when Lipitor loses patent protection in 2011, said Ryan in a note to clients today.

Acquisitive History

Pfizer’s last two big acquisitions didn’t pay off for investors, said Michael Obuchowski, chief investment officer at First Empire Asset Management Inc., of Hauppauge, New York, in an interview today. The $60.3 billion purchase of Pharmacia Corp. in April 2003 gained painkillers Celebrex and Bextra. Bextra was later pulled from the market and Celebrex sales fell 40 percent amid safety concerns. Pfizer also bought Warner-Lambert Co. for $116 billion in 2000, giving it Lipitor.

Buying Wyeth doesn’t “make any sense for Pfizer,” Obuchowski said. “It’s a company in restructuring acquiring a company in restructuring.”

Wyeth also has “plenty of lingering legal and patent expiration problems of its own,” said Carol Levenson, an analyst with Gimme Credit LLC in Chicago, in a note today to clients. “We don’t see why Wyeth is a solution to Pfizer’s problems.”

Dividend Cut?

Pfizer may have to cut its dividend to finance the acquisition, said Leerink Swann analyst Seamus Fernandez in a note to clients today. The benefit to the share price from the deal would still be worth it for investors, he said.

In December, Pfizer froze its annual dividend after 41 years of increases. The company has said it will keep the dividend at 32 cents a share, payable March 3 to shareholders who owned the stock as of Feb. 6.

Pfizer Chief Executive Officer Jeffrey Kindler, 53, is reorganizing to accelerate drug development and plans to fire staff as the recession threatens to crimp sales.

A deal would be the biggest pharmaceutical acquisition in almost five years and may signal consolidation in the drug industry as drugmakers seek to recover losses they’ll face in the next four years for branded medicines with $121 billion in annual sales.

Wyeth’s market value was $51.7 billion at the close of New York Stock Exchange trading yesterday. With a 20 percent premium, Pfizer would have to pay about $62 billion.

Pressure on Kindler

Kindler has been under pressure from investors and analysts to make a major acquisition as Lipitor sales fade in advance of the patent expiration. Kindler’s efforts to reorganize the company by firing more than 15,000 employees, including top management, haven’t been enough, Samuel Isaly, managing partner at Orbimed Advisors LLC, said in an interview.

“Pfizer is desperate in my opinion -- or should be desperate,” Isaly said. “Jeff Kindler will be terminated if he doesn’t do something soon, so he has really got to move it and we wouldn’t be surprised to see a major move.”

Kindler has said he is evaluating all possible deals, large and small.

Evercore Partners Inc. and Morgan Stanley are advising Wyeth, said one of the people familiar with the talks. Pfizer’s advisers include Merrill Lynch & Co., now part of Bank of America Corp., another person said.

Crucell Talks

Wyeth has been in talks to buy Crucell NV, a Dutch developer of biotechnology medicines against AIDS, rabies and Ebola, in a deal that would create one of the world’s biggest vaccine makers, Crucell said Jan. 7. That deal could be worth $1.35 billion, according to a person familiar with talks.

A Pfizer deal with Wyeth “doesn’t have to stop the takeover” of Crucell “because Wyeth has enough cash,” said Tom Muller, an analyst at Theodoor Gilissen in Amsterdam, in an interview today.

Sanofi-Aventis SA, Glaxo and Novartis AG are also expanding vaccine sales to protect them against eroding sales from patent expirations. Sanofi, the biggest supplier of flu shots, bought smallpox vaccine-maker Acambis Plc for 260 million pounds ($353 million) last year.

Prevnar Sales

Prevnar, Wyeth’s vaccine against pneumonia, is the company’s second-biggest drug with $2.4 billion in 2007 sales. Wyeth plans to seek U.S. approval this year for a new version of Prevnar that would cover six additional strains of pneumonia, continuing its dominance over competitors. It’s also developing the Alzheimer’s disease treatment bapineuzumab with Elan Corp. of Ireland.

“Its comparative lack of a patent cliff could help smooth earnings for those companies that are not as fortunate,” said Sanford Bernstein’s Anderson of Wyeth.

Crucell NV fell 1.65 euros, or 9.6 percent, to 15.50 euros in Amsterdam trading.

Large pharmaceutical acquisitions would contrast with the strategy of London-based Glaxo, the world’s second-biggest drugmaker.

“Every bank in the world comes in with their book of what deal is like a no-brainer for a new CEO to do,” Chief Executive Officer Andrew Witty said in a Jan. 8 interview. “I’m not quite so convinced that there are such great, no-brainer mega- transactions to get done.”

That might change if a competitor pursues a large acquisition, he said.

‘Pull the Trigger’

“If one big company makes a move, I can absolutely imagine that triggering off a series of moves,” Witty said. “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.”

Abbott Chief Executive Officer Miles White said he’s looking to buy companies beaten down by the recession.

“It’s a good time to be a buyer,” White said in a conference call with investors on Jan. 21. “A lot of values are depressed -- for good reasons in many cases and for not-good reasons in others. My priority is non-pharma, but I’m not going to pass up an attractive pharmaceutical deal if I see one.”

To contact the reporters on this story: Tom Randall in New York at trandall6@bloomberg.net; Shannon Pettypiece in New York at spettypiece@bloomberg.net

Last Updated: January 23, 2009 20:18 EST