Jan. 23 (Bloomberg) -- Wyeth gained as much as 15 percent in German trading after the Wall Street Journal reported that Pfizer Inc. is in talks to acquire the U.S. drugmaker for about $60 billion.

Negotiations have been going on for several months and the process may yet collapse because of volatile financial markets, the newspaper reported, citing people familiar with the talks. Wyeth rose the equivalent of $6.13 to $44.96 in Germany after closing at $38.83 in New York yesterday, while Pfizer fell 47 cents from yesterday’s close of $17.21 in New York.

A combination would create a drugmaker with sales of more than $70 billion and have best-selling medicines including the cholesterol pill Lipitor and the Prevnar vaccine against pneumonia. Pfizer Chief Executive Officer Jeffrey Kindler, 52, is already reorganizing to accelerate drug development and plans to fire staff as the recession threatens to crimp sales.

“It makes a lot of sense in some ways,” said Savvas Neophytou, an analyst at Panmure Gordon & Co. in London. “The acquisition of Wyeth really brings into focus the vaccine space.”

Pfizer’s European rivals Sanofi-Aventis SA, GlaxoSmithKline Plc and Novartis AG are expanding in vaccines to lessen the risk of developing new drugs and 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.

Shield Earnings

Ray Kerins, a spokesman for Pfizer, said by telephone that the company doesn’t comment on what he referred to as “market speculation.” Doug Petkus, a spokesman for Wyeth, didn’t immediately respond to an e-mail and voicemail left on his office phone after normal business hours.

The deal would exceed Roche Holding AG’s $43.7 billion offer for the remainder of Genentech Inc. Roche’s $89-a-share bid represented an 8.8 percent premium to Genentech’s previous closing price when it was announced in July. Genentech rejected the offer, and the companies remain in negotiations.

The recession has drugmakers struggling to shield earnings as consumers scale back or stop some treatments. The economic crisis may cost the companies as much as $10 billion in revenue this year as sales of prescription drugs in the U.S. are expected to increase at their slowest rate on record, IMS Health Inc., a market researcher, said in October.

Losing Lipitor

The world’s largest pharmaceutical companies also face patent expirations on top-selling products in coming years, forcing them to seek ways to spur expansion. Pfizer lacks enough new products to replace the more than $12 billion in revenue it will begin losing in three years when Lipitor, the best-selling medicine in history, loses patent protection.

“Pfizer still has significant problems, so from Pfizer’s perspective this is a good idea,” said Chris Albani, a Tokyo- based partner at PRTM who has advised pharmaceutical companies for about 20 years. “From Wyeth’s perspective, if I were them, I would try to get out of it.”

Large acquisitions run counter to the strategy of London- based Glaxo, the world’s second-biggest drugmaker. Chief Executive Officer Andrew Witty, in a Jan. 8 interview.

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

‘Pull the Trigger’

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

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

Pfizer’s $26 billion in cash and marketable securities as of September 2008 could help finance a takeover. A bid at $60 billion would be the biggest since a group led by Royal Bank of Scotland Group Plc acquired ABN Amro Holding NV last year for about 72 billion euros ($95 billion).

Credit-default swaps on Pfizer rose for an eighth day to a record 82 basis points at the close of trading in New York, according to data compiled by Bloomberg. The contracts rose about four-fold since this time last year.

Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates a deterioration in the perception of credit quality.

A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

To contact the reporter for this story: Nicolas Johnson in Tokyo at nicojohnson@bloomberg.net; Kristen Hallam at khallam@bloomberg.net

Last Updated: January 23, 2009 06:58 EST