Pfizer Chief Builds His Medicine Chest

Pfizer (PFE) CEO Jeffrey Kindler, who took the top job in 2006, wrote another very large chapter in Pfizer's lengthy acquisition history when he announced the acquisition of Wyeth in January for $68 billion in cash and stock. Kindler's predecessors bought Warner-Lambert in 2000 for $90 billion and Pharmacia for $60 billion in 2003, plus numerous small biotechs, creating the world's largest pharmaceutical company in the process.

But Kindler is determined to create a different kind of merger this time around—namely, one that brings more to the table than cost-cutting. The Warner-Lambert and Pharmacia mergers led to brutal staff cutbacks and some immediately short-term efficiencies, but neither deal gave Pfizer what it needs most—robust research and development projects that produce promising new drugs. In fact, Pfizer has not gotten a new drug from its own labs to the market for more than 10 years—any drugs approved over the past decade were acquired, not homegrown. Meanwhile, the company is facing a massive loss of revenue when anti-cholesterol treatment Lipitor, the world's best-selling drug, loses patent protection in 2011. Currently 25% of Pfizer revenues come from Lipitor, and analysts expect 70% of those sales will have disappeared by 2015, with nothing in the pipeline to replace them.

Kindler says he bought Wyeth as much for its research pipeline as for the chance to gain savings through economies of scale. "It's about creating a broad, diversified portfolio," he said of the deal, not "a single product, or cost cutting." He also said he "has obviously learned a lot from our prior acquisitions," and this time around pledges to do layoffs without harming research & development. Shortly after sealing the deal, Kindler announced that he would divide the merged R&D operations into two pieces, one for traditional drug development and another for biotech drugs, made from large proteins. Pfizer has had little success in biotech to date and bought Wyeth in part for its own strong portfolio of experimental proteins. Each division will have its own chief, and rather than oust all the Wyeth scientists, Kindler says Wyeth R&D chief Mikael Dolsten will be in charge of the biotech segment. "Creating two distinct, but complementary, research organizations, led by the top scientist from each company, will provide sharper focus, less bureaucracy, and clearer accountability in drug discovery," said Kindler.

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