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This is an archive article published on July 16, 2002

Pfizer’s new pill boosts its vitality, buys Pharmacia for $60bn

Pfizer Inc pulled further ahead of its rivals on Monday with a $60 billion deal to acquire Pharmacia Corp, putting pressure on other drug fi...

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Pfizer Inc pulled further ahead of its rivals on Monday with a $60 billion deal to acquire Pharmacia Corp, putting pressure on other drug firms to follow suit with their own acquisitions. “We are going to see a new wave of consolidation… There are many conversations taking place right now, and this is going to accelerate some of those,” said Philippe Guy, global head of healthcare with Boston Consulting Group in Paris.

The $400-billion-a-year global pharmaceutical industry is facing tough times as a drought in new products coming out of R&D pipelines combines with unprecedented competition from cut-price generics.

Pfizer, however, has fared better than most, allowing it to take advantage of currently low valuations to snap up a collection of prize assets in Pharmacia, including full rights to top-selling arthritis drug Celebrex which it already co-markets.

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Pfizer profit rises on key drug sales
 

The combined company will have a global market share of 10-11 per cent, analysts calculate—nearly half as much again as nearest rival, GlaxoSmithKline Plc—which has a share of under seven per cent. That will give the new group overwhelming marketing clout, with about 13,000 sales representatives in the key US marketplace, as well as a daunting R&D Budget of $7 billion a year.

“It puts tremendous pressure on companies like GlaxoSmithKline, who will be wondering what the hell to do,” said Jonathan De Pass, head of London-based pharmaceutical consultancy Evaluate. The combination of Pfizer and Pharmacia is also viewed as a good fit, and no major regulatory hurdles are expected.

Many of today’s leading drug groups were created by mega-mergers in the late 1990s that are now finally bedding down, giving management the capacity to contemplate further deals, according to Boston Consulting’s Guy.

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Terms of the transaction call for New York-based Pfizer to exchange 1.4 of its shares for each Pharmacia shares. That would value Pharmacia at $45.08 per share, a 38 per cent premium to the company’s closing price Friday of $32.59 on the New York Stock Exchange.

Pfizer shareholders will own 77 per cent of the combined company and McKinnell will retain the same titles after the merger. Pharmacia chairman and CEO Fred Hassan will become vice-chairman of the company’s board. Analysts said the hefty premium Pfizer was ready to pay reflected the value it was likely to extract from Celebrex, the top-selling arthritis drug which Pfizer and Pharmacia have collaborated in marketing since 1998. (Reuters)

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