Pfizer Future With Wyeth Is Tiny Units Like J&j, Kindler Says
Kindler is dividing Pfizer into independent divisions similar to those at Johnson & Johnson and Abbott Laboratories as he plans how Pfizer, already the worlds largest drugmaker, will digest the $64 billion purchase of Wyeth. The strategy should keep Pfizer growing in spite of its size and dependence on a single product, Kindler said in an interview yesterday.
The combined companies will have businesses as diverse as vitamins, vaccines and veterinary medicine, Kindler said. Adding Wyeth will make Pfizer a $70 billion company, 50 percent larger than its closest competitor, London-based GlaxoSmithKline Plc.
“Once you reach a certain size, if you are dependent on one or two huge blockbusters to move the needle, you are raising the bar on R&D productivity beyond an amount anyone can deliver,” Kindler said. “We arent necessarily going to be exactly like J&J, but I admire their business model, I admire Abbotts business model. This transaction with Wyeth will give us the assets to have so many of those different kinds of businesses.”
Pfizer, of New York, last month agreed to buy Wyeth, based in Madison, New Jersey, to gain the companys Prevnar pneumonia vaccine and Enbrel arthritis drug in order to offset the loss of cholesterol drug Lipitor when its patent expires in 2011. The deal will close in the second half of the year, Pfizer said.
Pfizer, which sold its consumer products division to Johnson & Johnson for $16 billion in 2006, also would get Wyeths over- the-counter drugs. Pfizer sold its medical device business in the 1990s.
Shares Swoon
Since the deal was announced, Pfizer shares have declined 24 percent. Kindler attributed the drop to the company cutting its shareholder dividend by half. Pfizer fell 43 cents, or 3.1 percent, to $13.28 yesterday in New York Stock Exchange composite trading, the lowest price since 1996.
Investors are skeptical of Kindlers reorganization plan.
“There is only so much corporate-speak I can take,” Mike Krensavage, founder of Krensavage Asset Management in New York, said in a telephone interview. “It sounds like a bad project from a group of MBA students. It is all just talk. You have to look at the drugs the company produces and that is horrific.”
Pfizer will rebuild its cash by 2012 and can then return capital to investors, Kindler said. Even with the acquisition and changes in the business model, “I dont foresee anybody making double-digit top line growth in the industry,” Kindler said.
Kindler, 53, General Electric Co.s senior counsel under Chief Executive Jack Welch, said Pfizer will rely on many products overseen by smaller units, giving the company less volatile swings in sales and earnings. For example, no research group will have more than 150 scientists, enabling quicker decisions, Kindler said.
“Theyve dropped $6 billion every year in R&D and I cant for the life of me find a great sign that they got any return for that,” said David Heupel, a portfolio manager at Thrivent Financial for Lutherans in Minneapolis, in an interview. “As I watch this combined company evolve, that is where I want to see some sense of improvement. I think they will more than adequately cut costs. The real question is now, what are you? — just a larger, more protected company that will watch their assets dwindle away over time?”
Thrivent doesnt own Pfizer shares, Heupel said.
Kindler has been preparing Pfizer for an acquisition since he took the helm 2½ years ago. He replaced top management and restructured the company into six smaller units focused on diseases, including cancer, with high profit potential.
With smaller divisions, Kindler said integrating the Wyeth acquisition will be faster than when Pfizer digested its purchases of Warner-Lambert Co. and Pharmacia Corp.
Health Care Reform
Kindler said hes been meeting in Washington, D.C., with members of Congress, including Sen. Edward Kennedy, to press for comprehensive health care reform that expands insurance coverage to more Americans. Unlike the 1992 effort to enact reform that was plagued with disagreements, there is about 80 percent to 90 percent agreement how to increase access to health insurance, he said.
Kindler said a consensus is building to expand eligibility for public programs, health care information technology and comparing the effectiveness of medicines. He also said the drug industry needs to do more to improve its public image.