Wyeth Isn't Cheap Enough for Pfizer

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The Wall Street Journal reports that Pfizer (NYSE: PFE) is in talks to acquire Wyeth (NYSE: WYE) for $60 billion or more. As my Foolish colleague Robert Steyer wrote, "Don't do it."

Prior years' acquisitions of Warner Lambert and Pharmacia made Pfizer the monstrosity it is today, but I thought CEO Jeff Kindler was different from his predecessors. Earlier this month, he said the company would consider buying a large competitor, but I assumed that was predicated on the cheapness of the deal, as when Pfizer stole Encysive Pharmaceuticals. A deal for Wyeth just doesn't look cheap enough to me.

What does Pfizer get in the deal?

Drug	Usage	2008 revenue through September (in billions)
Effexor	Depression and anxiety	$3.03
Prevnar	Pediatric vaccine	$2.11
Enbrel	Rheumatoid arthritis and other inflammatory diseases	$2.90*

Source: Company press release.
*Includes revenue from partnership with Amgen (Nasdaq: AMGN).

What Pfizer won't get:

• Effexor (for very long). Effexor already has generic competition and an extended-release version. Effexor XR will start to see generic competition soon, and Wyeth's me-too drug, Pristiq, isn't exactly selling like hotcakes. The company didn't even break out the sales in last quarter's press release.
• A pure drug company. Sales of Wyeth's consumer health-care products -- Advil, ChapStick, Centrum, and the like -- made up 11.5% of sales through the first nine months of last year and grew by 4%. And don't forget the animal health products, which represented nearly 5% of revenue. Pfizer got rid of its consumer health-care business a few years ago, selling it to Johnson & Johnson (NYSE: JNJ). Does it really want to get back into selling products that don't reside behind the pharmacist's counter?
• A well-stocked pipeline of blockbusters. Wyeth has eight drugs in phase 3 trials (some for secondary indications), but perhaps the most promising one, Alzheimer's treatment bapineuzumab, is half-owned by Elan (NYSE: ELN).
• A cheap company. Sure, Wyeth is significantly off its highs of 2007, but that was before heartburn medication Protonix started receiving generic competition from Teva Pharmaceuticals (Nasdaq: TEVA). A $60 billion deal works out to 15 times trailing free cash flow. That's not a steal in my book, especially not for a company with its own patent-cliff issues.

Sure, Pfizer will get some synergies from back-office staff and some sales reps. But if it's going to pay up for a large acquisition, I'd rather see it buy a company with a little bit of a tailwind behind it, such as Amgen or Gilead Sciences (Nasdaq: GILD). Or better yet, keep picking off smaller companies as they become dirt cheap.

The Journal reports that talks have been going on for months, but apparently there's some sticking point that's kept the deal from moving forward. Pfizer's investors should hope that it's the price.

Further frugal Foolishness:

• Now's the time to be a value investor.
• Bet on a 2009 housing recovery.
• Stocks could go lower, but it's still a good time to buy.