Pfizer (NYSE: PFE), the largest drugmaker in the world, is getting a little bigger after announcing that it was buying King Pharmaceuticals (NYSE: KG) for $3.6 billion.
The specialty pharma will complement Pfizer's pain drugs -- Celebrex and Lyrica -- quite nicely. King sells Avinza, an extended-release morphine; Embeda, an abuse-resistant morphine; and a patch for localized pain called the Flector Patch. King also has an animal health business that can be integrated into Pfizer's.
This is exactly the kind of deal that Pfizer should have been looking at when it went out and purchased Wyeth. For the $68 billion Pfizer paid to purchase Wyeth, it could have made nearly 19 deals the size of the King deal. If it could find 19 deals at the same price-to-sales ratio as King, Pfizer could add $31 billion to its revenue. Wyeth? It added only $22 billion.
The comparison only gets better. I'd certainly take 19 pipelines the size of King's rather than what Wyeth added to the equation. And it seems easier to integrate smaller acquisitions than larger ones. The cost savings appear to be somewhat similar; Pfizer says it'll be able to save $200 million or about 5.5% of the purchase price because of efficiency, and the Wyeth integration was projected to save 5.9% of the purchase price.
Of course, the idea of buying so many small drugmakers is easier said than done. There are only so many small and medium-sized drugmakers; that's why Genzyme (Nasdaq: GENZ) has the upper hand in negotiations over sanofi-aventis (NYSE: SNY). And Pfizer has to compete with Sanofi, Novartis (NYSE: NVS), Bristol-Myers Squibb (NYSE: BMY), and others that are going after the same assets. Pfizer, after all, did have to ante up a 40% premium to gain control of King.
The solution for Pfizer, which I proposed last week, is to slim down, selling off non-drug assets like its animal health and consumer health businesses. Pfizer wouldn't be the king anymore, but at least additions of drugmakers the size of King would be meaningful to revenue and earnings.
