Editor’s note: Simon King is pharmaceutical senior analyst at London-based Datamonitor.

LONDON – Highlights of recently disclosed Pfizer-Wyeth merger:

• Unprecedented industry scale: Pfizer and Wyeth’s combined 2008 total company sales in excess of $70 billion.

• No solution to declining sales outlook: Datamonitor forecasts that Pfizer-Wyeth will have combined 2013 total company sales below the 2008 figure of $70 billion.

• Profit growth to be achieved through cost-cutting: 15 percent reduction in global workforce, $4 billion cost savings in place three years after deal close.

• Positive impact on strategic diversification: Pfizer significantly enhances therapeutic protein and vaccine capabilities and re-aligns therapeutic focus.

• Return to M&A trail driven by looming expiry-triggered sales decline

[Editor’s note: Wyeth employs some 1,000 people at its manufacturing plant in Sanford.N.C. Embrex, a poultry vaccine company in Research Triangle Park, is now part of Pfizer Animal Health.]

The Pfizer-Wyeth merger will create a prescription pharmaceutical company of unprecedented industry scale. The combined Pfizer-Wyeth entity would have recorded total company sales in excess of $70 billion and prescription pharmaceutical sales of over $60 billion in 2008.

Pre-merger, Pfizer faced a significant contraction in sales at a compound annual growth rate (CAGR) of -3.5 percent out to 2013 due to a raft of key patent expiries, most notably that of the statin product Lipitor (atorvastatin).

With global revenues of $12.4 billion, the Lipitor franchise accounted for over 28 percent of Pfizer’s total prescription pharmaceutical sales in 2008. However, Lipitor is due to lose U.S. patent exclusivity in 2011, an event that will trigger a significant decline in Pfizer’s revenues over the subsequent months as generic competition enters the market.

Lipitor may be the focal point of Pfizer’s visible generic threat, but is not the only blockbuster brand that faces a significant decline in revenues over the period 2008–13. The hypertension therapy Norvasc (amlodipine) lost patent exclusivity in 2007, as did the Zyrtec (cetirizine) franchise, indicated for allergic rhinitis. Erectile dysfunction treatment Viagra (sildenafil)—arguably the world’s best-recognized pharmaceutical brand—is due to lose patent exclusivity in 2012, while Detrol LA (tolterodine; overactive bladder) and Camptosar (irinotecan; primarily colon cancer) are also forecast to act as key sales growth resistors over the period 2008–13, also as a result of patent expiration.

Theoretically, Pfizer’s executives could have accepted this wave of expiries and decided to lead a slimmed-down, leaner Pfizer out the other side of the intense burst of generic competition.

Of course in reality, as a public company, Pfizer has no choice but to yield to investor’s insatiable demand for continued profit growth.

Given Pfizer’s already huge $40billion+ scale, its internal R&D pipeline simply cannot support near-term sales expansion organically so the only way forward is to ‘buy growth’ through M&A,

The Wyeth merger will dilute the sales decline but will not solve Pfizer’s expiry threat

It is clear that Pfizer’s merger with Wyeth will dilute the company’s prescription pharmaceutical sales decline, but this will be insufficient to offset the contraction completely. As a result, Pfizer-Wyeth is forecast to record combined prescription pharmaceutical revenues of c.$55 billion in 2013, versus sales of c.$61 billion in 2008, equivalent to a CAGR of -2.3% for 2008–13.

This compares favorably with the forecast sales CAGR of -3.5% for Pfizer excluding Wyeth, but is illustrative of the fact that Wyeth’s prescription pharmaceutical sales growth performance through to 2013 will also be challenged by exposure to patent expiry and generic competition.

Wyeth’s depression treatment Effexor XR (venlafaxine) is due to lose patent exclusivity in 2010, gastrointestinal therapy Protonix (pantoprazole) will face generic competition from 2010 onwards and the antibacterial Tazocin (piperacillin) lost patent exclusivity in 2007. All of these products are forecast to act as key sales growth resistors within the Wyeth portfolio over the period 2008–13.

However, the merger is not just focused on prescription pharmaceuticals: Wyeth will expand Pfizer’s presence in non-prescription pharmaceutical markets, most notably consumer healthcare and animal health, Mr. King says. “Having divested its own consumer healthcare business to Johnson & Johnson in 2006 in order to sharpen its focus on prescription pharmaceuticals, it would appear that Pfizer has taken a U-turn in order to embrace diversification of its business.”

Such a strategy will benefit the merged company in terms of anticipated sales growth performance, with a combined Pfizer-Wyeth total company sales forecast to deliver a CAGR of -0.6% (see Figure 2) over 2008–13 versus a forecast CAGR of -2.3% for the combined core prescription pharmaceutical business (see Figure 1). Nonetheless, even with the inclusion of non-prescription sales, Pfizer-Wyeth total company sales are forecast to stand below $70 billion in 2013—a contraction from the scale of the merged entity’s 2008 sales.