“In the biggest corporate combination in more than a year, Pfizer Inc. agreed to buy Pharmacia Corp. for stock valued at $60 billion, giving what is already the world’s biggest drug company full rights to one of the industry’s crown jewels, the blockbuster arthritis drug Celebrex,” writes Robert Frank and Scott Hensley in today’s The Wall Street Journal.

“The deal will create an industry behemoth with over $48 billion in revenue and a research-and-development budget of more than $7 billion. The new combination will be the world’s largest drug maker by far and the leading pharmaceutical company by revenue in every major market around the globe.”

“That any company should strike a deal amid the stock-market turbulence of recent months is surprising. Corporate accounting scandals, plunging share prices and economic uncertainty have made companies reluctant to strike bold “transformational” deals, while several big mergers — such as AOL-Time Warner — have faced strong investor criticism. While the Pfizer-Pharmacia deal is seen as practical, it’s unclear how investors will react to such a large deal in the uncertain market environment.”

“The deal comes amid unprecedented pressure on pharmaceutical companies, as the industry struggles with a dry spell in its research labs, fights rising competition from generics makers and wrestles with intense pressure on prices from governments and private buyers around the world. As a result, drug companies are facing slowing or declining revenue and are watching their stocks sink to their lowest level in years.”

“Under terms of the deal, Pharmacia will proceed with its previously announced plans to spin off its remaining 84% ownership of Monsanto Co. to its current shareholders. After the spinoff, Pharmacia shareholders will receive 1.4 shares of Pfizer stock for each share of Pharmacia, valuing Pharmacia stock at $45.08 per share, representing a 36% premium over Pharmacia’s Friday closing price.”

“In addition to the blockbuster Celebrex, the transaction will join Pfizer’s dominant cardiovascular franchise — including the cholesterol drug Lipitor and the blood pressure pill Norvasc, as well as its Zithromax antibiotic and its epilepsy medicine Neurontin — with such popular Pharmacia drugs as Xalatan for glaucoma and the cancer drug Camptosar.”

“People familiar with the transaction expect minimal antitrust problems because the companies have few overlapping products and because Pfizer’s global share of total pharmaceutical sales — currently at 8% — would rise only to about 11% if the deal is completed. However, one potential antitrust roadblock could be in the area of urinary incontinence, where Detrol, Pharmacia’s blockbuster-in-the-making was poised to get competition from Pfizer’s Darifenacin, which it expects to submit for Food and Drug Administration approval this year.”

“The Pfizer-Pharmacia deal is expected to heighten pressure for other companies to consider combinations — including industry giants Bristol-Myers Squibb Co. and Merck & Co., which have been hard-hit by generic competition as their flagship medicines lose patent protection.”

“A Pharmacia spokesman and a Pfizer spokeswoman declined to comment.”

“Pfizer’s move, which is largely the brainchild of Pfizer CEO Henry McKinnell, echoes its acquisition two years ago of another of its partners, Warner-Lambert, in a $115 billion deal that gave it full control over the cholesterol-lowering drug, Lipitor. In recent years, big mergers had fallen into disfavor with some industry executives, who note that companies that pursued that tack, such as GlaxoSmithKline PLC and Bristol-Myers Squibb, failed to solve their problems — particularly in research — and appeared to be distracted by the merger process.”

“Pfizer’s acquisition of Warner-Lambert, however, is considered one of the success stories to emerge from the raft of drug industry-combinations in the mid-1990s. In that case, Pfizer’s acquisition was hostile, so it was free to unilaterally cut Warner-Lambert operations and personnel to make the operations meld smoothly.”

“As in the Warner-Lambert deal, Pfizer is capturing a blockbuster drug, in this case Celebrex and its follow-on drug, Bextra, both of which it already markets with Pharmacia, a mid-sized drug company based in Peapack, N.J. Buying the company will give Pfizer full control over the Celebrex-Bextra arthritis franchise. The two drugs are expected to have combined sales of $3.75 billion this year.”

“But growth will be a tall order, given the massive sales base of the new Pfizer. To still be considered a respectable growth company, Pfizer will have to come up with $5 billion or more in new revenue each year. In the past three years, Pfizer has struggled to find replacements for some of its aging blockbusters, launching only two new medicines on the U.S. market that were discovered by company researchers, a schizophrenia treatment called Geodon, with sales of just $150 million in 2001, and Vfend, an antifungal drug approved in May. Its last smash hit was Viagra, launched four years ago. Despite a strong first quarter, Pfizer warned of a sharp decline in profits for the current quarter, though it affirmed longer-term growth targets.”