Attack of the Monster Merger

WHAT WILL PFIZER DO?

That question has been asked almost daily by Wall Street and the business media since late 2006, when then-new CEO Jeffrey B. Kindler announced the death of torcetrapib, the company's would-be savior. The No. 1 pharmaceutical company with the best-selling drug in history—and the steepest patent cliff—has come to symbolize the "crisis" of the drug industry and its bankrupt blockbuster model.

Inside the Megamerger

Could this drug colossus fail? Just go under, like a glacier into the sea? Or like Lehman Brothers, GM, the state of California...

It's only fair to remember that Kindler, like President Obama, inherited the mess he faces. In a race against time, he has arguably made the right moves: ending the sales-force arms race, re-creating R&D as small business units, abandoning cardiology for oncology. He in-licensed and outsourced, cut back and closed down. "The expression I use here a lot is: 'the spirit of small, the power of scale,'" he told BusinessWeek last October. "It's continuous improvement, but we've made enormous progress."

Still, Kindler couldn't get a break. Exubera became a joke; Chantix, a rare breakthrough from Pfizer's own lab, made news less for its public health benefits than for the bizarre behavior of new users. "You want to know why everyone picks on Pfizer?" asks Decision Resources analyst Michael Latwis. "Because they spend the most money on R&D and have a string of failures to show for it." (Pfizer did succeed with Sutent, approved simultaneously for kidney and gastrointestinal tumor in 2006; it had sales of $850 million in 2008.)

"Pfizer is like a roach motel: drug candidates go into the lab but never come out," wrote an anonymous Pfizer employee, commenting on an article on the Forbes Web site in early January called "The Incredible Shrinking Pfizer." "Sadly, there are great scientists at Pfizer but no leadership."

Pfizer stock has lost 34 percent of its value since Kindler took over, compared with a drop of 20 percent for the Dow Jones Wilshire Pharmaceuticals Index. Scott Richter, a portfolio manager at Fifth Third Asset Management, dumped his Pfizer shares more than a year ago because the R&D wasn't performing. "Cost-cutting can help earnings in the short term, but it's not transformational," Richter says.

Then, on January 26, came the potentially transformational event: Kindler announced that Pfizer was acquiring Wyeth Pharmaceuticals for $68.103 billion.

From Wall Street to Capitol Hill

At the press conference at Pfizer headquarters on Manhattan's East 42nd Street, Kindler hammered home two messages: Pfizer would remain No. 1 and this megamerger would not repeat past mistakes. "We have learned a lot from prior transactions. We are very mindful of the importance of protecting [Wyeth's R&D expertise]." And: "This is not about a single product. It is about creating a broad, diversified portfolio of businesses....And it is just such a perfect fit."

News of the deal—the third largest in pharma history—got immediate reviews from Wall Street all the way to Capitol Hill.

The headlines tell the tale: "Not What the Doctor Ordered" in the Washington Post. "Pfizer: Try, Try Again" in the Hartford Courant. "Wyeth's Deal Big, But Pfizer Still Needs a Blockbuster" on TheStreet.com. "Did Pfizer Just Commit Suicide?" on MotleyFool.com. "Is Jeffrey Kindler Brave or Crazy?" on the Harvard Business School Web site.

Not all were nasty. Analysts who had long promoted a major merger as Pfizer's only option—the firm had more than $27 billion in cash on its balance sheet at year's end—grudgingly approved. "Pfizer is in the most desperate state of anyone in the industry in terms of patent expirations," says Standard & Poor's analyst Herman Saftlas. "We feel that it is in the best interests of Pfizer to do a deal like this in order to shore up the top line."

Investors voiced their enthusiasm for the deal by sending the company's stock down 10 percent.

The next day, at a hastily called investor lunch at the St. Regis, Kindler tried again. "This is not a case of simply taking one, big monolithic company...and then putting another one on top of that," he said. "We will be the leader in just about every single market in which we compete."

The deal played into the intense politics of the economic crisis. The fact that Pfizer was able to raise $22.5 billion from five banks was quickly mistaken as a sign that frozen credit markets were beginning to thaw. Four of the banks had received tax-payer money in the form of TARP funds, so Kindler's announcement that 19,500 employees, or 15 percent of the combined company, would lose their jobs by 2013 stoked populist anger. During its grilling of eight national bank heads in early February, the House Financial Services Committee found the Pfizer deal a convenient example of bailout abuse. Meantime, the Greenlining Institute, a Berkeley, Calif., advocacy group, petitioned Treasury Secretary Timothy Geithner to block the transaction unless Pfizer and Wyeth lower drug prices.

The first major merger to come before the new Obama administration, the deal is attracting other controversy as well. The combined company would be the nation's fourth largest by market value ($162 billion), after Exxon, Wal-Mart, and Procter & Gamble. While the merger poses no apparent antitrust threat, the American Antitrust Institute has asked Attorney General Eric Holder for a "careful and skeptical investigation," arguing that there is "scant reason" to believe the merger would improve R&D, and good cause to think it would make Pfizer's bureaucratic situation worse while enriching company managers and bankers. The letter concludes, "That the merger of Pfizer with Wyeth will benefit consumers is far from a foregone conclusion."

At least the price is right. All companies are selling at prices lower than usual, and Wyeth is no exception, says Chuck Farkas, head of healthcare for Bain & Company. "The 30 percent premium is below where Wyeth traded in '06 and '07," he says. Pfizer plans to bankroll the deal with $22.5 billion in cash, $22.5 billion in debt, and $23 billion in stock. To help pay for it, Pfizer's quarterly dividend of 7 percent will be cut in half, a move that has already sparked shareholder venom. "Many are likely to sell, but that might be a good thing," says Peter Young, president of Young & Partners. "Pfizer would prefer to have new stockholders who invest because they have faith in the new company."

At the moment, such faith requires a willing suspension of disbelief in pharma megamergers.

The Need to Be No. 1

Pfizer's strategic about-face—from small-is-beautiful back to bigger-is-better—has a certain inevitability about it. Tim Anderson, MD, an analyst at Sanford C. Bernstein, compares it to an addiction. "I almost wonder if Pfizer is caught in a slow, vicious M&A cycle whereby every handful of years it'll have to buy another company to keep growing," he says.

"This is just Pfizer being Pfizer," says Michael Latwis. "It's in their culture to grow through big acquisitions, and Wyeth is just the right size and shape."

Megamergers are what got Pfizer to No. 1 in the first place. The Warner-Lambert deal for $90 billion in 2000, followed in 2003 by the $60 billion Pharmacia purchase, are both generally viewed as textbook examples of how to destroy shareholder value. In what insiders call a "loot and scoot," Pfizer grabbed a single outstanding product that was the goal of the purchase—Lipitor and Celebrex, respectively—and essentially ditched the rest of the company. Most notably, Pfizer axed almost all of Pharmacia's oncology pipeline, including longstanding R&D operations at the former Upjohn and Parke-Davis sites that had continued to operate with autonomy under Pharmacia.

"Like other pharma megamergers of that era, the primary mechanism of creating value was massive cost reduction," says Charles Farkas. "But taking out billions of dollars in commercial and research resources can be very costly in terms of lost innovation and productivity."

Pfizer's masterful marketing of Lipitor achieved sales far exceeding expectations, but Celebrex, a Cox-2 inhibitor like Vioxx, got snagged in safety scares. But for all of its troubles, Pfizer's market cap is no higher than it was a decade ago.

Living down that history will be hard for Pfizer. "This merger will not have a happy ending," says Peter Young. "The real problem is that Pfizer is afraid to get small, but it's going to have to get smaller anyway in a few years."

Pfizer is scheduled to drop $12 to $13 billion in annual sales when Lipitor loses patent in 2011—that's 28 percent of Pfizer's total sales for 2008. Once torcetrapib bombed, Kindler lost his only sizeable Lipitor backup—and with it, Pfizer's future hold on No. 1. According to Frost & Sullivan projections, Roche (including revenues from its majority Genentech share) was scheduled to overtake Pfizer in 2012, and Novartis, Sanofi, and Glaxo were set to follow by 2015. Given Pfizer's ragged late-stage pipeline, slashing jobs, shuttering plants, and shopping until it dropped for any remaining Phase III diamonds in the rough could not stop the slippage. Merely continuing to rightsize Pfizer to No. 5 would likely have earned Kindler his golden parachute and the order to jump.

Roche's move to buy the rest of Genentech may only have accelerated the sense of urgency. Analysts such as Frost & Sullivan's Shabeer Hussain see this development as the decisive factor in Kindler's appreciation that Wyeth was, as he has repeatedly proclaimed, "the right deal at the right price at the right time." "When Roche announced that it was taking over Genentech, it left no doubt that Pfizer would finally have to yield the No. 1," Hussain says. "That would have had the necessary effect of concentrating Kindler's mind."

Not so, says Ray Kerins, head of Pfizer's global communications. "Years ago Pfizer might have focused on that, but it's different now," he says. "Folks can rank us left, right, and center, but our goal is bringing the best science to the marketplace." And why the wait? "We could not have done a deal like this a year ago," Kindler told the AP. "The company wasn't strong enough yet."

Debate Over Deal Drivers

For all Kindler's cheerleading about remaining the industry leader, he has taken great pains to preempt his critics by emphasizing that the merger is about strategy, not size.

Some experts buy it. Says Stan Bernard, MD, president of Bernard & Associates: "Unlike its two big previous acquisitions, which were about acquiring huge blockbuster products, this is about entering huge new markets." He sees the merger as a potential industry game changer, the era driven by small molecules and physician detailing finally yielding to large-molecule drugs and a focus on payers.

Goldman Sachs analyst Jami Rubin agrees. "Wyeth boasts one of the industry's most impressive biotech assets: biologicals and vaccines. We continue to believe that these represent the key growth drivers for pharma in the coming years."

With biologics growing by an annual 13 percent and vaccines by 18 percent (compared to small molecules' 2 to 3 percent), Pfizer gained an immediate footprint in these markets. "This acquisition should be the shot heard round the industry," Bernard says. "Now the big vaccine producers know that Pfizer, with all its marketing muscle, is coming after them."

The one benefit of the merger no one disputes is fast revenue: Pfizer immediately pockets $20 billion from Wyeth's diverse portfolio of products. "Buying Wyeth buys Pfizer time," says Chuck Farkas. "It adds Enbrel and Prevnar, both of which have lives beyond their patent expiration. What it doesn't buy is much pipeline."

Pfizer's top line jumps from a pre-merger $40 billion to the combined company's $60 billion (for Rx drugs alone) or $70 billion (including consumer health and veterinary meds). In addition to diluting the 28 percent of sales lost after generic Lipitor hits, the merger will give Kindler economies of scale. The planned layoffs, estimated to save $4 billion, are generally assumed to be only the beginning.

"It goes without saying that efficiencies in the cost base within the sales organization were a key driver in this deal," says Manhattan Research President Mark Bard. "Pfizer is going to cut as many as it can—and eventually go to a contract sales force that it can hire and fire at will." All told, Datamonitor forecasts that post-merger Pfizer will eke out a profit of 0.9 percent over the next four years—a sign of progress when compared to its estimated pre-merger loss of 5.3 percent for the same period.

Buying time also gives Kindler a chance to deploy Pfizer's marketing mavens to sell the hell out of rheumatoid arthritis drug Enbrel and meningitis vaccine Prevnar (each scored $2.8 billion in 2008 sales), rush a few big online products to market, and ramp up biologics and vaccines. "As a scale player, Pfizer can generate dramatically more earnings out of Wyeth than Wyeth can alone," says Deutsche Bank analyst Barbara Ryan.

Despite all, Pfizer may still lose its No. 1 ranking. "Profits will look terrific in 2010 simply by adding Wyeth sales," says Albert Wertheimer, director of Temple University's Center for Pharma Services Research and Pharmacoeconomics. "But in 2011, just when Lipitor is expiring, Pfizer will have a much higher revenue baseline to make."

Kindler says Pfizer can do it.

No, it can't, says Datamonitor analyst Simon King, among others. The patent cliff will make $70 billion in annual sales increasingly tough to top. By 2013, Pfizer's priapic phenom Viagra will lose its exclusivity—and $1.9 billion in annual sales. So will Lyrica ($2.5 billion), Detrol LA ($1.2 billion), Caduet ($589 million), and Aricept ($480 million). And Wyeth has its own patent casualties. Although its two top sellers, Prevnar and Enbrel, are safe barring fast follow-on legislation, both Effexor XR ($39 billion) and Protonix ($764 million) go generic in 2010. Frost & Sullivan's Hussain projects that Pfizer will lose at least $21 billion to patent expirations by 2013.

Still, diversification will soften the blow. While total pharma sales will drop by 2.3 percent in 2013, according to Datamonitor, total company sales will slide by only 0.6 percent. That's an improvement over any pre-merger projections, but negative sales growth is what got Kindler to the deal table in the first place.

Cliff Cramer, director of the Healthcare and Pharmaceutical Management Program at Columbia Business School, questions even the fast-revenue rationale. "The deal is unlikely to contribute [Kindler's projections] to top-line growth near term," he says. Along with the costs of disruption to R&D, "the 30 percent premium Pfizer paid will require even more aggressive cost-cutting to make the deal accretive to earnings within two or three years."

A Trojan Horse Strategy?

Kindler denies that the Wyeth acquisition is a U-turn in Pfizer strategy, from pure play to diversification. "Decisions that were made in the past were made for the right reasons, and I'm looking at the environment that we're in today and the foreseeable future," Kindler told the Associated Press on February 6.

Pfizer sold its consumer health division, which recorded almost $4 billion in sales in 2005, to Johnson & Johnson in 2006. But despite the phenomenal $16.6 billion price tag, "it's now widely viewed by the marketplace as the worst decision Pfizer ever made," says Leerink Swann analyst Seamus Fernandez. With the Wyeth purchase, Pfizer is back in the OTC game, with a $500 million consumer health division.

The decision to sell was one of the last made by Kindler's predecessor, Hank McKinnell, during a rocky tenure that drove Pfizer's share price from $50 to $30 in six years. Hank McKinnell also set Pfizer on the high-risk, high-margin pure-play path then favored on Wall Street.

Pure play was a peculiar gamble for Pfizer because its drug portfolio and pipeline are 98 percent small-molecule drugs. This made Pfizer a respected leader in the cardiovascular market, but with the advent of cheap knockoffs and the decline of me-toos, small-molecule R&D is no longer a blockbuster, low-hanging-fruit business. Just as the double-digit sales growth in biologics and vaccines is increasingly attractive, so the slow, steady sales growth of OTC products is a valuable asset.

How far Kindler plans to take diversification remains to be seen. He may surprise naysayers by decentralizing authority, slashing bureaucratic layers, and incentivizing the diverse divisions with self-rule. "When Pfizer and Wyeth complete their merger, the new company might look a bit like Johnson & Johnson: a collection of relatively small units working autonomously," wrote Jim Edwards on the BNET blog.

In fact, Kindler's megamerger may be a kind of Trojan horse hiding the building blocks of something transformational: a total healthcare company. The union of Wyeth's comprehensive product portfolio with Pfizer's chemistry-based tradition and commercialization prowess may eventually promise a one-stop shop for the full range of healthcare services. But to deliver on that promise, innovation both within and between the units must be optimized. Horizontal mergers, however, have unfailingly delivered only increased bureaucracy.

To underline the distance Pfizer intends to put between its future and the blockbuster model, Kindler has repeatedly said that "no single product will account for more than 10 percent of the new Pfizer's revenues." Yet at the same time Kindler told PBS's Nightly Business Report, "One of the additional advantages of this deal is it definitively addresses the revenue losses associated with Lipitor." It's hard to square these two statements—nothing in the combined company's portfolio and pipeline looks like it will even come close to erasing that $12.4 billion negative from the P&L sheet.

Datamonitor's Simon King suggests that Kindler is putting all his chips on the Alzheimer's market. "Alzheimer's is the only area where the unmet medical need is so great that Pfizer could emerge with a $10 or even $20 billion product," King says.

FDA has so far approved only five Alzheimer's drugs, none of which appears to reach beyond the symptoms to fix the cause. Aricept, which Pfizer comarkets with Eisai, is No. 1 with $3.4 billion in sales.

Pfizer and Wyeth both have Alzheimer's drugs in Phase III: Bapineuzumab (b-mab), a humanized monoclonal antibody that Wyeth and Elan are codeveloping, and Dimebon, an antihistamine that Pfizer licensed from Medivation. B-mab is the star. Currently in four late-stage trials, it has demonstrated the ability to slow cognitive decline by five points on the standard scale (current drugs score two or three). But the drug works in only one-third of patients—those who lack a specific gene mutation. Dimebon has so far triggered less excitement, despite having a novel dual approach: like b-mab, it busts destructive amyloid clumps, but also displays neuroprotective effects. Neither drug is anything close to a cure.

Development has predictably been slowed by delays related to safety and efficacy. If approved, b-mab could get to market in 2011, Dimebon in 2012—an inconvenient tardiness for Pfizer because generic Aricept is due to flood the market in 2010. According to estimates by Decision Resources, 2014 sales of Dimebon will hit $350 million, while new positive b-mab numbers will revise its previous $200 million sales upward.

Says Simon King: "Pfizer is so strong at marketing that the revenues could be disproportionate to the drug's effects." But will it become a $10 billion cash cow? The odds are against it, but Wyeth's nine early-stage Alzheimer's contenders, added to the four already in Pfizer's pipeline, could position the new company as the leader in this market for a generation to come.

Fears of Pfizerization

Critics say that Pfizer's fortune would have been better spent beating the biotech bushes for exceptional products, platforms, and technology. Prices have never been better.

But that view ignores Kindler's need for both a bump in revenue and a jump in size. Plus, the so-called string-of-pearls approach to acquisition is easier said than done. "It is very difficult to execute and eventually manage the disparate groups of small biotechs," says Cliff Cramer. "Wyeth, on the other hand, has one of the very few biologics franchises that would move the needle and provide the desired critical mass."

That franchise boasts something Pfizer could find nowhere else: the world's largest biologics development and manufacturing facility, built in 2005 outside Dublin. "Wyeth's manufacturing capabilities in biologicals are truly unmatched," says Jagmohan Ragu, a professor of marketing at the University of Pennsylvania's Wharton School. "Pfizer definitely needs that to get into that business fast."

That business includes not only today's biologics but tomorrow's biosimilars. In the next year or three, Congress will almost certainly force FDA to confirm a regulatory pathway for follow-on biologics. When that happens, biosimilars will likely become branded pharma's newest best friend. Novartis' Sandoz has already marketed three in Europe, while Merck launched a biotech unit in December and licensed Insmed's pipeline of biosimilars two weeks after word of the Pfizer-Wyeth deal.

The unique value of the Wyeth facility ratchets up the pressure on Pfizer to get the integration right. "The last thing Pfizer can afford is to compromise the future of that function," says Chuck Farkas. "Wyeth has very talented people in biologics who understand the potential for true innovation in follow-on biologics. And those people will have many other opportunities if they want to move on."

"We are not just buying assets and buildings and compounds, we are buying an enterprise that was created by people—great people that have done a fabulous job creating a great company—and we are very mindful of that," Kindler said on January 26, yet another in the litany of "nots" by which he framed the merger for public consumption.

The old Pfizer had a reputation of devouring its acquisitions. In the Pipeline blogger Derek Lowe put it this way: "The fear, among scientists like me, is that Pfizer is going to take another productive research organization, raid it for what it considers to be of immediate value, fire a lot of people, and then take the rest and do whatever it is they do to them to Pfizerize their productivity."

Under Kindler, Pfizer has sliced and diced both its R&D and its sales behemoths into smaller ("nimbler," "more entrepreneurial," etc.) groups, focusing on primary care, specialty pharma, emerging markets, oncology, and established products. The firm is also jettisoning all research into cardiovascular disease, among other areas, to focus exclusively on Alzheimer's, oncology, diabetes, inflammation, pain, and schizophrenia.

What Wyeth brings to the merged pipeline is significant expertise in immunology and inflammation, including rheumatoid arthritis, leukemia, and lymphoma, as well as the CNS category, especially Alzheimer's. Only 66 percent of its portfolio relies on small-molecule drugs, with therapeutic proteins accounting for 18 percent and vaccines for 16 percent. "This diversification creates a more desirable balance in our [combined] portfolio, reducing small-molecule dependence from 90 percent to 70 percent by 2012," Kindler told analysts on a January 26 earnings call.

Wyeth also pioneered the "learn and confirm" drug-development model, transforming the increasingly inefficient Phase I, II, and IIIs into a more predictive, two-phase approach designed to better adapt the potential value of the compound. Kindler has voiced his respect for Wyeth's R&D process as well as his intention to preserve it. But can "learn and confirm" be Pfizerized and survive?

"This integration will be different," says Pfizer's Ray Kerins. "It will be smoother and quicker because Pfizer has been restructured into many smaller units, and each will do its own integrating. We're not putting together two big companies as in the past." Still, the knowledge that 15 percent of the staff will get the boot has begun to degrade morale and productivity. Both companies' field offices reportedly will be hardest hit. Pink slips have already started to go out, and many more resumes.

Super-Mega-Global Pharma

Many pharma watchers assume that the Pfizer-Wyeth deal, along with a successful takeover of Genentech by Roche, will trigger industry-wide defensive—or desperate—consolidations. "If Pfizer-Wyeth becomes a reality, we enter a new realm of 'Super-Mega-Global' pharmaceutical giants," says Larry Rothman, a former Capgemini/Ernst & Young partner who blogs at Pharmservices.com: "This may force other merely mega-globals into a merger frenzy...in an industry known for follow-the-leader mentality."

Spot-the-merger-target is a perennial parlor game of analysts, but the fun has suddenly turned serious. "Just like with the sales-force arms race, everyone has been waiting to see what Pfizer would do," says Simon King. "This could mark a defining moment in the industry, a new split where some big pharmas will follow Pfizer and others will abstain from huge M&As."

Peter Young agrees. "The rest of the industry is in a panic—they don't want to be dwarfed by Pfizer," he says. "This could be seen as an alarm about how serious Pfizer's troubles are. Or it could be a setback—turning the clock back to the bigger-is-better era."

And why not? Almost every drug giant has its own strain of expiring-blockbuster disease—and shareholders agitating for profits. Patent loss can't be cured by buying growth, but it can be put into remission. "Aggressive M&A, including consolidation, may be the only effective solution for some companies," says Barbara Ryan. "Merck is the most likely acquirer, while BMS and Schering are most likely to be acquired."

No big pharma has resisted big M&A more than Merck. Its last pharma merger took place in 1953, with Sharp & Dome. Yet between the Vioxx flap and the flop of several potential late-stage breakthroughs, this decade has been Merck's toughest. By 2012, its two top products, Cozaar/Hyzaar and Singulair, will go generic, taking 40 percent of the firm's 2008 revenues with them.

Talk of a Merck megamerger started during the industry's previous outbreak of consolidation, which gave rise to Novartis, AstraZeneca, GSK, and Sanofi-Aventis, and included Pfizer's acquisitions of Warner-Lambert and Pharmacia. Ever since, S-P has been seen as the obvious takeover target, partly due to the two companies' Vytorin and Zetia joint venture.

Bristol-Myers Squibb has also emerged as a favorite—of just about everyone. Under the leadership of James Cornelius, a master at starting bidding battles over his companies, BMS has emerged as a fashionable biotech-pharma hybrid. Its joint ventures with Sanofi (for bloodthinner Plavix and anti-hypertensive Avapro) and Pfizer (for bloodthinner-to-be apixaban) had the makings of a tug of war until Pfizer went with Wyeth. Could Merck and Sanofi be preparing to duel over BMS? Merck CEO Richard Clark recently gave a nod toward megamergers, but Sanofi's new head, Christopher Viehbacher, has officially nixed anything bigger than a Biogen Idec–sized company. Of course, as Kindler showed, dismissing, if not denying, any interest in megamergers is the pharma CEO default position. (See "Will They or Won't They?" page 44.)

Yet as the overwhelming skepticism greeting the Pfizer-Wyeth deal suggests, size may offer many costs and few benefits. Can five or even 10 Pfizer–cum–Wyeth small business units really attain, let alone sustain, sales above $60, $70, and $80 billion? "It my be systemically impossible to succeed at that level," says Datamonitor's Simon King. "Every aspect of the process, from discovering new compounds to demonstrating their value, gets more complicated and more expensive every day."

On January 26, when Pfizer was stealing the headlines, Glaxo CEO Andrew Witty announced a deal of his own: $667 million for a slew of UCB drug rights in Latin America, Asia, Africa, and the Middle East. When Witty took over last year, he planned to "diversify and de-risk"—by strengthening GSK's consumer health and vaccine lines and intensifying its global penetration. Under previous management, says King, Glaxo would have been the first to follow Pfizer into Super-Mega-Global Land, but Witty appears to have his own agenda. "The younger CEOs have a different mentality," King says.

Is the industry itself big enough to sustain a Big Pharma and a Bigger Pharma? Only time will tell. "The brutally simple problem is innovation," says Harvard Business School's Gary Pisano. "To add value, you have to find a way of making good drugs. Every other strategy is a sideshow."

The return of megamergers may mark the return of the elixir of innovation to Pfizer and an industry in deep need of it. Few longtime pharma watchers think so. Still, it's way too soon to write off Jeffrey Kindler's fateful gambit. "The spirit of small, the power of scale" may prove to be something more than the epitaph to his career.

—RESEARCH ASSISTANCE BY CASSANDRA BLOHOWIAK

Will They or Won't They?

After news of the merger broke, CEOs of rival firms were asked if a large M&A is in their cards.

Richard Clark, CEO of Merck, Feb. 4: "I wouldn't rule anything out. There are opportunities across the whole spectrum that we look at."

Chris Viehbacher, CEO of Sanofi-Aventis, Feb. 11: "I am not very hot for big deals, but you can never say never."

Daniel Vasella, CEO of Novartis, Jan. 30: "I don't anticipate a transformational transaction. Our strategy is to look at smaller acquisitions that fit our existing business."

Severin Schwan, CEO of Roche, Feb. 4: "We are not interested in megamergers. We want to continue with smaller and medium-sized acquisitions."

David Brennan, CEO of AstraZeneca, Jan. 29: "Our acquisition strategy is unchanged. We don't need a big merger to cut costs and realize efficiencies."

John Lechleiter, CEO of Eli Lilly, Jan. 29: "We do not believe these large combinations have sustained value. Consolidation is obviously happening. If we see a small or mid-cap opportunity, we'll go for it."

Andrew Witty, CEO of GlaxoSmith-Kline, Feb. 5: "There is no way we will be distracted by large-scale M&A going on in the sector.... You will see us make acquisitions—small- to medium-sized, not a megamerger."

James Cornelius, CEO of Bristol-Myers Squibb, Jan. 27: "We're in shopping mode, we're in strategy mode. We're becoming leaner, more agile and better able to execute our strategy."

SOURCES: BLOOMBERG; REUTERS; THE NEW YORK TIMES; THE WALL STREET JOURNAL; SEEKINGALPHA.COM