Paper - Wyeth

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The pharmaceutical-biotechnology industry has become increasingly consolidated over the past 15 years; in 1985 the 10 largest firms accounted for about 20 percent of worldwide sales, whereas in 2002 the 10 largest firms accounted for 48 of sales. Much of this consolidation is the result of mergers. The value of M&A activity in this industry exceeded $500 billion during the 1988 to 2000 period. A commonly cited rationale for this consolidation by proponents of these mergers is the existence of economies of scale in research and development (R&D) and in sales and marketing. However, despite rising R&D spending the productivity of the pharmaceutical industry, as measured by the number of compounds approved
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This time Pfizer seemed focused on diversifying the product pipeline by acquiring Wyeth. In fact, in its 2009 financial report, Pfizer reported that one of its key strategies was to have a “diversified product portfolio in which it is expected that no drug will account for more than 10% of our revenues in 2012.” To assess whether Pfizer was able to achieve its goal of diversification the first step is to examine the product pipeline and value chain of Wyeth.

Biologics and vaccines were a growing segment for Wyeth; at the end of 2007 nearly 1/3 of the product pipeline was comprised of biotechnology candidate products and vaccines. Strength in these segments was also evident in Wyeth 2008 financial report where Effexor and Enbrel, biologics, combined accounted for approximately 34% of net revenue and Prevnar, a vaccine, accounted for 12% of net revenue. In fact, Wyeth saw immense opportunity for Prevnar. At the end of 2008, FDA granted Wyeth fast track status for Prevnar 13 for pediatric use which if approved would enhance protection against six additional stereotypes of bacteria responsible for invasive pneumococcal disease which affects infants and children around the world. Having launched Prevnar in China in October of 2008, where annual birth rate was 17 million, Prevnar had significant upside for pediatric use in China.
Beyond the three blockbuster drugs, Wyeth had a competitive advantage in biologics and vaccines. Prior to March of
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