Passage 2
The job of the drug industry is to provide relief from ailments, and it usually does so with its medicines. The news on Monday January 26th that Pfizer, the world's biggest drugmaker, is bidding for Wyeth, a large American rival, should provide a welcome tonic for some. The legion of lawyers and bankers who specialize in mergers and acquisitions, for example, may at last have something to do. Pfizer is offering$68 billion for its rival, belying the current economic gloom. The financial crisis and recession have put a brake on most deals, other than mergers between crumbling banks, as credit has dried up and confidence has shriveled.
The giant American drug company will finance the deal with a mixture of its shares, which have held up reasonably well as markets have dived, cash from reserves and bank loans. Pharmaceutical companies are in happier position than firms in other industries. They are known for large and reliable cash flows, even when economic misery is growing. Otherwise nervous bankers should not be too fearful of extending credit to Pfizer.
And yet, as the recession takes hold America, which is by far the most important market for drug giants, growth appears to be slowing. Even drug sales may be hit in a recession if financially squeezed patients who lack insurance, or with less comprehensive health plans, cut back on their medicines. Pfizer is not insulated from the economic chill: it says that it will lay off 10% of its workers, several thousand people, and close five of its 46 factories around the world, in an effort to cut costs by $2 billion by 2011.
Nonetheless, taking over Wyeth would cement Pfizer's position as the world's leading drugmaker. Pfizer's revenues in 2008 were just over $48 billion. These would be boosted to over $71 billion in a combination with Wyeth. Pfizer clearly reckons that greater scale is an answer not only he lower growth n he industry but lso to the particular problems hat it faces. "Big pharma"has long felt the competitive breath of generic drug companies. In the next couple of years the threat will intensify as billions of dollars worth of branded drugs are set to lose patent protection.
22.The news that Pfizer is bidding for Wyeth is not welcomed by lawyers and bankers who specialize in mergers and acquisitions.