So Much for a Pfizer Biotech Play

Updated from 1:28 9.m. EST

For all the chatter about Pfizer ( PFE) wanting to take the bold step of gobbling up a big biotech firm, the pharmaceutical giant may instead revert to familiar ways by merging with its one of its own, Wyeth ( WYE), delivering a blow to biotech's solar plexus.

Pfizer is reportedly in talks to acquire Wyeth, although a deal may not be imminent, according to a report Friday in The Wall Street Journal.

A Pfizer-Wyeth combination would create a global pharmaceutical giant with about $75 billion in combined revenue. Pfizer would also be able to wring out considerable cost savings by consolidating back-office staff, and streamlining research and development and sales and manufacturing operations.

The drug sector is rife with problems, which is why consolidation seems like the easy solution. In recent years, cheaper generic competitors have chopped down Big Pharma drugs that once racked up billions of dollars in sales annually. And despite vast spending on R&D, drug companies have been unable to come up with new replacement products to make up for all the eroding revenue. Meantime, government officials and health insurers are starting to take a more aggressive line on drug pricing, adding to the bottom-line pressures of the sector.

If Pfizer's play for Wyeth seems familiar, that's because it is. Pfizer has grown to be the largest drug maker, mainly by swallowing up its rivals -- Warner Lambert in 2000 and Pharmacia in 2003. Both deals appeared to provide Pfizer with short-term relief, but neither solved the company's more intractable problems.

More important: This short-term relief for Pfizer could bring longer-term pain for the biotech sector. A Wyeth acquisition would sorely disappoint biotech investors hoping that Pfizer would look to their neighborhood for its next big deal. There had been recent speculation that Pfizer was interested in the Irish drug maker Elan ( ELN). Others were making the case for Pfizer to buy Amgen ( AMGN), Gilead Sciences ( GILD) or Biogen Idec ( BIIB).

On the surface, then, a Pfizer-for-Wyeth deal seems old and unexciting, but there is one difference worth noting: Wyeth brings more vaccine and biotechnology know-how and revenue to the table than Pfizer's previous acquisitions.

Wyeth generates nearly one-third of its revenue from biologic drugs, including vaccines, which equates to about $6-$7 billion in sales. In some ways, Wyeth is a big biotech company in its own right, just one wrapped in the packaging of a traditional drug maker.

Pfizer ended Friday up 1.4% to $17.45.

Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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