Monday, January 26, 2009
Going soft on research when real growth is needed
I've got no economic creds, but isn't the purchase of Wyeth by Pfizer exactly the reason that the free market, and capitalism, are on the rocks?
Pfizer, who apparently is flaccid without the promise of another Viagra, is pouring money into Wyeth because they have some promising drugs in the pipeline. Pfizer, on the other hand, is running out of time with expiration of patent rights to Lipitor.
So instead of pouring money into research (which, understandably does not yield immediate results), and improving the hope of new products in the pipeline, Pfizer has trimmed staff in order to prepare it to purchase a company, Wyeth, with good hope in pipeline products.
So we'll have a pharmaceutical company that's too big to fail. And when Pfizer has neutered Wyeth's research branch, and needs a dose of Viagra in a year or two, will there be another company big enough for it to swallow to increase its market penetration?
How many Citibanks do we have to watch crumble before regulators return to the idea that oligopoly is not good for any economy.
The only "good" news is that five banks have stepped up to lend money to Pfizer for the sale. From the NY Times:
Pfizer’s bid is being financed by four banks that received federal bailout money: Goldman Sachs, JPMorgan Chase, Citigroup and Bank of America, the people involved in the deal said. Such banks have been criticized for not doing more lending since they received the government aid.
Which means that credit is apparently loosening, and that you and I are paying now, and will be paying in the future, for this deal to happen. Be ready for big bonuses to the bankers who work out the deal, and Pfizer execs who dreamed it up.
BTW, read the article in the NY Times carefully. You'll find that while cheap generic drugs are a boon to the consumer, they frighten the big pharmaceutical companies. You'll also find that if the deal isn't done, Pfizer has agreed to pay a "breakup fee" of $4.5 billion. Finally, you'll find that Pfizer's lawyers are working diligently to avoid paying tax penalties required by the deal in which they must repatriate much of their business units within the US.