Let’s say a pharmaceutical company is conducting clinical trials on a drug. Two trials find major problems. Several similar tests by others end in failure, too. Would the company get the drug approved? Of course not. Yet Pfizer is trying to drum up enthusiasm for its plan to buy Wyeth for $68 billion, even though its two other major acquisitions since 2000 have flopped and even though the track record for big M&A deals in the pharmaceutical industry is spotty at best.

In the process, Pfizer is raising numerous of the red flags that, according to our research, can mean a strategy is in peril. Pfizer seems to be seeing synergies that aren’t there; is underestimating the complexity that can come with additional size; may be paying too much; isn’t learning from prior mistakes; isn’t considering all its options; and is acting more because of problems in its core business than because of opportunities in a new one.

The issue seems to be that pharmaceutical companies and the securities analysts who follow them have framed the problem wrong. The problem is stated like this: “A company has a blockbuster drug whose patent is expiring in a few years. How can the company replace the revenue and profits from that drug?” That may sound like a reasonable question, but it can’t be the guide for investment decisions. Those decisions have to be based on whether spending a certain amount of money will generate an adequate return, from an internal research project, from an acquisition, or from whatever. Focusing on when a blockbuster patent expires can encourage drug companies to think they absolutely, positively must fill the hole that will result and can encourage them to spend money foolishly, especially on acquisitions.

The problem with trying to fill holes is that the solutions are temporary. Just because you buy a drug doesn’t mean you’ve solved the industry’s basic problem: that it isn’t generating enough blockbuster drugs fast enough. Buying a hot seller just means you may have postponed the day of reckoning. And you’ve probably overpaid for the privilege. The stock market is pretty good at valuing the streams of cash flow that will come from a blockbuster drug that’s been in the market a few years, so it’s hard to see how a company can justify paying the 30% premium that Pfizer has offered to pay for Wyeth. Can Pfizer really make Wyeth’s products 30% more valuable?

Pfizer should know better. Faced with expiring patents, Pfizer spent $110 billion to acquire Warner Lambert in 2000 and $60 billion to acquire Pharmacia in 2002. Pfizer ran into problems with both acquisitions. Its market capitalization is currently about $95 billion, a bit more than half what it spent just on buying those two companies. Even before the stock market began its severe slump last fall, Pfizer’s market value was only about 70% of the price paid for Warner Lambert and Pharmacia.

Pfizer, itself, seems confused about the rationale for the merger. Initially, reports said Pfizer would find cost synergies. More recently, Pfizer has said Wyeth will give it the sort of broad portfolio of products that it wants, seemingly implying that the acquisition will let it find synergies that will boost revenues more than the two companies could on their own. In fact, as often happens when companies go looking for synergies, both types will likely prove elusive.

Some cost-cutting is certainly possible. Pfizer has already said it will cut 20,000 jobs from the combined companies. But to cut as deeply as Pfizer must to justify the acquisition premium, there needs to be more overlap than there is in the product lines–Pfizer focuses on prescription drugs, while Wyeth has a broad array of offerings, including drugs for use by veterinarians and consumer products.

The necessary revenue synergies will be even tougher to come by, as usual. While talk of a portfolio of products can be seductive, in this case it doesn’t make much sense. Drugs for vets, for instance, have different technology than drugs for humans, are sold to different people, go through different sales channels, and are marketed differently. Consumer products, likewise, have little in common with prescription drugs.

Meanwhile, Pfizer may be taking on troubling complexity. Its senior management has no experience selling veterinary drugs, so the team may run into problems that Wyeth’s management would have avoided. In addition, Pfizer has sold off consumer businesses, apparently not finding them to be a good fit with its core operations, so it’s likely that Wyeth’s consumer businesses will also cause friction.

While we understand Pfizer’s concern about having its cholesterol-lowering drug Lipitor about to go off patent, we don’t believe that acquiring Wyeth is the right idea.

Somebody call a doctor. Pfizer needs a new prescription.