Over the last few months we have had a number of interesting merger announcements within the pharmaceutical industry. Major top 20 pharma companies were announcing to buy each other up.
- Roche buys Genentech: Roche agreed to acquire full ownership of Genentech for $46.8 billion. It had owned the majority of Genentech since 1990. The main reason cited for the transaction is that it will make the coordination of product development easier.
- Merck merges with Schering-Plough: Both companies announced on March 9, 2009 that their boards approved a definitive merger agreement. The new entity will carry the name Merck. This was a somewhat unexpected turn of events, because Merck’s strategy up to this point had been to buy much smaller companies and to acquire rights to individual experimental drugs.
- Pfizer buys Wyeth: Also this year Pfizer announced to buy Wyeth. The transaction is expected to close in the second half of this year.
- Lilly buys ImClone: In the last quarter of 2008 Lilly announced to acquire ImClone for $ 6.5 billion outbidding Bristol-Myers Squibb Co.
- GSK buys Stiefel: GSK is spending $3.6 billion to buy privately owned dermatology specialist Stiefel in an effort to bolster its pipeline.
The pharmaceutical industry has a history of major mergers. Companies like GSK have been the product of multiple mergers up to this point. However, these major announcements were made within a short period of time. So, what are the key drivers for this recent development?
Without any question, one of the driving forces is the never-ending quest to improve the pipeline of these major players. The hope is that, post merger the acquiring company will have a stronger pipeline of drugs that can be carried forward in their R&D organization. Of course, there is the hope of finding synergies, which is another word for carrying out the same amount of work with less people.
Some experts have voiced the opinion that the availability of freshly introduced TARP funding in the financial system was one of the key conditions for making these mergers possible. Certainly, this argument seems to have some legs, given the general unavailability of any kind of credit funds prior to the US government intervention.
It remains to be seen how successful the post-merger integration efforts will actually be. The final outcome of these mergers cannot be fully assessed for years to come. One thing is for sure though, when all the deal making is over, the regulatory process has resulted in the final approval and all documents have been signed, implementation will be essential. The fundamental necessity to drive execution from the board room level down to each and every project team will decide over a win or loss. Big Pharma just got a little bit bigger.