Pharmaceutical Mergers: What’s the Rush?

Topics: GlaxoSmithKline, Pharmaceutical industry, Pharmacology Pages: 21 (6241 words) Published: March 7, 2013
Villanova University

College of Commerce and Finance Spring, 2001
MBA 8439 – Contemporary Topics in Finance Dr. W.L. Dellva

Darren Snellgrove

Pharmaceutical Mergers: What’s the Rush?
Drivers of Recent and Future M&A Activity


i) Executive Summary

ii) Introduction
iii) Industry Structure
iv) Reasons for Recent M&A Activity
v) Analysis of Two Recent Mega-Mergers
– Glaxo Wellcome / SmithKline Beecham – Pfizer / Warner Lambert

vi) Do Drug Mergers Really Work
vii) Possible Future Mergers
viii) Implications of Biotechnology & Genetic Mapping ix) Conclusions
x) Bibliography
xi) Appendix

i) Executive Summary

OBJECTIVE: Explain what social-political-economic factors are driving the recent step-up in pharmaceutical merger activity, and determine whether or it makes sense. METHOD:
□ Analyze industry data, focusing on the recent pressures that explain recent merger activity. □ Consider general research and two recent mergers to see whether they are likely to succeed. □ Assess whether this trend will continue.

Industry Stage / Structure
□ Relatively mature, and yet constantly changing industry. Complex financial challenges.

Reasons for Recent M&A Activity
□ Major drug reimbursement issues, political pressure and concerns over pricing. □ Patent expirations / generic competition.
□ Profitable industry, but growth slowing.
□ Sales growth issues / global expansion.
□ R&D pipeline gaps / R&D synergies.
□ DTC campaigns / sales rep. coverage / channel access.
□ Biotechnology / Gene Mapping.
□ Management greed / agency factors.
□ Changing M&A accounting regulations.

Analysis of Two Recent Mergers
□ Overall, results are mixed. Portfolio balance and strategic fit are the key success factors. □ Glaxo / SmithKline - likely to achieve some success through pipeline synergies and cost savings. □ Pfizer / Warner-Lambert - the most likely to succeed due to strategic fit, operating efficiencies, pipeline synergies, and the fact that this was a hostile purchase. □ Size may be good up to a point, but some of these mergers may be going too far:

|Advantages of size: |Disadvantages of being too big: | |Clinical trial economies of scale |Diseconomies of scale / control issues | |Sales rep. Coverage |Lack of focus | |Regulatory / filing power with the FDA |R&D / commercial disconnects | |Lobbying power (political and with wholesalers etc.) |Loss of entrepreneurial environment | |Balance risk in pipeline / product portfolio |May not deal with emerging areas | | |(biotech and genomics) |


□ Size and growth are being used to defend against increasing industry pressures, i.e. Reimbursement, political pressure, patent expirations, growth issues, R&D pipelines, ad. economies. □ It is not clear that merging is the answer. Evidence to date suggests only minimal success, & a temporary solution. Can’t “guarantee” discovery. Size issues e.g. R&D/commercial disconnect. □...

Bibliography: • Bailey, R. (April, 2001). Reason Magazine: Damn the Pusher Man – Why does Everyone Seem to Hate the Pharmaceutical Industry?
• Besanko, D., et
• Business Week (Jan 8, 2000). Industry Outlook 2000 – Life Science. [On-Line]. Available:
• Business Week (Jan 21, 2000)
• Business Week (May 8, 2000). Looks Like Drugmakers are Popping Growth Pills. [On-Line]. Available:
• Business Week (May 17, 2000)
• Business Week (June 12, 2000). The Pharma Frenzy. [On-Line]. Available:
• Business Week (Jan 8, 2001)
• Business Week (Jan 9, 2001). Biotech Horizons, Near and Far. [On-Line]. Available:
• Clark, Gerlach, Olson (1996)
• Dickson, T. (Ed.). (1997). The Complete MBA Companion. Maryland, Pitman Publishing.
• Elazar Berkovitch, M. P. Narayanan. (1993). "Motives for Takeovers: An Empirical Investigation." Journal of Financial and Quantitative Analysis.
• Elazar Berkovitch, M. P. Narayanan. (1990). "Competition and the Medium of Exchange in Takeovers." Review of Financial Studies.
• Fabozzi, F., & Modigliani, F. (Ed.). (1996). Capital Markets: Institutions and Instruments (2nd Ed.). New Jersey, Simon and Schuster Co..
• Journal of Finance (1995) "Initial Shareholdings and Overbidding in Takeover Contests.”
• PR Newswire (Feb 22, 2001)
• Review of Financial Studies (1991) “A Theory of Acquisition Markets: Mergers versus Tender Offers, and Golden Parachutes.”
• Robert H
• Wall Street Journal (Feb 21, 2001). GlaxoSmithKline’s Pretax Profit Climbs 13% on Rise in Drug Sales. [On-Line]. Available:
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