Behind The Scenes Of Pharma Mergers And Acquisitions

Sep 01, 2010


Nathan Jessop
Despite the poor economic climate, large-scale mergers and acquisitions in the pharmaceutical industry struck back with a vengeance in 2009. According to KPMG International, the scale of merger and acquisition activity was the highest since 2004.1 Over the period 2004–2009, the total disclosed value of such deals in the pharma sector reached $226.2 billion.1 Prior to 2005, KPMG had estimated the average size of the deals in the pharma industry at $164 million, but for the period 2005–2009, the average size of the deals increased to $430 million.1 One reason for the sudden increase in value was the spate of 'megamergers' by pharmaceutical companies ranked in the top ten (by sales). Of greatest importance were the deals that saw Pfizer take over Wyeth for $68 billion, Merck & Co. acquire Schering-Plough for $41 billion and Roche taking over Genentech for $46.8 billion.2,3 Another important deal by a major pharmaceutical company, Abbott, was the acquisition of Solvay's pharmaceutical business for around $7 billion.3

It is an open secret that many of the major companies have struggled to increase the output of new drugs, and so mergers and acquisitions serve as a quick means to reinvigorate their pipelines. For example, the megamergers by Pfizer, Merck and Roche were clearly designed to strengthen their R&D abilities in the biotech field, which is seen as the future for drug development. In fact, Roche now openly describes itself as the world's largest biotech company,3 and in 2009 it terminated its membership in the Pharmaceutical Research and Manufacturers Association (PhRMA), to join the Biotech Industry Organization (BIO), a major biotech lobbying force.4 Apart from pipelines, companies also feel that economies of scale can be achieved through combining sales forces and marketing teams.3