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Pfizer & Wyeth: opening the door for Big Pharma M&A

Posted on 20 February 2009

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Pfizer's $68 billion move to acquire Wyeth has paved the way for further strategic realignments in the industry, as companies prepare for a raft of blockbuster patent expiries. In the wake of Pfizer's deal, Sanofi-Aventis has begun negotiations with banks in preparation for its own M&A activity while GlaxoSmithKline, still staying clear of mega-mergers, is making another round of job cuts.

The threat of patent expiries for some of its biggest brands has long loomed over Big Pharma. Many companies began preparing for this significant threat to their long-term prospects by instigating major cost-cutting plans. Although these measures have helped to buoy operating profit forecasts, top-line sales growth is still expected to plummet and, in the worst cases, turn negative. As some of its biggest brands - including multi-blockbuster Lipitor - are to be exposed to generic competition by 2013, Pfizer has turned to M&A, launching a $68 billion bid to buy Wyeth.

With Pfizer having made its move, more large-scale mergers are expected to follow. According to the Financial Times, Sanofi-Aventis, the world's third biggest pharmaceutical player by 2008 prescription sales, has opened talks with banks, paving the way for acquisitions intended to grow and diversify the business.

GlaxoSmithKline, whose exposure to patent expiries is almost as concerning as Pfizer's, arguably needs to boost top-line sales even more than Sanofi-Aventis. However, its CEO, Andrew Witty, has ruled out mega-mergers in much the same way as Pfizer's CEO Jeffrey Kindler did in 2008, claiming that they are 'traps' which cause too much disruption. Instead, according to The London Times, the company is planning another round of major job cuts, on top of its recent moves to expand its presence in emerging markets through smaller acquisitions.

Moreover, Roche has taken another step towards acquiring Genentech: having been frustrated in its negotiations with the board it has gone straight to investors, albeit at a lower price, suggesting the saga is yet to run its course. Nevertheless, as Big Pharma looks to capitalize on its relative financial strength in the wake of the credit crisis, further deals seem likely.

Speculation now turns to which companies will be targeted, with Bristol-Myers Squibb, Schering-Plough, Amgen and Biogen Idec often cited. One thing is clear, however: the wave of consolidation sweeping over the pharmaceutical industry in 2009 could significantly alter the landscape, further concentrating sales among a few key dominant players. Whether such deals will indeed succeed in bolstering long-term growth, or if Mr Witty's aversion to such large-scale deals is well placed, remains to be seen.

Source: Datamonitor


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