Another week, another mega-merger in the world of big pharmaceutical companies. But the $41bn (£30bn) merger of US-based Merck and Shering-Plough has been dubbed as “boring” by one analyst and dismissed as “not a deal out of strength, but more out of desperation,” by another.
The reason for the deal is simple. The two companies promote one of the top-selling cholesterol lowering drugs, Vytorin, with annual sales of about $5bn. Putting the two together simply means the cost base can be attacked more aggressively.
This deal follows the $68bn Pfizer-Wyeth merger, which was announced in January. The rationale for that deal was more interesting as it provided Pfizer with diversification away from the US primary care market as well as giving it a strong biologic platform, a big position in animal health, and consumer healthcare products.
But, in both cases, these are band-aid solutions. Companies cannot cut costs forever and these deals do not solve the real problem that big pharma faces - business models that are fast becoming extinct due to growing competition from providers of generic drugs, compounded by the slow and costly process of finding new drugs.
Following this wave of American consolidation the big question is whether European pharma is next. European companies face exactly the same problems as their US peers because pharma is a global business - dwindling pipelines of drugs to distribute through giant sales forces. Only last week, Switzerland-based Roche raised its offer for the 44 per cent of US biotech Genentech that it does not own, valuing the deal at almost $46bn. Roche wants to get its hands on Genentech before it releases a major drug.
But, outside of this deal, mega-mergers just don’t make as much sense on the European scene. Many players are still digesting previous acquisitions (Novartis bought Nestle’s eye-care business for $39bn about a year ago), and few companies want to increase exposure to primary care in the US under an Obama administration that is attacking drug prices.
