Company Analysis - Mergers & Acquisitions
Response to the changing business environment
Key industry players have responded swiftly to the changing environment. Pfizer, for instance, has recently adapted its business model and is refocusing on what it believes to be its strongest assets. The company plans to maximise the revenue of its key blockbusters that have lost, or are about to lose, patent protection, by actively pursuing further improvements, reformulations and potential new indications in niche areas and key emerging markets, where it sees huge untapped potential. In a recent meeting, Jeff Kindler, chief executive of Pfizer, outlined the major development plans the company has in mind. He laid out plans for a more streamlined company, with reduced costs everywhere except from the R&D budget. He also said Pfizer would home in on the company’s greatest asset - the science underlying drug discovery and development. In 2007, Pfizer agreed partnerships for 7 clinical candidates, including 4 biologicals.
Pfizer has also learnt important lessons from previous megadeals, such as the mergers with Warner-Lambert and Pharmacia. The latter deal, for example, was not entirely successful - celecoxib (Celebrex) sales were hit by the Vioxx fallout, and the follow-on drug valdecoxib (Bextra) was withdrawn in several major markets. Jeff Kindler has now specifically ruled out another major M&A deal of this size due to the risk, disruption and costs that go hand-in-hand with such an enormous undertaking, and now aims to restructure and streamline Pfizer to competitive and manageable levels. As part of this new and improved business model, Pfizer aims to have 24-28 Phase III drugs by the end of 2009, roughly doubling its current pipeline of 12 Phase III drugs (Table 1).
In June 2006, Bayer bought Schering at a cost of US$27bn, fighting off interest from another major player, Merck, in a bid to become a global heavyweight. Following a smooth integration process, Bayer saw significant results within a year, with an increase in sales of 12%, and operating profit of 21% in 2007. The merged company is now aiming for a top 10 position as a pharmaceutical company with a significant biological arm. Bayer has also recently carried out a pipeline review, dropping 20 projects in a ‘ruthless prioritization and identification of those areas and projects with strategic fit and high quality’, whilst keeping an eye out for valuable partnership deals to boost and maintain the strength of its pipeline. Bayer has also set itself a stiff target to meet, expecting to deliver 10 high-potential drug candidates per year by 2010.
A clear indicator of how the extent to which megadeal action is slowing down is that the only potential major acquisition in the rumour mill is a possible purchase of Shire. Despite avoiding massive acquisitions, and further mergers of pharmaceutical giants, companies are still seeking up-andcoming drugs to add to their pipelines. As a result, Shire is attracting a great deal of interest as a bid target, with its collection of recently launched drugs. Our data for Shire’s pipeline (Graph 2) shows a strong presence of launched drugs, as well as a robust clinical pipeline with potential for future successful launches.
