Use Of Mergers And Acquisitions In Pharmaceutical Organizations Finance Essay

With the turning concerns for the development of a new health care theoretical account, patent termination and regulative complexnesss ; Pharmaceutical organisations have shifted on the way of amalgamations and acquisitions to screen themselves from the effects of the once stated issues. It has been observed that the top direction of a house is ever willing for more acquisitions to maximise the stockholder returns and achieve the corporate degree growing. In mention to the decennary of 1990-2000, wherein the entire volume and value of the amalgamations increased tenfold, merely 17 % of them contributed to the creative activity of a important value for the geting house. In general, each amalgamation should ensue into a stock monetary value grasp of the geting house but as a contrast, two-thirds of the entire figure of geting houses see a autumn in the stock monetary value instantly after a dealing is announced.

The Pharmaceutical companies besides work on the similar rules and chiefly prosecute in the amalgamations and acquisitions to achieve an addition in the market portion, cut down the costs of operations, geographical enlargement and increase the range of the drug grapevine. The alone quality of the industry to spread out across the geographical boundaries licenses and supports the consolidation in the industry. Not merely the companies with patented drugs, but the planetary generics market has besides experienced a growing in footings of the M & A ; As such as:

Teva Pharmaceuticals acquisition of the US generics major IVAX for $ 7.4 bn in 2005 and Sicor for $ 3.4 bn in 2004

Sandoz acquisition of the Hexal & A ; Eon Laboratories in Germany every bit good as Croatia ‘s Lek, Canada ‘s Sabex and Denmark ‘s Durascan in 2004 & A ; 2005

An increasing sum of M & A ; A activities has besides been seen among the Indian Pharmaceutical organisations every bit good including the cross-country amalgamations and acquisitions. It can be exemplified by the recent acquisition of Piramal Healthcare Limited by Abbott Laboratories in May, 2010 for $ 3.7 bn. It helped Abbott to plunder into the Indian market and set up itself as one of the market leader in the generic infinite. There has been a batch of attending being paid by the foreign MNCs to put in India and prosecute at the undermentioned three degrees of integrating:

Back-end Manufacturing operations ( API/Formulations )

Merchandise Integration ( ANDA grapevine )

Front-end activities such as selling and distribution

The US and EU pharmaceutical companies are more interested in the back-end operations to countervail the cost advantages of the developing markets. The Indian companies are looking for integrating at the front-end as it takes a immense sum of capital and clip for the development of the same. The merchandise integrating remains the common country of involvement between the both: the developed every bit good as the developing Indian economic system


The decennary of 1990-2000 has seen some of the major amalgamations and acquisitions which drove the stakeholder outlooks to a sky high. The biggest 1 was the Pfizer ‘s acquisition of Warner Lambert at a astonishing monetary value of $ 87 bn in the summer of June 2000. It was followed by Glaxo Wellcome which acquired Smithkline Beecham at a monetary value of $ 76 bn. These two trades were responsible for the bulk portion ( 55.25 % ) in the entire trade value among the top 10 pharmaceutical trades from 1994-2002.

All the M & A ; A activities during this period were chiefly accomplished to accomplish:

Increased Market Share: Though the trades were done for the intent of achieving an increased per centum of the market portion, merely a smattering of them generated a sustainable hard currency flow.

Decrease of Operational Costss: Among all the concern trades from 1994-2001, Glaxo ( original entity ) was involved in the M & A ; A activity for two times: Wellcome in Jan-95 and SmithKline Beecham in Jan-00. In both the state of affairss, it was able to accomplish significant cost-savings i.e. 1995: 10.8 % with 16.8 % decrease in disbursals ; 2000: 10.5 % with 15.5 % decrease in disbursals ) . Not merely it achieved cost-savings above than the industry norm at that point of clip, it besides increased the market capitalisation by 400 % in the four old ages following the amalgamation

Geographic enlargement: Such activities were aimed at come ining a new geographical country of concern either through a partnership or acquisition of the local company. The acquirer in this instance stands to derive a immense portion of the pie if the procedure of integrating is handled good, the instance in mention being of Astra Zeneca in Dec-98

Pipeline Development: Most of the times, the geting organisation is interested in the grapevine of the company being acquired to countervail its loss in grosss due to the patent termination of its ain set of drugs. This allows the companies to spread out their bing merchandise portfolio and therefore possess the U of net income in non-enriched signifier to be used in the hereafter

Apart from the AstraZeneca and Pfizer/Warner-Lambert, no other merged or acquired entity was observed to execute good. The market portion of all the mega-merger entities was found to diminish in the scope of 3 % ( GlaxoSmithKline ) -39 % ( Aventis ) from 1990-2000

Furthermore, as seen from the period of 1987-2000, all the M & A ; As occurred in three moving ridges that lead to the creative activity of the large pharmaceutical companies, some of which are still bing as the dominant participants in the market e.g. Astra Zeneca

In 2002, Pfizer announced its amalgamation with Pharmacia, its rival company for $ 60 bn which brought back the tendency of extremely valuable M & A ; A activities. The trade was strategically analyzed and was found to assist Pfizer to make at 10 % market portion with expected gross of approximately $ 48 bn. Aside from this, it besides stood to derive assorted of the successful merchandises of Pharmacia such as Celebrex ( arthritis ) , Regaine ( Hair intervention ) and Genotropin ( Growth hormone lack ) .


The period of 2000-2009 was besides important in determining up the planetary pharmaceutical industry. During the 10 old ages ended on Dec 31, 2009 ; a sum of 1,345 amalgamations and acquisitions were carried out with a trade value of $ 694 bn. 2009 alone was the premier twelvemonth accounting for the trades of deserving $ 147.2 bn which includes: $ 68 bn acquisition of Wyeth by Pfizer and amalgamation of Merck with Schering Plough for $ 41 bn.

The amalgamations and acquisitions were chiefly carried out for the interest of dawdling grapevines while others were focused to seek out new geographical countries for net income enlargement. Sometimes, the concern trades are besides driven by assorted 3rd parties such as the jurisprudence houses and investing Bankss to derive big sums of capital in the signifier of consultative fees. Harmonizing to the Wall Street Journal, the drug company M & A ; As generated $ 500 Mn as consultative fees in the 3 month period of 2009. Even at the times of recession, when fiscal sector was in deep problem, assorted investing Bankss were still coining money out of such activities.

The complex market kineticss in the pharmaceutical industry is expected to further drive the M & A ; A activities within the pharmaceutical industry. This can be viewed in mention to the two major trades which took topographic point in 2011: Sanofi-Aventis acquisition of Genzyme for approximately $ 20 bn and Novartis complete amalgamation with Alcon. But as the Chinese adage goes: “ When work forces speak of the hereafter, the Gods laugh. “ , nil can be predicted at this point of clip where the market conditions depend on a battalion of factors and alteration within a individual blink of an eye.