Frenetic activity won't fix the pharmaceutical industry's problems

 

Outlook The pharmaceutical sector is creating more excitement in the world's financial centres than the opening of a warehouse full of free Viagra in a retirement community.

That drug's American maker, Pfizer, is said to have played footsie with AstraZeneca over the possibility of a blockbuster bid. At the same time European rivals Glaxo and Novartis are hoping to cure what ails them by playing a game of billion-dollar swapsies.

Both appear to make sense, at least on the face of it.

It's not warehouses full of its signature drug that Pfizer needs to dispose of so much as it is the warehouses full of cash that the company has stashed overseas.

Spending that money outside the US is logical because of the cut Uncle Sam would take were it to flow back home. Hence the news of an approach to Astra. It helps that some analysts feel Astra is a prime target on account of its being under-valued by European investors, who, let's face it, are probably feeling more than a little bruised by the company's hugely disappointing recent history combined with the prospect of five years of falling revenues.

Astra's shareholders might be very interested in hearing what Pfizer has to say. But what about Pfizer's shareholders? Their company's market capitalisation is now less than the amount of their money it used to pay for three previous mega-deals. Blockbuster drugs might generate shareholder value but, as a rule, blockbuster deals don't.

Which brings us to Glaxo and Novartis. Bribery allegations have left the former, once the bluest of blue chips, looking a bit grey of late. Promising shareholders a $4bn (£2.37bn) bung as a result of it shaking its portfolio up should at least stop them from fretting too much in the short term.

So Glaxo is selling its subscale cancer drugs business to Norvartis for what looks like a tasty price. The latter, meanwhile, is sending its vaccines business (minus 'flu) in the opposite direction, while the two are combining their consumer-products operations with Glaxo in the driving seat. Glaxo also gets a transfer fee as a result of the swap, some of which is earmarked for the shareholder largesse I mentioned. Phew!

This is about both focusing on what they're really good at, an eminently sensible strategy, and both could ultimately emerge as winners from the deal.

But none of this frenetic activity fixes the industry's core problems. They are its continuing struggles to replace one-time blockbuster drugs whose patents are expiring with similarly lucrative new treatments combined with the harsh spotlight that is being shone on industry practices.

All this pharma M&A could easily be compared to Tamiflu, the controversial 'flu drug made by Roche: It only treats symptoms, and even its effectiveness against them is questionable. Plus it's expensive, and there are side effects that can make the patient feel worse than the illness.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

Aren’t you glad you didn’t say that? The worst wince-and-look-away quotes of the year

Aren’t you glad you didn’t say that?

The worst wince-and-look-away quotes of the year
Hollande's vanity project is on a high-speed track to the middle of nowhere

Vanity project on a high-speed track to nowhere

France’s TGV network has become mired in controversy
Sports Quiz of the Year

Sports Quiz of the Year

So, how closely were you paying attention during 2014?
Alexander Armstrong on insulting Mary Berry, his love of 'Bargain Hunt', and life as a llama farmer

Alexander Armstrong on insulting Mary Berry and his love of 'Bargain Hunt'

From Armstrong and Miller to Pointless
Sanchez helps Gunners hold on after Giroud's moment of madness

Sanchez helps Gunners hold on

Olivier Giroud's moment of madness nearly costs them
A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect