Mergers rooted in demands of the market
Tuesday 22 August 1995
Using the Upjohn-Pharmacia tie-up as an example, let's examine the argument. Primarily the merger is about cost-cutting - some $500m of it annually. It is also about globalisation and concentration in what remains a highly fragmented industry. Even the mighty Glaxo Wellcome, now the world's largest, has no more than 6 per cent of the global market. Most analysts believe concentration has a long way to go yet. Two factors drive the process: customer pressure on prices and the steadily rising cost of R&D.
With pressure on drug prices increasing across the board, it is generally assumed that only very large companies can sustain the level of spending on research and development necessary to compete across the therapeutic spectrum. The increased cost of pharmaceutical R&D, moreover, is only partially a function of tougher standards and the law of diminishing returns. It is also caused by the fact that the lucky break - discovering a blockbuster product by stumbling across it - is an increasingly rare form of drug development. Targeting an ailment and hunting the right compound for treatment, the method used most commonly these days, is a more costly and exacting process.
What looks like a heady rush of "me too" thinking among the big pharmaceutical companies, therefore, has a relatively respectable backdrop of arguments to support it. The same is true of the other sectors riding the merger wave. All seem to be driven by the familiar themes of globalisation, deregulation, rapidly changing technology and the "more for less" demands of the customer.
Whether any of these mergers individually live up to the claims being made for them is, of course, a different matter. Not everyone in pharmaceuticals is as firm and committed a believer in the need for consolidation as Sir Richard Sykes, chief executive of Glaxo. The board of Wellcome thought it a lot of tosh.
Some managements will not be up to the task and quite a few of the claimed benefits will almost certainly prove illusory. None the less, the present merger boom is on the whole more strategically based and visionary than that of the Eighties, where the predominant theme was financial engineering. It is also firmly rooted in the demands of the marketplace. For these reasons the current wave looks like more than simple management aggrandisement. Unlike most previous merger booms, there might actually be something in it for shareholders too.
Emergency call 'started off dumb, but got pretty serious'
Britain First criticised for using actress's memory to draw attention to their 'hate-filled home page'
Animal welfare charities have urged the boy band to cut the scenes
Thought you'd seen it all after the Jeremy Paxman interview?
Greatest mystery about the hit BBC1 show is how it continues to be made at all, writes Grace Dent
"History is violent," says the US Army tank commander Don "Wardaddy" Collier
Argentinian scored 'rabona' wonder goal for Tottenham in Europa League – see it here
- 1 This 'woman calls police to order pizza' story isn't going where you're expecting
- 2 Watch what happened when food critics were unknowingly served McDonald's
- 3 Jimmy Carr's controversial Oscar Pistorius joke goes a bit too far at the Q Awards
- 4 Ottawa shootings: Bruce MacKinnon's cartoon is the perfect tribute to soldier Nathan Cirillo
- 5 Of course, teenage girls need role models – but not like beauty vlogger Zoella
Isis releases first video showing the stoning of woman accused of committing adultery as her father shouts 'don't call me Dad'
This 'woman calls police to order pizza' story isn't going where you're expecting
FCKH8: YouTube reinstates provocative anti-sexism video showing young girls swearing
Diwali: What is the festival of lights – and how is it celebrated around the world?
Jimmy Carr's controversial Oscar Pistorius joke goes a bit too far at the Q Awards
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Support for EU membership 'at highest level since 1991' with most Brits wanting to stay 'in'
Thousands with degenerative conditions classified as 'fit to work in future' – despite no possibility of improvement
Residents should throw a street party and mix with immigrant neighbours, councils told
Attacks on 'Ukip Calypso' show how skewed people’s priorities are
iJobs Money & Business
£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...
£100 - 125k: Guru Careers: A CTO / Chief Technology Officer is needed to join ...
Competitive (DOE): Guru Careers: A COO / Chief Operating Officer is needed to ...