Pharmacia and Upjohn merge

Latest move in global shake-up creates pounds 4.5bn drugs group

The consolidation of the world's pharmaceuticals industry took another leap forward yesterday when Pharmacia of Sweden and Upjohn of the United States announced they were to merge.

The combined group, which will be known as Pharmacia and Upjohn, will become one of the world's largest pharmaceuticals companies, with a turnover of about SKr50bn (pounds 4.5bn).

Shares in both companies had risen sharply in New York and Stockholm on Friday amid increasing speculation that a deal was imminent.

Announcing the merger at a news conference in Stockholm yesterday afternoon, the two companies seemed to signal further acquisitions when they said the merged group would be one of the most debt-free companies in the industry and therefore able to take advantage of further growth opportunities.

The combined corporate headquarters will be based in London and will have listings on the Stock Exchange in London, New York and Stockholm. The merger, which is on a 50-50 basis, is expected to be completed by November.

The announcement comes just two days after Rhone-Poulenc Rorer, the US drugs subsidiary of the French chemicals group Rhone-Poulenc, launched a pounds 1.7bn hostile bid for Fisons, the UK pharmaceuticals group. Fisons has rejected the offer and will this week step up the search for a rescue bidder. So far the list of potential white knights includes Glaxo-Wellcome, Zeneca, Astra of Sweden and Schering-Plough of the United States.

A spokesman for Fisons said yesterday that "several parties have already been on the phone", but that no discussions about possible rescue bids were yet scheduled to take place.

The Pharmacia-Upjohn merger brings together two powerful groups of roughly equal size. Pharmacia is a niche drugs group specialising in drugs for growth hormones, cataract surgery and smoking. It made profits of SKr5.32bn (pounds 475m) last year on sales of SKr26.5bn (pounds 2.4bn). It was privatised last year and has said it was keen to enhance its position in the US.

Upjohn's portfolio include Halcion sleeping tablets, Rogaine baldness treatment and a new anti-impotence drug called Caverject.

However, profits fell to $489m (pounds 326m) last year on sales which were down to $3.3bn (pounds 2.2bn) after the loss of important drugs patents. Four of its top drugs, generating sales of $1bn (pounds 666m) between them, have lost US patent protection in the last three years.

Rogaine was refused a licence by the American Food and Drug Administration, and Freedox, which is a treatment to help stroke and head injury victims recover, had its trials halted after safety problems.

These delays left Upjohn with a large hole in its development pipeline which may have prompted the Upjohn family, which still holds a significant stake in the company, to seek a merger.

Pharmacia said that its two main shareholders, Volvo, the car manufacturer, and the Swedish state, have both given the go ahead for the merger. Volvo has been keen to sell its stake in Pharmacia as part of a disposal programme of non-core businesses.

Volvo will exchange its 27.5 per cent stake in Pharmacia for a 13.8 per scent holding in the enlarged group. Shareholders in Upjohn will receive 1.45 new shares for every existing share.

There will also be significant scope for cost-cutting. The two companies estimate that the merger could save Skr3.5bn (pounds 312m) in costs. However, expenditure on research and development would still exceed SKr7bn (pounds 636m).

The deal is the latest in a flurry of take-overs and mergers in the world's pharmaceuticals market, which is still seen as a fragmented industry. Rhone Poulenc's pounds 1.7bn bid for Fisons may go through if no rescue bidder can be found.

Glaxo absorbed Wellcome in a pounds 9bn deal in January that created the world's largest drugs company. Zeneca, the UK drugs group, has been cited as both a potential bidder and bid target.