X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Global Mergers, Local Effects - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Dec 23, 2000

    Global Mergers, Local Effects

    The latest in the series of global pharmaceutical acquisitions took place last week when Knoll AG was acquired by Abbott Inc. This infact would be the 13th acquisition over the last five years that have taken place among the top global pharma majors. What has prompted this global consolidation? What would be the impact of such consolidation on the local domestic companies? How would it impact shareholders of MNC pharma companies?

    The global consolidation has been primarily led by the increasing costs of Research and Development (R&D). It costs anywhere between US$ 240 million to US$ 450 million to discover a new drug. While companies earlier could use price increases to boost bottomlines and there by reduce the pressure on themselves to bring new drugs to the market, customers are getting more and more price conscious. Besides, research efforts did not have to translate naturally into new products as the costs of discovery could be absorbed thanks to healthy profits. That is no longer the case now. With older products constantly under a threat from generics apart from newer, better ways of treatment international companies need to have access to wider portfolio of products apart from a healthy product pipeline.

    Glaxo–Wellcome had justified its merger with SmithKline Beecham on precisely these grounds: (a) a powerful R&D capability combining both companies’ expertise with a budget of approximately US$ 4 billion (b) an enhanced platform to discover and develop new medicines more efficiently (c) an extensive product pipeline with a total of 30 new chemical entities (NCEs) and 19 vaccines in clinical development (phase II/III), of which 13 NCEs and 10 vaccines are in the late stage development (phase III) and (d) a marketing force of 40,000 employees globally including over 7,200 sales representatives in the USA. Even earlier, during the Ciba–Sandoz merger, Ciba gained access to Sandoz’s product pipeline, which it did not have.

    These global mergers imply increasing consolidation in select therapeutic areas in the domestic market. For instance Glaxo–SmithKline will emerge as a market leader in four of five largest therapeutic categories: anti–infectives, central nervous system (CNS) drugs, respiratory and alimentary, a leading position in the vaccines market apart from a strong position in the over the counter medicines. Similarly Novartis (formed from the merger of Ciba and Sandoz) has emerged a strong player in the anti–TB market.

    Acquirer Acquiree Merged Company
    Glaxo Plc. Wellcome Plc. Glaxo–Wellcome
    Hoechst Marion Merrel Dow Hoechst Marion
    Pharmacia Upjohn Pharmacia & Upjohn
    Ciba Sandoz Novartis
    Hoechst Marion Roussel Hoechst Marion Roussel
    Astra Zeneca Astra Zeneca
    Hoechst Marion Roussel Rhone Poulenc Aventis
    Glaxo–Wellcome SmithKline Beecham Glaxo–SmithKline
    Pharmacia & Upjohn Monsanto Pharmacia Corpn.
    Novartis Agro Zeneca Syngenta
    Pfizer Warner Lambert Pfizer
    Abbott Inc. Knoll AG Abbott–Knoll

    It also implies lesser opportunities for Indian companies to enter into alliances with international companies. One reason for this would be that the marketing forces of say a Glaxo–SmithKline combine would give it enough strength to take on a Ranbaxy in the anti–infectives arena. (At present, Glaxo and Ranbaxy have an alliance for the marketing of cephalexin. Whether this arrangement would hold after the merger, remains to be seen.)

    And how would it impact shareholders in MNC companies? While existing shareholders would definitely benefit from a dominant player in its specialised therapeutic area, an unwanted side effect of these mergers is that almost every MNC pharma company has ended up with a 100 percent subsidiary. The takeover of Warner Lambert (known as Parke Davis in India) by Pfizer and the presence of a two parallel 100 percent subsidiaries in India has led to a uncertainty about the prospects of Parke Davis thereby affecting its valuations. Similarly, Knoll already has another vehicle for introducing its products into India viz. its parent’s wholly owned subsidiary. Whether, Abbott, which so far did not have a 100 percent subsidiary, will inherit this, remains to be seen. SmithKline Beecham Asia, a 100 percent subsidiary of SmithKline group is likely to serve as the 100 percent arm of the merged Glaxo–SmithKline. There is an apprehension that new products would be introduced through these wholly owned subsidiaries rather than through the listed company. And since for a pharmaceutical company, anywhere between 25 percent – 40 percent of the turnover accrues from new products introduced over the last three years, it would imply a stagnating topline for the listed companies, a couple of years down the line. The relatively higher valuations that MNC pharma companies have enjoyed over the last 25 years could then be a thing of the past.

     

     

    Equitymaster requests your view! Post a comment on "Global Mergers, Local Effects ". Click here!

      
     

    More Views on News

    Sun Pharma: Bottomline Slips into the Red Amidst Challenging Environment (Quarterly Results Update - Detailed)

    Aug 14, 2017

    A challenging environment and one-time expense pushes Sun Pharma into a loss in the first quarter.

    Lupin: Bigger Challenges or Bigger Margin of Safety? (Quarterly Results Update - Detailed)

    Aug 14, 2017

    GST impact coupled with price erosion in US leads to lower profits for the quarter.

    Dr Reddy's: US Pressure Continues to Haunt (Quarterly Results Update - Detailed)

    Aug 8, 2017

    Profits plunge due to higher raw material costs.

    The Power of 5 Minutes (The 5 Minute Wrapup)

    Jun 16, 2017

    Here's what you can expect from The 5 Minute Wrapup in the coming months and years.

    Biocon: Lower Licensing Income Leads to Muted Growth for the Quarter (Quarterly Results Update - Detailed)

    Jun 23, 2017

    Net Profit lower due to exceptional items in the previous year.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE HEALTHCARE


    Aug 23, 2017 (Close)

    S&P BSE HEALTHCARE 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS