Mergers and Acquisitions in the Pharmaceutical Industry

The paper sought to establish the implications of merger and acquisitions on innovations in the pharmaceutical industry. It entailed interviews with key participants in the sector. Additionally, the study included numerous personnel that had actively been employed in companies that were deemed to be products of mergers and acquisitions in the industry. Consequently, due to the importance of the research process, the study has been divided into various sections. Despite the fact that each element addresses a unique aspect of the paper, they are independent.

The introduction part involves the identification of the problem statement and how it influences the entire research processes and outcomes of the paper. Background information provides key details about the sector and the improvements that have been witnessed in the sector. Other factors that have been integrated into the introduction phase of the paper include types of business collaborations, aims and objectives, and the research questions that the interview section seeks to answer in the end. Through the literature review section of the paper, the key players in the pharmaceutical industry have been identified. These include Pfizer, Norvatis, Sanofi, Roche, and Merck and Company. Other companies include Johnson & Johnson, GSK, and Gilead. The key technological trends that have been reported in the paper include data analytics, cloud computing, and use of social media by companies in the industry.

According to the research findings, mergers and acquisitions have played a critical role in the advancement of the pharmaceutical sector. Not only have firms been able to enhance their capacity in the research and development departments, but they have also collaborated to improve access to the market. In the process, new products have been developed as well.

Acknowledgments

List of Abbreviations

M&A Mergers and Acquisitions

HMR Hoechst Marion Roussel

GSK GlaxoSmithKline

HGS Human Genome Sciences

EMR Electronic Medical Record

ACOs Accountable Care Organisations

PaaS Platform as a Service

PA Prior Authorisation

ePA Electronic Prior Authorisation

EHR Electronic Health Records

Mergers and Acquisition

CHAPTER 1: INTRODUCTION

Problem Statement

Due to the increased number of mergers and acquisitions (M&A) in the pharmaceutical industry, experts have increasingly focused on the financial implications of these outcomes. As such, extensive research has been conducted to determine the role of technologies in the sector. In addition to the mergers and acquisitions transactions, business entities have also considered varied forms of business partnerships with the aim of consolidating their grips on the market. However, the role of mergers and acquisitions have been deemed to be more prominent compared to other forms of joint ventures in this sector.

Background Information

Businesses are tasked with the responsibility of making strategic decisions to improve their competitiveness. As a result, an assessment of the current performance capabilities should be conducted and coupled with a comparative analysis with other firms in the same sector (Trautwein, 2013). For a company that operates in a highly competitive industry like pharmaceuticals, the decision-makers should consider the influence of the external environment during the establishment of growth policies. If a decision is made to implement a merger and acquisition transactions in any instance, the resolution should be based on a cost-benefit analysis to establish the long-term implications of the decisions that are to be made in any given instance (David, Wolfender & Dias, 2015). The significant effects of such decisions have influenced the extensive participation of key stakeholders as well as the choice of professional service providers to ensure that all major elements are taken into consideration by the affected firms.

Types of Strategic Business Partnerships

Corporations seeking to expand their operations can implement numerous partnerships with other players in the sector. These agreements are usually necessitated by cost reduction as well as the need to enhance the service delivery process (Faulkner, Teerikangas & Joseph, 2012). Consequently, the management should be able to derive maximum benefits from the collaboration through the elimination of key competition as well as the elevation of profit margins (Trautwein, 2013). Based on the individual capabilities of business entities involved in the negotiation process, various types of mergers can be taken into consideration to enhance the returns of business entities. For instance, horizontal strategic approaches are conducted by firms operating in the same business area (Serdar Dinc & Erel, 2013). As such, these corporations may be competitors before deciding to work together due to the underlying benefits to be derived from the union.

On the other hand, vertical alliances are occasioned by collaborations between enterprises in the upstream and downstream positions in the supply chain management. In contrast, intersectional partnerships involve entities that do not have connections in the vertical chain in addition to not operating in the same environment (David, Wolfender & Dias, 2015). Additional examples of strategic alliances include joint ventures and equity alliances. The latter arises through the acquisition of equity shares from another establishment and vice versa. Alternatively, joint ventures, the most common form of collaboration between businesses can be attributed to the decision by two or more companies to join their resources and form a new company (Serdar Dinc & Erel, 2013). The firm takes a new identity despite being a product of a union involving multiple business organisations.

A franchising involves a situation in which a brand name is given to other companies to utilise and sell their products (Faulkner, Teerikangas & Joseph, 2012). This system of operations is more effective if the brand under consideration can provide extensive benefits to other firms, thus they pay for the potential profits (Trautwein, 2013). Under licensing, a company receives payment from another entity to allow others to employ their technology and production processes.

Mergers and Acquisition in the pharmaceuticals are not rare sights as companies identify potential partners and proceed to enter into long-term agreements (Serdar Dinc & Erel, 2013). In fact, the sector is considered to witnessed numerous mergers and acquisitions compared to other sectors of the economy. The higher figures are evident both in the number of firms involved in the mergers as well as the amount of money spent on the acquisition of other businesses in the industry. These decisions are driven by numerous factors in the environment (Serdar Dinc & Erel, 2013). Decision-makers are therefore faced with the challenge of identifying the triggers for changes in the in the pharmaceutical market and implementing the appropriate course of action. Due diligence should be conducted to eliminate the risks that are likely to arise in the mergers.

One factor that is increasingly influencing modifications in the sector is the high cost of research and development (Faulkner, Teerikangas & Joseph, 2012). For an industry that is constantly evolving with the identification of new products, investing in research and development is an effective way of attaining a competitive advantage over other market participants (David, Wolfender & Dias, 2015). However, for establishments that are unable to sustain the high expenses involved in ensuring innovative processes, mergers and acquisitions is an effective way of combining resources and attaining their primary objectives of promoting creativity and innovativeness in the sector (Rafols et al., 2014). Based on these factors, management has to evaluate the performances of their organisations and their long-term objectives before initiating these permanent practices.

Mergers and Acquisition of Firms in the Pharmaceutical Industry

The pharmaceutical industry has been under sharp focus of corporate governance due to the belief that they promote unethical business practices through mergers and acquisitions (Guler & Nerkar, 2012). Moreover, these firms have been accused of using their positions to stifle new entrants into the market in addition to setting prices that cannot be challenged. Mergers and acquisitions in this sector have huge implications on other firms as realignments are necessitated to facilitate sustainability and deal with the numerous challenges that may arise (Wang, Plump & Ringel, 2015). The companies have also been able to influence regulations that govern the sector and consequently minimized competition while setting the stage for participants to increase their profitability to a great extent. Below are examples of the leading firms that have actively participated in mergers and acquisitions in the pharmaceutical industry. The information relates to partnerships between 1995 and 2015, thus covering a 20-year duration. The companies have been listed based on the values of the mergers and acquisitions that they have undertaken in the past. They include Pfizer, Norvatis, Sanofi, Roche, Merck and Co., and J&J. Others are AstraZeneca, GSK, Teva, and Gilead.

Pfizer

Considered to be the leader in the pharmaceutical industry according to revenues, Pfizer has continued to expand its operations. According to analysis, the firm has been a beneficiary of numerous megamergers and acquisitions (Guler & Nerkar, 2012). For instance, Warner-Lambert was acquired by the company in 2000. The total amount for the transaction was equated to $111.8 billion. The transaction was conducted with the aim of controlling the activities of Lipitor. In 2002, following a decision to purchase the full rights of a product, Celebrex (celecoxib), Pfizer bought stock of another company, Pharmacia, to the tune of $60 billion. The acquired business establishment had itself been a product of numerous mergers and acquisitions involving firms such as Upjohn, Searle, and Monsanto. Pfizer, proceeded to purchase Wyeth for $68.0 billion in 2009. Recent acquisitions by the company were conducted in 2015 with the acquisition of Hospira for $15.2 billion and the subsequent Pfizer and Allergan merger reported to have been worth $160.0 billion.

Implications of the Pfizer Mergers and Acquisitions

The acquisition enhanced the capacity of the company to develop new products with additional investments in the research and development department. However, the company’s shareholders have raised concern due to the lower value of shares after the mergers and acquisition process since the number of stockowners sharing the common stock has significantly increased (Wang, Plump & Ringel, 2015). Moreover, Pfizer-Wyeth mega merger was deemed to be beneficial because it provided an opportunity for greater diversification in biologics. Contrastingly, it minimally addressed generics exposure of the firm in the near future.

Year

Company

Type

Value

2001

Warner–Lambert

Acquisition

111.8 billion

2002

Pharmacia

Acquisition

60 billion

2009

Wyeth

Acquisition

68 billion

2015

Hospira

Acquisition

15.2 billion

2015

Allergan

Merger

160 billion

Leading M&A Transactions (Pharma Industry Merger and Acquisition, 2015)

Norvatis

Another company in the pharmaceuticals industry that has significantly been involved in mergers and acquisitions is Norvatis. Having come into existence in 1966 following the merger of Ciba-Geigy and Sandoz Laboratories, the firm has continued with the culture as a mode of expansion. Initially, Ciba-Geigy had been formed through the merger of J. R. Geigy Ltd and CIBA. Norvatis began growing a generic division known as Sandoz and in 2005, the company completed the acquisition of Hexal and Eon Labs to the tune of $8.29 billion. The following year, 2006, Norvatis took full ownership of Chiron Corporation for $5.1 billion. In 2010, the firm spent approximately $39.3 million to facilitate the acquisition of Alcon, then considered to be leading eye-care company in the world. Lastly, in 2012, Norvatis spent $1.5 billion in cash to purchase Fougera Pharmaceuticals (Wang, Plump & Ringel, 2015).

Implications of the Norvatis Mergers and Acquisitions

For Norvatis, the company was able to leapfrog its counterparts in the commercialization phase of operations due to soaring profit margins. In the process the company had sought to rid itself of the American dermatology business and oral treatments division (Wang, Plump & Ringel, 2015). Instead, the main area of focus became gene therapy and neuroscience, thereby granting the company an opportunity to expand its operations portfolio.

Year

Company

Type

Value

1996

Ciba-Geigy and Sandoz Laboratories

Merger

2005

Sandoz

Acquisition

8.29 billion

2006

Chiron Corp.

Acquisition

5.1 billion

2010

Alcon

Acquisition

39.3 billion

2012

Fougera Pharmaceuticals

Acquisition

1.5 billion

Leading M&A Transactions (Pharma Industry Merger and Acquisition, 2015)

Sanofi

Sanofi is a company that was born out of a merger between Sanofi-Synthйlabo and Aventis. The former had itself been formed before the turn of the millennium when Sanofi merged with Synthйlabo. On the other hand, Aventis was formed in the same year as Sanofi through a collaborative merger between two firms, Rhфne-Poulenc S.A. and Hoechst Marion Roussel (HMR) (Evstratov, 2014). On its part, Hoechst Marion Roussel (HMR) was a product of a merger involving Hoechst AG, Cassella, Roussel Uclaf, and Marion Merrell Dow. In 2004, Sanofi-Synthйlabo had acquired Aventis for a sum of $65 billion in 2004. Further merger and acquisition transactions were completed by the company such as the 2010 acquisition of Chattern Inc. for around $1.9 billion. Finally, following the acquisition of Genzyme in 2011 for an amount believed to be about $20.1 billion after which the company changed its name from Sanofi-Aventis to Sanofi.

Implications of the Sanofi Mergers and Acquisitions

The company was able to improve its performance through intensive research and development efforts. In the process of the mergers and acquisitions, the company has also been able to participate in foreign direct investment in nations such as India. Moreover, the activities have also influenced multibillion-dollar deals in the biotech industry with other firms seeking to sustain competition (Wang, Plump & Ringel, 2015). Sanofi has also initiated processes aimed at facilitating the development of new experimental drugs for inflammatory infections.

Year

Company

Type

Value

2004

Aventis

Acquisition

65 billion

2010

Chattern Inc.

Acquisition

1.9 billion

2011

Genzyme

Acquisition

20.1 billion

Leading M&A Transactions (Pharma Industry Merger and Acquisition, 2015)

Roche

Roche announced itself to the merger and acquisition portfolio in the United States pharmaceutical with its acquisition of Syntex Corporation (Evstratov, 2014). The deal, which was the company’s first was completed in 1994. Thereafter, the company engaged in other partnerships key amongst them the merger of Nippon Roche, its Japan subsidiary with Chugai. The partnership which was worth $1.4 billion and completed in 2002 enabled Roche to gain a majority stake in the foreign entity. Subsequent development includes the acquisition of Ventana Medical Systems in 2008 for $3.4 billion and the subsequent mega-deal the following year that involved the Roche acquisition of Genentech for $46.8 billion.

Implications of the Roche Mergers and Acquisitions

With the completion of mergers and acquisitions, Roche was able to increase its market presence. The company has also been able to derive numerous benefits as a result of such changes in the operating framework. For instance, the firm has been able create shareholder value and generate greater economic profit (Wang, Plump & Ringel, 2015). Similarly, Roche has engaged in growth-oriented deals that have changed longer-term expectations of their operations.

Year

Company

Type

Value

1994

Syntex Corporation

Acquisition

5.3 billion

2002

Nippon Roche

Merger

1.4 billion

2008

Ventana Medical Systems

Acquisition

3.4 billion

2009

Genentech

Acquisition

46.8 billion

Leading M&A Transactions (Pharma Industry Merger and Acquisition, 2015)

Merck and Co.

The company has a relatively long history than some of the major mergers and acquisitions in the pharmaceutical industry having initially been established in 1668 by the Merck family. The firm later acquired Medco Containment Services Inc. for $6 billion. Fast forward to 2009 and a merger between Merck and Schering-Plough in a deal estimated to have been worth $41.0 billion. On its part, Schering-Plough had participated in various mergers and acquisitions in the past (Wang, Plump & Ringel, 2015). For instance, it had completed the acquisition of Organon from a company known as Akzo Nobel in 2007 with the transaction determined to have been worth $14.4 billion. On the other hand, Organon was created by the merger between Diosynth and Organon in 2004. The latest transaction by the company has involved Merck’s acquisition of Cubist Pharmaceuticals for $8.4 billion, the latter of which was as a result of a merger of Idenix Pharmaceuticals and Trius Therapeutics.

Implications of the Merck’s Mergers and Acquisitions

Change in the ownership led to better supply chain management capabilities and additional resources geared towards research and development. Over the years, Merck’s focus on mid-size acquisition has also been evident. In the process, the company has been able to obtain four to six major patents that are critical to its success (Wang, Plump & Ringel, 2015). Additionally, Merck increasingly has a better access to the antibiotic market.

Year

Company

Type

Value

1993

Medco Containment Services Inc.

Acquisition

6 billion

2009

Schering-Plough

Merger

41 billion

2014

Cubist Pharmaceuticals

Acquisition

8.4 billion

Leading M&A Transactions (Pharma Industry Merger and Acquisition, 2015)

J&J

J&J has diversified its operations through the establishment of three primary broad divisions. These include Consumer Healthcare, Medical Devices, and Pharmaceuticals. The latter component of the firm’s portfolio is composed of two establishments, namely Janssen & Cilag. Like all the leading corporations in the pharmaceutical sector, J&J has actively participated in various mergers and acquisition to improve its operating efficiency and share risks and costs arising from its activities (Guler & Nerkar, 2012). The firm’s largest acquisition to date involved the purchase of the consumer healthcare business of Pfizer to the tune of $16.6 billion in 2006. Additional merger and acquisition deals have included the $1 billion acquisition of Aragon Pharma in 2013 as well as transactions the following year that involved J&J’s acquisition of BioPharma, Inc. in a deal reported to have been worth $1.75 billion.

Implications of the J&J Mergers and Acquisitions

On its part, J&J will be able to overcome the challenges associated with shareholder wealth through the expansion of its operations to a larger scale. The outcomes have been both advantageous and adverse to the operations of the business entity (Wang, Plump & Ringel, 2015). For instance, the firm market share increased substantially coupled with additional resources tailored towards research and development. On the other hand, there was considerable dilution of shareholder worth.

Year

Company

Type

Value

2006

Pfizer

Acquisition

16.6 billion

2013

Aragon Pharma

Acquisition

1 billion

2014

BioPharma, Inc.

Acquisition

1.75 billion

Leading M&A Transactions (Pharma Industry Merger and Acquisition, 2015)

AstraZeneca

As one of the major players in the pharmaceutical industry, the management of AstraZeneca has initiated various transactions involved mergers and acquisitions of other business organisations in the same sector (Evstratov, 2014). AstraZeneca’s existence resulted from the merger of Astra and Zeneca Group in 1999, leading to the formation of AstraZeneca (AZ). Following multiple acquisitions by AZ, the firm announced its first billion-dollar acquisition in 2004. The transaction involved Cambridge Antibody Technology. Later in 2007, the firm acquired MedImmune for about $15.2 billion. The expansion policy did not end at this phase as the management continued with the aggressive policy of mergers and acquisition. In 2012, AstraZeneca proceeded to complete the acquisition of Ardea Biosciences in a deal worth $1.3 billion. The following year, it purchased Amylin from BMS for $4.3 billion before acquiring ZS Pharma in 2015 for $2.7 billion. The firm has continued with its acquisition strategy as evidenced by the decision to take a 55% majority stake in Acerta in a deal worth $4 billion.

Implications of the AstraZeneca Mergers and Acquisitions

The company improved both the supply chain structure and research and development. AstraZeneca is considered to be one of the major products of successful mergers (Evstratov, 2014). Due to the mergers and acquisitions, the company operates in more than 100 countries and has been able to increase its manufacturing points as a result. Consequently, the company has also developed new commodities including an autoimmune drug that entails a combination of six molecules.

Year

Company

Type

Value

2004

Cambridge Antibody Technology

Acquisition

2007

MedImmune

Acquisition

15.2 billion

2012

Ardea Biosciences

Acquisition

1.3 billion

2013

Amylin

Acquisition

4.3 billion

2015

ZS Pharma

Acquisition

2.7 billion

2015

Acerta

Acquisition

4 billion

Leading M&A Transactions (Pharma Industry Merger and Acquisition, 2015)

GSK

GSK existence can be attributed to multiple mergers and acquisitions involving Glaxo-Wellcome and SmithKline Beecham. Following the merger between Glaxo and Burroughs Wellcome in 1995, a new firm, Glaxo Wellcome was established. On the other hand, SmithKline Beecham was the product of numerous mergers beginning with SmithKline & French merger and Beckman Inc. in 1982 and later on Beecham in 1989 (Evstratov, 2014). In 2000, GSK (GlaxoSmithKline) was formed in 2000 when Glaxo Wellcome and SmithKline Beecham merged their resources and operations. In the subsequent years, GSK acquired other firms including Block Drug, Stiefel Laboratories, and Human Genome Sciences (HGS) for $1.2 billion, $3.6 billion, and $3 billion respectively.

Implications of the GSK Mergers and Acquisitions

GSK has become one of the leading entities in the sector through the adoption of the latest technologies in the process. Moreover, the company has adopted numerous diverging policies in an attempt to recover from poor performances (Serdar Dinc & Erel, 2013). The adverse outcomes can be attributed to inability of the firm to produce blockbuster commodities that could provide adequate returns in the long run.

Year

Company

Type

Value

2001

Block Drug

Acquisition

1.2 billion

2009

Stiefel Laboratories

Acquisition

3.6 billion

2013

Human Genome Sciences (HGS)

Acquisition

3 billion

Leading M&A Transactions (Pharma Industry Merger and Acquisition, 2015)

Teva

The success of Teva has been extended based on mergers and acquisitions (Wang, Plump & Ringel, 2015). Its current can be attributed to the merger between Assia, Zori, and Teva in a deal that was completed in 1976. The firm then consequently completed its first mega-acquisition through the capture of IVAX Corporation in 2006 for $7.4 billion. Teva, in accordance with its expansion strategy, agreed to an acquisition deal with Barr Pharmaceuticals for US$7.5 billion and later on Ratiopharm for US$5 billion in 2010 (Serdar Dinc & Erel, 2013). Some of the latest merger and acquisition transactions by the company have included the acquisition of Cephalon for US$6.8 billion in 2011 and Auspex Pharma for $3.5 billion. The company’s largest acquisition transaction to date was conducted in 2015 involving the acquisition of the generic business of Allergan in a deal worth $40.5 billion.

Implications of the Teva Mergers and Acquisitions

Teva identified numerous product differentiation techniques through the mergers and acquisitions process (Serdar Dinc & Erel, 2013). However, it has experienced massive challenges as well. At some point, the company cut close to 14,000 jobs due to lack of sustainability abilities. In contrast, the firm has launched numerous generic business to compete effectively with other players in the industry.

Year

Company

Type

Value

2006

IVAX Corporation

Acquisition

7.4 billion

Barr Pharmaceuticals

Acquisition

7.5 billion

2010

Ratiopharm

Acquisition

5 billion

2011

Cephalon

Acquisition

6.8 billion

2015

Auspex Pharma

Acquisition

3.5 billion

2015

Allergan

Acquisition

40.5 billion

Leading M&A Transactions (Pharma Industry Merger and Acquisition, 2015)

Gilead

Gilead Science has been involved in more than 15 acquisitions to get to its present position in the pharmaceutical industry. Additionally, the company has also identified potential candidates through an intensive program to ensure that the mergers and acquisitions are not sources of risks and potential business failures to the corporations (Evstratov, 2014). Due to its growing financial and resource capabilities over the years as a result of its expansive program, the firm has been able to complete various dollar billion acquisitions in the process. For instance, in 2009, Gilead acquired CV Therapeutics for $1.4 billion before subsequently entering and completing negotiations with Pharmasset with regards to the latter’s acquisition in a deal worth $10.4 billion two years later.

Implications of the Gilead Mergers and Acquisitions

For Gilead, the advantages arose in the form of better products and increased market shares. The company also benefitted from the availability of additional employees to complete major projects as well (Serdar Dinc & Erel, 2013). The mergers and acquisitions have therefore created a platform for the firm to venture further into bionics and other sustainable innovations.

Year

Company

Type

Value

2009

CV Therapeutics

Acquisition

1.4 billion

2011

Pharmasset

Acquisition

10.4 billion

Leading M&A Transactions (Pharma Industry Merger and Acquisition, 2015)

Research Gaps

Despite extensive research that has been done to establish the benefits of mergers and acquisitions on the business environment, little effort has been placed on the shortcomings that arise from such processes. In fact, in most cases, there is a common assumption that business operations under strategic partnership are more effective than when such activities were under individual firms. However, the outcomes might be different in some instance, hence the need to pay addition attention to such outcomes. Additionally, the emphasis only assesses the positivity that can be derived from key processes at the expense of the overall drawbacks that such collaborative measures expose management to in the long run. Consequently, additional research should be conducted on the sector to establish remedies that should be implemented in the businesses to overcome the challenges that may exist. The courses of actions to be taken must also consider the aims and objectives of the respective business environment.

Another factor that has attracted minimal focus relates to the implications of these mergers and acquisitions on the human resources. Since most of these transactions are conducted with the aim of streamlining operations, most employees are likely to lose their jobs when two or more firms come together and join their operations. Research has hinged on the benefits that the collaboration that the two entities will derive rather than the adverse implications that arise in such circumstances. Additionally, the use of technology eliminates the manual processes that were initially employed by business entities. In the process, people who were initially assigned with the responsibility of accomplishing such tasks may lose their positions in the company. Additionally, restructuring processes occasioned by these changes have also been neglected in the analysis, further creating an expansive gap in research on the topic.

Significance of Study

The importance of studies on the effects of mergers and acquisitions on innovation can be attributed to the increasing number of enterprises that are coming together to improve productivity. Moreover, globalization has also created a platform for companies across the geographical divide to work in conjunction and improve their long-term outcomes (Trau