Merger Mania

Merger Mania has gripped hold of the pharmaceutical industry – in the last several weeks alone multi-billion deals have been announced that involve several of the largest pharmaceutical firms in the world. Eli Lilly, GlaxoSmithKline, and Novartis were recently involved in a 3-company swap in late April where these firms swapped divisions to one another to emphasize areas of strength and to divest areas in which they are not as strong and established. Pfizer is currently wrestling with the Board of Astra-Zeneca over an acquisition bid that has recently been elevated to $106 billion USD. The Board rejected the most recent bid within a few hours of receiving it. Just this morning, Bayer announced a deal with Merck worth over $14 billion.

So what does this mean for the Big Pharma industry?

Consolidation and streamlining in the pharmaceutical industry will lead to a more concentrated focus in the firms that are involved in the industry. This focus will generate greater upside if the specific businesses are booming, but also exposes the firm to more downside risk. From the consumer side, this means that a greater majority of goods will be related to a certain field (pet medicine at Eli Lilly, for example), and that there is the very real possibility of fewer choices. One last question, however, is what this means for R&D spending in Big Pharma?

R&D spending is the lifeblood of drug development and testing, but if the largest firms in the industry are merging and divesting, what happens to the R&D pipelines?

Happy Reading!

http://www.usatoday.com/story/money/business/2014/04/22/glaxosmithkline-novartis-units/7995529/

http://www.reuters.com/article/2014/05/06/us-merck-co-bayer-idUSBREA450BL20140506

http://www.nytimes.com/2014/05/06/business/pfizer-profit-tumbles-15.html?_r=0