Industry consolidation from 1988 to 2003 increased the market share of the top 10 pharmaceutical companies from 26 per cent to 47 per cent. Historical trend for groups of mergers every five years had broken down, with stricter corporate governance and a change in investors' expectations being the main reasons.
Speaking at the FT Global Pharmaceutical Conference on October 19th, Dr Jonathan de Pass, CEO of Evaluate, said there had been a growing realisation that so-called 'mega-mergers' had failed to live up to expectations.
Such combinations include Sweden's Astra and Britain's Zeneca in 1999's $36 billion (€28.5 billion) merger and 2002's acquisition of Amgen by Immunex for $10 billion. Other mergers, such as 2004's acquisition of Aventis by Sanofi-Sythelabo have yet to really take off.
However Dr de Pass cited the strategic good sense to acquire companies to source their pipeline. Roche, which bought a majority holding in US-based biotech Genentech in 1990 has enjoyed great success as has Johnson and Johnson, which adopted a strategy of smaller, 'bolt-on' acquisitions. He showed that, compared with Pfizer over a five-year period, Johnson & Johnson shareholders have enjoyed significantly better returns.
"I don't see the Pharma industry going the way of other mature industries like automobiles or aerospace," said de Pass.
"When one major product after another loses its patent is not replaced, we could see fragmentation as smaller specialty and biotech companies capture significant market shares. We may also be left with some larger 'troubled' companies with potential law-suits acting as 'poison pills' for takeovers."