Dispatches from the Financial Times Global Pharmaceutical and Biotechnology Conference

Pipelines not tax cutting should prompt smaller pharma mergers says AstraZeneca exec

By Dan Stanton

- Last updated on GMT

2014 has seen a lot of M&A activity in the pharma space
2014 has seen a lot of M&A activity in the pharma space

Related tags Pharmaceutical industry Mergers and acquisitions

2014 has seen record pharma M&A activity but top management of some of the key dealmakers – including Novartis, AstraZeneca and Shire – say size doesn’t always matter.

Actavis appears to have beaten Valeant in the race to buy Botox maker Allergan with a $66bn (€53bn) bid that was confirmed late last night​.

If it completes, the Allergan deal will be the biggest merger of a year that has already seen a lot of money – $317bn by the end of June – spent on acquisitions despite AbbVie’s $50bn failed bid for Shire​ and Pfizer’s $120bn offer failing​ to woo AstraZeneca.

Mergers were a topic of discussion at the Financial Times Global Pharmaceutical and Biotechnology Conference 2014 in London yesterday even though Actavis CEO Brent Saunders pulled out of a scheduled presentation.

Shire CEO Flemming Ornskov – who has been “on both ends of the M&A spectrum”​ – spoke about his firm’s $4.2bn acquisition of Viropharma in January​, explaining that the “innovation driven deal” added a drug pipeline that will drive growth.

Smaller deals

Ornskov also predicted further consolidation which he said would be driven by the need for greater scale, efficiency and innovation and powered by the availability of low-interest loans.

Bahija Jallal, head of MedImmune and EVP of parent firm AstraZeneca, agreed there will be more mergers, but said drugmakers keen to refill pipelines should seek smaller deals warning that: “Bigger is not always better as what does it do to the innovation?”

She also warned that deals prompted by efforts to reduce taxes – like Pfizer's failed bid for AstraZeneca - rather to refill pipelines “could impact future R&D and encourage some of the best talents to leave.”

Her views were echoed by Hanno Ronte, a Partner at consultancy group Monitor Deloitte, who added “while scale doesn’t help per se, [megamergers] increase the chance of serendipity and more small bets for the company.”

Precision M&A

Earlier this year,​ Novartis agreed to exchange its vaccine unit with GlaxoSmithKline’s oncology portfolio plus several billion dollars. The Swiss firm also sold its animal health division to Eli Lilly for $5.4bn in deals CEO Joe Jimenez described as “precision M&A​.”

Such dealmaking was essential, Jimenez said in a separate interview, to give the Swiss Giant both innovative power and global scale in a future that will be driven by a growing and aging population and a doubling of healthcare spending in the next ten years.

Positioning itself with three brands - pharma, eyecare and generics – Novartis will now have the competitive advantage over other players in the coming years, he argued.

For example, he said: “With the number two generics business – including biosimilars – we can walk into any healthcare provider and can help lower the costs,”​ while simultaneously being beyond the patent cliff issues suffered over the past few years due to an innovative pipeline pushing through.

With over 400 lawyers currently involved in the GSK and Lilly reshuffles Jimenez said the deals were on track and set to close in the first half of 2015.

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