Healthy Skepticism Library item: 7300
Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.
Publication type: news
European pharma mergers set to continue - S&P
Forbes.com 2006 Oct 11
http://www.forbes.com/markets/feeds/afx/2006/10/11/afx3082029.html
Abstract:
The recent wave of mergers among European pharmaceutical companies is set to continue, Standard & Poor’s believes, driven by strong global sales growth and the race to develop top-selling ‘blockbuster’ drugs.
The recent surge of activity started in July, when Germany’s Bayer AG bought domestic rival Schering AG in a deal worth nearly 16.9 bln eur.
Since then Merck KGaA, which lost out in the battle for Schering, has bought the majority stake in Switzerland’s Serono SA for 16.6 bln sfr, Nycomed acquired the pharmaceutical arm of Altana AG for 4.5 bln eur and Belgium’s UCB swooped on Schwarz Pharma AG, paying 4.4 bln eur.
Standard & Poor’s Olaf Toelke said those deals, among mid-sized companies, mainly reflect concerns about critical size.
‘All the transactions, including the Bayer-Schering link-up, have taken place in a market dominated by the need to fund ever-increasing R&D budgets in the race for the next blockbuster drug,’ the credit analyst wrote.
A key concern for pharma companies at the moment is the productivity of their research and development efforts. The cost of developing a new drug has risen in the last 10 years, as research techniques and compounds have become more complicated, and regulatory requirements more onerous.
Taking into account all the products that never make it to the market, the cost of developing every drug that does reach the shelves is estimated at more than 1 bln usd.
Medium-sized drug makers such as Merck KGaA and Serono, which do not have the huge cash flow of large pharma groups, have been merging so R&D budgets can be increased.
Meanwhile, S&P said that the larger European pharmaceutical companies’ above-industry-average global sales growth and strong cash generation is increasing their flexibility for M&A activities.
Companies including Switzerland’s Roche Holding AG and Britain’s GlaxoSmithKline PLC reported sales growth of about 10 pct in the second quarter of 2006, compared with an average assumed industry growth of about 6-7 pct, they noted.
‘The rated companies should therefore experience a further strengthening of their credit quality on average, in the absence of larger acquisitions,’ Toelke wrote.
