A question of strategy

The formation of a partnership, whether personal or professional, is risky business. Usually, a partnership is entered into by two parties seeking to benefit from the collaboration in some way, and it is only with time, dedication, common interests and hard work that a partnership is likely to succeed. When you're talking about a partnership between multibillion dollar firms, the stakes couldn't really get much higher.

Fedra Pavlou

We have only just reached the end of Q1 for 2009 and already this year will probably go down in corporate and pharmaceutical history as the year of the mega mergers. Pfizer started in January by announcing its intentions to acquire Wyeth for $68.1 billion (€52.8 billion). This was followed some weeks later by Merck's surprise announcement that it was to acquire ScheringPlough for just over $40 billion (€31 billion. Then, Roche agreed to buy the remaining 44% of shares in US biotech giant Genentech.

Imminent patent expirations, dry late-stage pipelines, market withdrawals, highprofile lawsuits and the economic downturn have all affected the majority of Big Pharma, but is this wave of acquisitions a sign of strategic brilliance or sheer desperation? And should all Big Pharmas be considering similar acquisitions simply to survive?

On the face of it, each of these acquisitions makes good financial and strategic sense. Pfizer's purchase of Wyeth will create one of the most diversified companies in the global healthcare industry, with no drug expected to account for more than 10% of the combined entity's revenues by 2012. In ScheringPlough, Merck will not only double its pipeline of late-stage compounds, but could also save the company approximately $6 billion (€4.7 billion) annually after 2011.

Genentech, conversely, has been spurning the advances of Roche since last summer, but it seems that every company has its price and Genentech settled on $95 (€73.6) per share, allowing Roche to purchase the remaining 44% of the firm. This widely anticipated deal will see Roche gain maximum exposure to the fastest growing section of the global pharmaceuticals market — biotechnology and cancer medicine. The world's largest biotechnology company, Genentech, has been majorityowned by Roche since 1990 and, during this time, Genentech has developed some blockbuster brands that have been the envy of the industry. It will be interesting to see how this outright acquisition will alter Genentech's culture of innovation. Time will tell.

One thing that is certain, I don't think 2009 has seen the last of the pharma powerhouse mega mergers, which begs the question: who's next?