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No easy wins in pharma

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As we go to press, the Pfizer-AstraZeneca deal is called off for now but that story is far from over. Both parties have retreated to their corners of the boxing ring so its time to mull over the learnings from this latest episode of M&As in the pharma world.

Why did the British drug maker rebuff Pfizer’s overtures? National pride combined with a dogged determination of its own worth, or rather the strength of its pipeline. Groups within UK and Sweden also raised objections over concerns that the merger was motivated purely by tax benefits. Even though the Pfizer chief executive officer Ian Read promised that UK would be the base for at least a fifth of its global R&D team for a minimum of five years, there was no doubt that some drug development programmes would be wound up and production facilities shut down as the merger was all about increasing efficiencies.

Read’s statement said his company “will continue our focus on the execution of our plans, bringing forth new treatments to meet patients’ needs and remaining responsible stewards of our shareholders’ capital.” Pfizer’s strategic review of its operations has seen the division of its operations into three main areas and a recent Datamonitor report analysed how the merger with AstraZeneca would shore up all three divisions. His statement implies that the US company will continue with its break-up plans. AstraZeneca too has refocused on certain pivotal therapy areas as key products go off patent. With its shares taking a beating after its US suitor walked off, the Anglo-Swedish company will be under even more pressure to vindicate its stance.

The Pfizer chief claimed that the proposed merger got the thumbs up from shareholders of AstraZeneca and blamed UK’s takeover code and drug pricing norms for what he called a “lost opportunity”. One sentence stood out in recent media reports. Read has been quoted as saying, “It is inconsistent to me [for the] Government to wish to have a vibrant science centre and vibrant investment in clinical research, and yet not to have big market incentives.”

Does that sound familiar? It’s the same argument (the tone if not the actual words) that MNC pharma has used to criticise the Indian government’s stand on IPR!

And it is ironic that Sun Pharma faced opposition to its plans to take over Ranbaxy from the very stakeholders that were cheering on its MNC counterpart in the UK. India’s market regulator SEBI is investigating charges of investor trading by Sun Pharma subsidiaries while two investors filed a complaint on the same issue in the Andhra Pradesh High Court. The HC has since disposed of this case and the merger is free to proceed to the next stage, but the company will still have to deal with SEBI’s investigation.

Both deals faced a backlash as the companies were not perceived to be as transparent as possible with all stakeholder groups, ranging from regulators to shareholders. Managements mulling such mergers will have to be careful to explain how such deals will not just make more profits and improve the bottomline but also meet patients’ needs. Their explanation of better efficiencies leading to more chances of getting better productivity out of research programmes will have to convince all stakeholders, not just shareholders that such deals are in everybody’s interest.

The Sun Pharma-Ranbaxy merger is also seeing sceptics point out that the former may have just bitten off more than it can chew. US FDA import bans eroded the Ranbaxy brand enough for Daichii-Sankyo deciding to cut its losses but with Sun Pharma itself facing the same kind of fire, will the ‘Turnover Tsar’ succeed in scripting another win? Express Pharma analyses the impact of such mergers on the pharma sector in India, with a special focus on service providers. (M&A frenzy in pharma: Here to stay?, page 30).

The cover story this issue is timed with World Environment Day (A step towards renewable resources, page 22). The section is our effort to highlight the need to turn ‘green’ by harnessing renewable energy sources like solar power. Just a handful of savvy players seem to have seen the writing on the wall but we sincerely hope that their tribe increases. This is one bandwagon that is seems to be worth jumping on.

Viveka Roychowdhury
Editor

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