Pharmaceutical businesses start M&A trend

A recent spate of mergers and acquisitions in the pharmaceuticals industry could be the beginning of a trend towards consolidation amongst Europe's smaller firms.

The sector has seen three deals in five days, beginning on 21st September with the acquisition of the Swiss biotechnology company Serono by Merck of Germany for €10.6bn, and followed the very same day by the sale of fellow German company Altana's drugs division to the unlisted Nycomed of Denmark for €4.5bn. Belgian firm UCB completed the trio four days later the when another German company, Schwartz Pharma, accepted its €4.5bn cash-and-shares offer.

The three deals, of which all the targets were privately-owned, medium-sized specialised pharmaceutical companies, have been influenced by several common factors. Medium-sized pharmaceuticals are increasingly looking to scale up their operations in order to compete with the multinationals who have a steady flow of products in the pipeline, greater distribution networks and more resources for research and development. The German connection is also significant: health reforms in Germany have put added pressure on the domestic market, as government attempts to cut healthcare bills have forced German pharmaceuticals diversify their sales base abroad. Finally, all three acquired companies were family-owned, which can often make the deal process more problematic with many families reluctant to let go of their heritage and reputation.

Nevertheless, analysts have also been careful to point out the differences between the deals and concede that there is likely to be an element of chance in the timing of the transactions. While Altana and Serono both clearly suffered from a shortage of products and were in a weak position having failed to sell at auction, Schwartz Pharma's alliance with UCB is widely accepted as more strategic. Schwartz has a good pipeline of products and its union with UCB will create a company with a turnover of €3.3bn, increasing marketing and distribution capabilities for Schwartz and providing UCB with more late-stage products and increasing its reach in Europe and the States.

Looking to the future, the M&A trend looks likely to continue with further companies tipped to bow to the pressures of consolidation. Danish company Lundbeck is reported to be in talks, and while others such as UK firm Shire Pharmaceuticals stress their ability to remain independent, surviving alone in an increasingly competitive market is becoming more and more difficult.

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