Many pharma watchers assume that the Pfizer-Wyeth deal, along with a successful takeover of Genentech by Roche, will trigger
industry-wide defensive—or desperate—consolidations. "If Pfizer-Wyeth becomes a reality, we enter a new realm of 'Super-Mega-Global'
pharmaceutical giants," says Larry Rothman, a former Capgemini/Ernst & Young partner who blogs at
http://Pharmservices.com/: "This may force other merely mega-globals into a merger frenzy...in an industry known for follow-the-leader mentality."
Spot-the-merger-target is a perennial parlor game of analysts, but the fun has suddenly turned serious. "Just like with the
sales-force arms race, everyone has been waiting to see what Pfizer would do," says Simon King. "This could mark a defining
moment in the industry, a new split where some big pharmas will follow Pfizer and others will abstain from huge M&As."
Peter Young agrees. "The rest of the industry is in a panic—they don't want to be dwarfed by Pfizer," he says. "This could
be seen as an alarm about how serious Pfizer's troubles are. Or it could be a setback—turning the clock back to the bigger-is-better
And why not? Almost every drug giant has its own strain of expiring-blockbuster disease—and shareholders agitating for profits.
Patent loss can't be cured by buying growth, but it can be put into remission. "Aggressive M&A, including consolidation, may
be the only effective solution for some companies," says Barbara Ryan. "Merck is the most likely acquirer, while BMS and Schering
are most likely to be acquired."
No big pharma has resisted big M&A more than Merck. Its last pharma merger took place in 1953, with Sharp & Dome. Yet between
the Vioxx flap and the flop of several potential late-stage breakthroughs, this decade has been Merck's toughest. By 2012,
its two top products, Cozaar/Hyzaar and Singulair, will go generic, taking 40 percent of the firm's 2008 revenues with them.
Talk of a Merck megamerger started during the industry's previous outbreak of consolidation, which gave rise to Novartis,
AstraZeneca, GSK, and Sanofi-Aventis, and included Pfizer's acquisitions of Warner-Lambert and Pharmacia. Ever since, S-P
has been seen as the obvious takeover target, partly due to the two companies' Vytorin and Zetia joint venture.
Bristol-Myers Squibb has also emerged as a favorite—of just about everyone. Under the leadership of James Cornelius, a master
at starting bidding battles over his companies, BMS has emerged as a fashionable biotech-pharma hybrid. Its joint ventures
with Sanofi (for bloodthinner Plavix and anti-hypertensive Avapro) and Pfizer (for bloodthinner-to-be apixaban) had the makings
of a tug of war until Pfizer went with Wyeth. Could Merck and Sanofi be preparing to duel over BMS? Merck CEO Richard Clark
recently gave a nod toward megamergers, but Sanofi's new head, Christopher Viehbacher, has officially nixed anything bigger
than a Biogen Idec–sized company. Of course, as Kindler showed, dismissing, if not denying, any interest in megamergers is
the pharma CEO default position. (See "Will They or Won't They?" page 44.)
Yet as the overwhelming skepticism greeting the Pfizer-Wyeth deal suggests, size may offer many costs and few benefits. Can
five or even 10 Pfizer–cum–Wyeth small business units really attain, let alone sustain, sales above $60, $70, and $80 billion?
"It my be systemically impossible to succeed at that level," says Datamonitor's Simon King. "Every aspect of the process,
from discovering new compounds to demonstrating their value, gets more complicated and more expensive every day."
On January 26, when Pfizer was stealing the headlines, Glaxo CEO Andrew Witty announced a deal of his own: $667 million for
a slew of UCB drug rights in Latin America, Asia, Africa, and the Middle East. When Witty took over last year, he planned
to "diversify and de-risk"—by strengthening GSK's consumer health and vaccine lines and intensifying its global penetration.
Under previous management, says King, Glaxo would have been the first to follow Pfizer into Super-Mega-Global Land, but Witty
appears to have his own agenda. "The younger CEOs have a different mentality," King says.
Is the industry itself big enough to sustain a Big Pharma and a Bigger Pharma? Only time will tell. "The brutally simple
problem is innovation," says Harvard Business School's Gary Pisano. "To add value, you have to find a way of making good drugs.
Every other strategy is a sideshow."
The return of megamergers may mark the return of the elixir of innovation to Pfizer and an industry in deep need of it. Few
longtime pharma watchers think so. Still, it's way too soon to write off Jeffrey Kindler's fateful gambit. "The spirit of
small, the power of scale" may prove to be something more than the epitaph to his career.
—RESEARCH ASSISTANCE BY CASSANDRA BLOHOWIAK
Will They or Won't They?
After news of the merger broke, CEOs of rival firms were asked if a large M&A is in their cards.
Richard Clark, CEO of Merck, Feb. 4: "I wouldn't rule anything out. There are opportunities across the whole spectrum that we look at."
Chris Viehbacher, CEO of Sanofi-Aventis, Feb. 11: "I am not very hot for big deals, but you can never say never."
Daniel Vasella, CEO of Novartis, Jan. 30: "I don't anticipate a transformational transaction. Our strategy is to look at smaller acquisitions
that fit our existing business."
Severin Schwan, CEO of Roche, Feb. 4: "We are not interested in megamergers. We want to continue with smaller and medium-sized acquisitions."
David Brennan, CEO of AstraZeneca, Jan. 29: "Our acquisition strategy is unchanged. We don't need a big merger to cut costs and realize
John Lechleiter, CEO of Eli Lilly, Jan. 29: "We do not believe these large combinations have sustained value. Consolidation is obviously
happening. If we see a small or mid-cap opportunity, we'll go for it."
Andrew Witty, CEO of GlaxoSmith-Kline, Feb. 5: "There is no way we will be distracted by large-scale M&A going on in the sector.... You
will see us make acquisitions—small- to medium-sized, not a megamerger."
James Cornelius, CEO of Bristol-Myers Squibb, Jan. 27: "We're in shopping mode, we're in strategy mode. We're becoming leaner, more agile
and better able to execute our strategy."
SOURCES: BLOOMBERG; REUTERS; THE NEW YORK TIMES; THE WALL STREET JOURNAL; SEEKINGALPHA.COM/