Pharma Mergers Will Be More Defensive Going Forward, Abbott CEO Says
This article was originally published in The Pink Sheet Daily
Executive Summary
Investor wariness on the economic benefit of acquisitions will slow consolidation in the industry, White tells The Economist Pharmaceutical Roundtable. Sanofi-Aventis expects that any further consolidation will result from weakness.
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Pharmaceutical mergers will not be used to drive growth going forward, Abbott CEO Miles White predicted Nov. 18. Industry consolidation will slow as investors become more wary of the economics of acquisitions, White said at The Economist Pharmaceutical Roundtable in Philadelphia. "I don't see the likelihood of a lot of consolidation. There may be a spot merger here or there," White said. "Investors look at some of the mergers that have occurred...and because of the premiums paid and so forth, or the current lack of economic benefit, they say, 'you know the return on invested capital appears to be very low and share price never really did much; it doesn't appear to be economically worth it." "Many investors are telling us, 'we don't pay you for size; we pay you for how you get there,'" White said. Mylan's proposed acquisition of King has came under heavy attack by investors (1 (Also see "Altace Patent Suit Cited By Icahn In Latest Missive Against Mylan/King Merger" - Pink Sheet, 1 Nov, 2004.)). The level of consolidation in the pharmaceutical industry is likely to remain low as long as companies remain somewhat strong, White said. "You may see [mergers] if the industry were dramatically, negatively harmed, impacted in a permanent way. I don't see that happening." The Abbott exec acknowledged the recent slowdown in the number of new molecular entities coming to the market, but added "there's some great science going on in our industry, some fabulous science that has some great promise." "I don't think industry is somehow going to implode into two or three global companies of monolithic size. That's unlikely," White said. "Real investors, I don't believe, see that as a great long-term strategy." Sanofi-Aventis Head of Integrated Healthcare Markets Hugh O'Neil agreed that industry consolidation will be slow in the coming years. However, "any consolidation that will continue will continue as the result of potential falter or weakness," O'Neil said the previous day. "I think it will be more out of survival." "Can people truly recover from taking a blow to the side from a large product being withdrawn and the potential scrutiny around that?" O'Neil asked with a thinly veiled reference to Merck. Merck executives were called before Congress to testify about the withdrawal of the COX-2 inhibitor Vioxx Nov. 18 (2 (Also see "Merck Defended By Sen. Hatch During Vioxx Hearing" - Pink Sheet, 18 Nov, 2004.)). Roche plans to seek partners for several of its pipeline products (see 3 (Also see "Roche Begins Search For Partner On Pipeline Products" - Pink Sheet, 19 Nov, 2004.) ). - Adam Eckstein |