Mega mergers and acquisitions in the global pharmaceutical industry: Implications for Africa’s health industry (pt.1)

Flexing muscles

Merck and Company’s agreement to sell its consumer-product and non-prescription medicine franchises to Bayer AG for 14.2 billion US dollars (http://www.bayer.com/en/2014-05-06-acquisition-cc-business-merck.aspx) and to sell its eye care products to Japanese drug maker Santen Pharmaceutical Co. Ltd. for at least 600 million US dollars (https://www.merck.com/licensing/our-partnership/santen-partnership.html) are just the latest in a wave of mergers and acquisitions that is reshaping the global pharmaceutical industry. Hot on the heels of these transactions was the major

three-part transaction between GSK and Novartis (http://www.gsk.com/media/press-releases/2014/gsk-announces-major-three-part-transaction-with-novartis.html). Now, hardly before the dust settles, Pfizer has launched and is fighting to sustain an unsolicited 106 billion US dollars bid to buy AstraZeneca.

The pharmaceutical industry mergers and acquisitions
What implications do pharmaceutical company mergers and acquisitions have for health in Africa?

If you have not been privy to the dynamics within the pharmaceutical industry for the last several years, you might think that these acquisitions are unique. They are not. Back in the 1990s, there were a remarkable number of consolidations.For instance, companies such as Rorer, Hoechst, Fisons, Sterling Drug and Rhone-Poulenc were some of the companies that merged to make up part of what is now Sanofi. What is unique this time are the big price tags associated with these mergers and their acute timing of each other.

What are the implications?

These mergers and acquisitions have huge implications to the global economy, the health industry and have indeed raised heated debates around the world on whether they are good or bad. On one hand, these mergers may be inevitable and indeed beneficial to the companies involved. For instance, as individual companies grow bigger, their mainstream sales typically increase to 40 – 60 billion US dollars a year. Against this backdrop of increase sales, individual company’s research and development (R&D) are often not able to generate novel products fast enough to sustain corporate growth targets and acquisitions and mergers are necessitated to fulfill these targets. Additionally, based on economies of scale, these mergers may result in a reduction of the combined R&D and production expenditures thus lowering the prices of the pharmaceutical products in question.  On the other hand,  as they did in the past, mergers may result in job cuts and site closures which may affect the delicate job markets and economies in developed countries hosting these companies.

Where does that leave Africa?

So, how can Africa mitigate against the risk of monopolies posed by these mergers? We propose a win-win situation. African governments should strengthen their commitment to development partners such as the GAVI alliance (www.gavialliance.org). This includes honoring the buy-in agreements between them (African governments) and GAVI whereby, in this instance, governments co-finance vaccination programs even at the nominal cost of 20 US cents a dose. This commitment will enhance coverage of vaccination programs which will increase the demand for the vaccines. With this demand, GAVI can promise to buy a certain number of doses thereby guaranteeing the pharmaceutical company(s) of huge and steady sale volumes on which basis GAVI can negotiate for a price ceiling. This strategy has indeed worked in the case of Pfizer’s pneumonia vaccine Prevnar (https://www.pfizerpro.com/hcp/prevnar13) whereby GAVI has negotiated for a price ceiling of 3.50 US dollars per dose of the vaccine. This is a significant price reduction considering that the vaccine retails at 114 US dollars in the USA.

Therefore, our take is that these waves of mergers and acquisitions in the global pharmaceutical industry call for more prudent and committed leadership in the African continent in matters health.

Similar content:

Why pharma megamergers work – McKinsey & Company

Is the pharma merger frenzy back? – IHS Blog

Are pharma mergers in the public interest?

Disclaimer: This post represents the personal opinions of the writers and does not in any way represent the opinion of any pharmaceutical company, development agency or any other entity.

 

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