In a Reuters-London interview tonight, Merck CEO Dick Clark candidly admits that most of the rest of pharma has not followed his (and Pfizer's CEO Kindler's) lead -- and why:
. . . .Rival drugmakers are likely to wait and see how this year's mega-mergers turn out before considering another round of big-ticket acquisitions, according to Merck & Co's chief executive.
Richard Clark, whose company agreed to buy Schering Plough. . . said the industry was looking for proof that deals could provide more than just cost savings.
"I would suspect some companies may sit on the side line just to see how well these activities are taking place," Clark told Reuters during a visit to London to unveil a vaccine joint venture with the Wellcome Trust medical charity. . . .Credit Suisse analyst Catherine Arnold said in a report on Thursday that the next wave of deals by major pharmaceutical companies would emphasise revenue augmentation over cost savings.
She also predicted a divergence of activity between U.S. and European drugmakers, given new European chief executives' stated disinterest in large deals. . . .
Clark (surprisingly-candidly) likens these cost-slashings-only (headcount-reduction) mergers to "kicking the can" down the alley: when you later catch up to the can, you have to kick it again, just to stay-even, at the EPS line. His suggestion is that Merck is trying to redesign the way it does research -- so that can-kicking (or, mass-layoffs) will become rarer, in the future.
Color me rather-skeptical about that particular notion.
1 comment:
Interesting turn of events.
Merck's previous CEO Ray Gilmartin eschewed Mega-Deals pointing to the big rounds of Pharma mega-deals such as Glaxo-Smith Kline.
Gilmartin pointed out that these deals typically worked in the short run to boost stock prices and restore lagging pipelines but in general the costs were never recovered. He would point out that deals of these types should only be made if the resultant growth via the merger would be greater than if the companies were left to themselves. He felt focusing on the science and developing new drugs was the way to go. As I've pointed out I believe companies had grown too large for a single or even a couple of blockbusters to maintain the percentage growth that companies need. I also believe that we are running into problems with basic biology so that it is more difficult to come up with drugs that are taken by large population segments that are improvements. Plus for reasons of basic biology the drugs we do come up with have the same serious toxicities over and over. Lastly as illustrated by benoxaprofen debacle with Lilly in 1982 (and widely accepted at the time) when you widely, rapidly, (and directly) market drugs to large population segments you are going to get burned with toxicities especially in people who are dosed or otherwise treated inappropriately.
Getting back to Gilmartin and the current Merck-SP mega deal I think the following article is informative:
http://money.cnn.com/magazines/fortune/fortune_archive/2004/02/23/362212/index.htm
Salmon
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