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The drug formula that didn’t work

Matthew Lynn

Tuesday, 28th October 2008

Matthew Lynn says the mega-mergers that reshaped the global pharmaceutical industry over the past decade have delivered little of what they promised

Even eight years later, it remains the largest merger between two British companies. On 17 January 2000, Sir Richard Sykes, then the head of Glaxo Wellcome, and Jean-Pierre Garnier, the man in charge of SmithKline Beecham, announced they were putting together Britain’s two largest pharmaceuticals companies.

The giant they created had a combined market value of £114 billion. By itself, it controlled 7.3 per cent of the $300 billion global pharmaceuticals industry. It had prescription drug sales of $18 billion, spread across the four corners of the world. In a round of interviews soon afterwards, Sykes heralded the new combination. It would, he argued, become ‘the Microsoft of the pharmaceuticals industry’.

He was far from alone in thinking he’d pulled off a strategic masterstroke. At the turn of the decade, a wave of mega-mergers swept through the drugs industry. AstraZeneca was the merger of Sweden’s Astra and Britain’s Zeneca, itself spun out of ICI earlier in the decade. Hoechst and Rhône-Poulenc came together to form Aventis, which in turn merged with Sanofi. In the US, Pfizer took control of Warner-Lambert and then of Pharmacia. The top five pharmaceuticals companies in the world are all the products of mega-mergers.

It was one of the greatest takeover booms of all time. Of the 20 largest takeovers ever, four were in pharma. Only telecoms has seen more merger activity. Those four top-20 deals had a combined value of $296 billion. Along the way, mergers and acquisitions bankers minted themselves a fortune, while executives boosted their pay to stratospheric levels and amassed millions in stock options.