Mergers and Acquisitions in the Pharmaceutical Industry

Mergers and Acquisitions in the drug companyceutical IndustryIntroductionMergers be do to expand the business and improve profitability by companies with interchangeable consent. Acquisitions occur when one company rewards over another which may be friendly or hostile. Mergers and Acquisitions (MA) atomic number 18 actively taking place in the pharmaceutical companyceutical and biotech organizations and this social movement is expected to prevail for the next one to cardinal years. The bio-pharma industry is dynamic and is currently changing focus from RD to licensing and give awaysourcing. So before any MA activity a strategy formulation is very(prenominal) essential with emphasis on creating a competitive favour for the business.Mergers and Acquisitions (MA) are generally done with the following motives to exploit economy of eggshell, to eliminate duplicated functions, to pct managerial expertise, synergy, taxation, marketplace power because of decreased competition . MA that are done with reduced competition as motive are socially inconceivable and il wakeless as they lead to monopolistic scenarios. The MA may not be victorful in generating returns if the deal was remnantd with a broad(prenominal) price due to impulsive and enthusiastic deals. MA also leads to variegation which has proved to be beneficial in stabilizing the returns.A conjugation or acquisition is an extremely stressful process for those involved air losses, restructuring, and the imposition of a juvenile incorporated culture and identity do-nothing create uncertainty, anxiety and resentment among a companys employees. (Appelbaum 2000) Companies focus on the legal and financial issues involved with the MA and fail to pay care to the prospicient term effects same corporate identity and communication which greatly influence the employee motivation and productivity.The pharmaceutical industryThe Indian Pharmaceutical domain is currently the largest amongst the developin g nations. There is a worldwide structural trend evolving in pharmaceuticals and Indian companies play a key role in this framework, driven by their superior biotech and drug synthesis skills, high timbre and vertically integrated manufacturing assets, diverseiated business models and significant damage advantages. Companies crosswise the world are reaching out to their counterparts to take mutual advantage of the others core competencies in RD, Manufacturing, Marketing and the niche opportunities offered by the changing globular pharmaceutical environment. (Shukla 2006)The pharmaceutical sector offers an array of growth opportunities. This sector has evermore been dynamic in temperament and the pace of change has never been as rapid as it is now. To adapt to these changing trends, the Indian pharmaceutical and bioengineering companies have evolved distinctive business models to take advantage of their inherent strengths and the Borderless nature of this sector. (Shukla 2006) Environmental factorsThe changing environment in the bio-pharma industry is driving an increase activity of Mergers and acquisitions. In 2008, sales growth of prescribed drugs spherically has reached the utmost rate in since 2001. Along with this slowdown, the pharmaceuticals sector is faced with an increasingly dispute environment resulting from increasing patent expirations, growing generic sales, reducing saucily drug pipelines and stricter regulations. The biotechnology sector also faces increased regulatory challenges as well as shortage of credit.The patents are getting expired and on that point is increased competition for generic drugs. Patients are becoming more sensible and manage their own conditions. The healthcare models are thus changing. With such environmental pressures increasing the companies resort to MA as a tool for corporate growth. MA do not exceed their cost of capital. Still companies go for MA because of some strategies correspondingincreased market strengthconsolidating for cost reductionbroadening geographic coveragepipeline stuffing (Coles 2002) more or less recent MAThe US and atomic number 63an generics companies are scouting for alliances/buyouts at the back end of the chain, which would allow them to offset any manufacturing cost advantage held by companies in the developing markets. The Indian companies are looking at the front-end integration as building a front-end distribution set-up from scratch could take significant succession. (Shukla 2006)There are also entry barriers for companies from the developing countries and acquisitions determine it lenient for these organizations to find a foothold in the developed markets. For instance, at that place is a cultural and language barrier in Europe and Europe is high on the radar of Indian pharmaceutical companies. The sheer heterogeneity of Europe and the fragmented nature of its pharmaceutical market make acquisitions an easy route for entry into this region and the US creation the largest pharmaceutical market in the world will always interest the Indian pharma companies for its sheer size. (Shukla 2006)The acquisitions of RPG Aventis (by Ranbaxy) and Alpharma (by Cadila) in France are clear examples of acquisitions proving to be a give out on the companys profitability and return ratios for several years post acquisition. In several other cases acquisitions by Indian generic companies are gauzy and have been primarily to expand geographical reach while at the same time, shifting production from the acquired units to their cost-effective Indian plants. A a few(prenominal) have been to develop a bouquet of products. Other than Wockhardts acquisition of CP Pharma and Esparma, it has taken at least three years for the other global acquisitions to see break-even.Most of the acquiring companies have to pay greater attention to post merger integration as this is a key for success of an acquisition and Indian companies have to wake up to this fac t. Also, with the increasing stool of acquisitions, target valuations have substantially increased making it harder for Indian companies to fund.In January 2009, Pfizer entered into a merger agreement with Wyeth observed at US$68 billion. The deal is to be financed through a combination of cash, stock and debt. A consortium of banks will provide US$22.5 billion for the MA.In prove 2009, Roche acquired the remaining 44 percent of Genentech shares for an all-cash US$46.8 billion deal. Prior to the deal, Roche embossed US$39 billion through bond sales.In run into 2009, Merck Co. acquired Schering-Plough in a cash-stock deal worth US$41.1 billion. The cash component includes US$9.8 billion from Mercks cash reserves and US$8.5 billion act by JP Morgan Chase. (MA Outlook for pharmaceuticals 2009)If a company was acquired for its RD pipeline and development projects or platform technology, in majority of cases, the acquiring company failed to derive bountiful benefits and most of the projects were later discontinued or terminated. Diversified companies like Roche, JJ, Abbott and Novartis with devices, generics and symptomatic performed better as compared to pure pharmaceutical RD driven company like Pfizer and Merck.Strategies for successful MAThe industrys experience shows that megamergers often do not say the intended synergies, but rather tend to erode shareholder value and create major integration challenges, while not achieving improved new drug pipelines. (Alternatives to mega mergers 2009)Tetenbaum (1999) suggests an alternative set of seven key practices to assist with a successful merger or acquisitionClose involvement of tender Resources managers in the acquisition process they should have a say in whether or not the deal goes ahead.Building organisational capacity by ensuring that close attention is paid to the retention and recruitment of employees during the acquisition.Ensuring that the integration is focused on achieving the desired effect ( for example, cost savings), while at the same time ensuring that the core strengths and competences of the two companies are not damaged by the transition.cautiously managing the integration of the organisations cultures.Completing the acquisition process quickly, since productivity is harmed by the disorganisation and demoralisation that inevitably occur while the change is underway.Communicating effectively with everyone who will be affected by the change. Other authors agree that being truthful, open and forthright during an acquisition is vital in helping employees to care with the transition. (Appelbaum 2000)Developing a clear, standardised integration plan. Tetenbaum cites the example of Cisco Systems, which, like GE Capital, makes large numbers of acquisitions and has been able to learn from its experiences and build up tried-and-tested processes for carrying them out successfully. (Tetenbaum 1999)ConclusionThe companies may be heading towards more megamergers of the scale seen in the recent past or they may move towards littler strategic acquisitions. Deals in the biotechnology sector could increase further as small and mid-size biotechnology companies become increasingly willing to enter into deals at value prices. Large pharmaceutical and biotechnology companies are scouting just about for deals at much lower valuations, and the current trend of MA in generics is one to watch for in the future.Although there are many different opinions on precisely what causes so many mergers and acquisitions to fail, and on how these problems can be avoided, there are certain points that most analysts appear to agree on. It is astray accepted, for instance, that the human factor is a major cause of difficulty in making the integration between two companies work successfully. If the transition is carried out without sensitivity towards the employees who may suffer as a result of it, and without awareness of the vast differences that may exist between corporate cultures, the result is a stressed, unhappy and uncooperative workforce and consequently a drop in productivity.