The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Banking

Breakingviews: Where drugs fail, M&A might prove a healthy course

Source: www.breakingviews.comis Europe's leading financial commentary service Sanofi's attempted e48 billion takeover of Aventis is just the latest in a string of merger moves in the drugs sector over the past decade. To get an idea of the scale of the activity, consider that the market share of the top 10 companies has risen from 25% in 1988 to around 50% today. And there is much further to go, as pill-making is still a highly fragmented activity compared with other sectors of the economy.

Furthermore, mergers would appear to make sense for financial reasons. Drugs companies have high fixed costs. GlaxoSmithKline, for example, has over 100 manufacturing sites and a sales force of 8,000 – a figure typical for a company of its size. Combine two big firms and one can eliminate many factories and multiple salesmen calling on the same doctors.

But while mergers might appear sensible on financial grounds, their ability to create wealth is unproven. Over the short run, it is clear they can boost earnings as costs are cut. But pharmaceutical companies live and die over the longer run by developing new drugs. And there is no evidence that combining firms increases research productivity.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree