This is for those who did not know much about the topic of pharmaceutical acquisitions shared in class yesterday.
According to the article, pharmaceutical companies strategy for growth revolves around acquisitions because "productivity for them, while improving, is not improving fast enough."
"Some drug makers regard deal-making as a normal course of business. Allergan’s pursuer is Valeant, a Canadian pharmaceutical company whose growth strategy revolves around acquisitions. On Tuesday, it unveiled its unsolicited takeover bid for Allergan, hoping to create a powerhouse maker of eye-care and cosmetic treatments like Botox.
Based outside Montreal, Valeant has sought to become a major specialty drug maker over the last six years by buying up businesses that are hard to replicate. Its biggest deal to date was last year’stakeover of Bausch & Lomb, the eye-care specialist, for $8.7 billion. Still, it has had its eye on bigger game, first broaching the idea of a merger with Allergan a year and a half ago.
But Valeant’s current approach has raised eyebrows, since it has teamed up with William A. Ackman, an outspoken hedge fund mogul known to fight loudly for change at corporations. The two formed one of the most unusual corporate pairings in recent memory: After reaching a handshake agreement in February to back a takeover bid by Valeant, Mr. Ackman began quietly accumulating shares in Allergan, carefully avoiding tripping rules that would require him to disclose his holdings. On Monday evening, he acquired enough shares to give him control of 9.7 percent of Allergan, giving him a powerful perch from which to demand a merger with his partner.
On Tuesday, Valeant took the cover off its bid, offering cash and stock that was worth about $152.89 a share.
During a nearly four-hour presentation for investors, Mr. Ackman and Valeant executives talked up the benefits of the deal. Combined, Allergan and Valeant would have annual sales of more than $15 billion, while enjoying $2.7 billion in cost savings. And the merged drug maker would benefit greatly from Valeant’s low tax rate.
Both Mr. Ackman and J. Michael Pearson, Valeant’s chief executive, estimated that a combined company would be valued at more than $200 a share.
During the presentation, Mr. Ackman excitedly pointed to what the combined company could do: more mergers.
“We’re looking beyond this transaction,” the hedge fund manager said."
Here is the link to the full article:
http://dealbook.nytimes.com/2014/04/22/ackman-and-valeant-bid-45-6-billion-for-botox-maker/?ref=business
What is your opinion about this topic? Do you think this acquisition tactic will bring some problems in the future? if yes, what kind of consequences?
From what I have read, in the past few years, large pharmaceutical companies have shifted toward acquiring small biotech companies instead of trying to develop drugs/solutions in house. Of course, companies like Pfizer still have large R&D budgets, but increasingly smaller biotech companies are trying to develop medical devices or techniques and then sell themselves to a larger company. Overall, I think this is good from the large pharmaceutical company's perspective because they have less risk in the early development stages - they can essentially buy a final product and then help the smaller biotech company bring it to market.
ReplyDeleteThere is a similar trend in the tech industry too - I'm sure all of you have heard of the blockbuster deals like Facebook buying WhatsApp and Google buying Nest.
These big drug companies are such a profitable business, keeping people reliant on them. If Marijuana becomes legal, I wonder how that will shake the game up for these companies.
ReplyDeleteI don't know much about what is happening with these companies but it sounds interesting. Much of the country depends on them that I do not think much acn stop them from continuing indefinitely into the future.
ReplyDeleteI find the notion that pharmaceuticals are merging due to insufficient profits convincing. If I was a big drug company and the government and insurance companies are not accepting my price increases, I would try to find other ways to grow, and merging with other drug companies is one of them. Merging helps because it allows drug companies to increase market share and hence the ability to set prices.
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