The merger of "sanofi-aventis" as an example for Reasons and Consequences of Mergers and Acquistions in the Pharmaceutical Industry

Table of Content

Table of Figures

Abbreviations

1. Introduction

2. History of sanofi-aventis

3. M&A’s in the Pharmaceutical Industry
3.1. Reasons for M&A’s in the Pharmaceutical Industry
3.2. Motives of Merging Organisations
3.2.1. Synergy Effects
3.2.2. Focus on Core Competences
3.2.3. Market Power
3.2.4. Management Motives
3.3. Consequences of M&A’s in the Pharmaceutical Industry

4. Conclusions

Bibliography

Textbooks / Handbooks / Encyclopaedias

Journal Articles

Websites

Table of Figures

Figure 1: Number and Value of M&A’s in the Pharmaceutical Industry from 2001 to 2006

Figure 2: Recent history of sanofi aventis

Figure 3: Drivers of the Concentration Process in the Pharmaceutical Industry

Figure 4: The leading Pharmaceutical Companies 2006 – Sales in Billion US$

Abbreviations

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1. Introduction

Within the ongoing globalisation process, many national markets and industrial branches are in different phases of the transition from local to global economic structures (Bryan, L.; Fra- ser, J.; Oppenheim, J. Rall, W., 2000, pp. 71-95). As a result of this development organisa- tions in the different industries are increasingly concentrating (Brühl, V., 2003, pp. 274-278).

Among other industries, also the pharmaceutical industry is highly influenced by the above mentioned trend, reflected by the increasing number of mergers and acquisitions (M&A’s) in the pharmaceutical industry, which is illustrated in the following figure.

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Figure 1: Number and Value of M&A’s in the Pharmaceutical Industry from 2001 to 2006 (own illustration, Data taken from Hoffmann, S. (2007, p.18)

The present assignment is going to evaluate the reasons and consequences of M&A’s within the pharmaceutical industry by using the sanofi-aventis merger as an example. First of all, the recent history of sanofi-aventis is briefly described. The third part will describe the reasons and consequences of mergers and acquisitions in the pharmaceutical industry by describing the challenges the pharmaceutical branch is confronted with and the respective motives of and results from M&A activities. Finally, the major findings are summarised and conclusions will be derived.

2. History of sanofi-aventis

Following the company homepage of sanofi-aventis (20071), the year 1999 has been very im- portant because of two reasons.

First of all, Sanofi took over the Synthelabo Holding GmbH and changed its company name to Sanofi-Synthelabo. Furthermore, Hoechst merged with Rhône-Poulenc, a French chemical and pharmaceutical organisation in order to form the new company Aventis, with its legal seat in Strassbourgh. It has to be mentioned, that these organisations had already been cooperating via a joint venture. With regard to Macharzina, (2003, p. 636), the merger of Hoechst and Rhône-Poulenc can be seen as a very good example of a merger where both organisation loose there legal autonomy and found a new company. In 2004, the much smaller Sanofi- Synthelabo took over Aventis, leading to the foundation of the sanofi-aventis Group (see fig- ure 2.).

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Figure 2: Recent history of sanofi aventis

(own illustration, Information taken from sanofi-aventis (20071))

3. M&A’s in the Pharmaceutical Industry

3.1. Reasons for M&A’s in the Pharmaceutical Industry

A recent study by Hoffmann, Roventa and Weichsel (2003, pp. 9-12) highlights the following drivers for concentration in the pharmaceutical industry:

- New pharmaceuticals, filed in for registration at the regulatory bodies are due to a variety of scandals (e.g. “Contergan”) very carefully tested. As a result, legal authorities or regu- latory bodies refuse to accept lots of the new pharmaceutical products for manifold rea- sons (Salz, Ruess, 2007, pp.62-70). For example, between 1997 and 2001, the US Food and Drug Administration (FDA) approved only 24 pharmaceuticals, which is a significant decrease compared to the time before 1995.
- The expiry of patents for so-called blockbuster pharmaceuticals leads to an increased competition with producers of generics. For blockbuster pharmaceuticals, gross margins of up to 80% are the basis for reinvestments into Research and Development (R&D), the creation of a strong sales force and investments into the future organic growth of organi- sation, or growth via M&A’s. If such high margins are missing, pharmaceutical organisa- tions will be forced to cut their costs.
- Limited willingness and ability to pay high prices for pharmaceuticals by most health care systems, as well as by the insured persons. Evidence to this argument can be given by the reforms of the health care systems in most western European countries and the challenges the governments in various eastern European countries have to cope with.
- An increasing number of hospitals and social security providers are merging into buying centres, accumulating the demand of all participants in the buying centre and as a result force the producers and distributors of pharmaceutical products to reduce prices. As an example, the German Helios Krankenhaus GmbH is the owner of more than 60 hospitals in Germany and Austria, treats approx. 500,000 patients, has 30,000 employees and an annual turnover of roundabout 1.7 billion Euro. In 2006, the material consumptions of all hospitals belonging to the group had been 347.9 million Euro (Helios Kliniken, 2008).
- The importance of Direct to Customer business has been increasing in previous year and as a result of this marketing and sales activities are focused on the patient as the final consumer and not to the medical scientist who is prescribing the pharmaceutical.
- With regard to Salz, Ruess (2007, pp.62-70) only one of approx. 10,000 substances find its way into the pharmacies and to the customers. For the development of a new sub- stance, researching pharmaceutical companies need 10 to 14 years and it costs them up to 800 million Euro. As a result of the before mentioned parameters, the innovative poten- tial of most pharmaceutical companies is decreasing. As an example, following the Euro- pean Federation of Pharmaceutical Industries Association (EFPIA), European producers of pharmaceuticals developed between 1990 and 1994 in total 215 new substances, whereas 10 years later, from 2000 to 2004 only 162 substances had been developed.

Figure 3 summarises the drivers of the concentration process in the pharmaceutical industry:

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Figure 3: Drivers of the Concentration Process in the Pharmaceutical Industry

(own illustration, Information taken from Hoffmann, Roventa and Weichsel (2003, pp. 9-12))

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