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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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February 5, 2009

Short Business Note: GSK's At Least Not Going to Merge

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Posted by Derek

GlaxoSmithKline says that they're going to cut yet more staff - this follows up on those reports in the UK press the other day. Interestingly, they're also declining to give any guidance on their 2009 earnings. (Personally, I'd be just as happy if everyone declined to give guidance at all times, but I realize that this would affect the capital markets a bit). And, to the company's credit, they say that they're not in the market for a big merger. Their CEO told the press that "There is no way we are going to be distracted by large-scale M&A within the pharmaceutical sector -- that's not for GlaxoSmithKline."

Comments (14) + TrackBacks (0) | Category: Business and Markets


1. CMC Guy on February 5, 2009 10:50 AM writes...

Is this like closing the proverbial barndoor as GSK was build by a series of M&As over the last couple decades which seemed to combine moderately effective R&Ds focused organizations into a big Marketing driven entity.

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2. Andy on February 5, 2009 11:09 AM writes...

"Mergers and acquisitions are not the way we like to operate at Glaxo-Wellcome-SmithKline-Beecham"

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3. Anonymous Big Pharma Researcher on February 5, 2009 12:53 PM writes...

Andy on February 5, 2009 11:09 AM wrote...

> "Mergers and acquisitions are not the way we like to operate at
> Glaxo-Wellcome-SmithKline-Beecham"

Nor, maybe, at

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4. Hap on February 5, 2009 1:08 PM writes...

I wish that I could believe them - but dishonesty seems to be a standard strategy for calming one's stockholders and employees (I guess straps don't work so well), and so I have to take anything(pharmaceutical) management says with a grain (or more) of salt.

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5. MTK on February 5, 2009 1:22 PM writes...

As much as we, as employees, hate mergers and as much as some decry them for not doing anything but line executive pockets with money, is this true? Do we know for a fact that the two companies, or at least one of them, would have been better off without merging? Do we know that the employees would have been better off years down the road if a merger would not have taken place?

Well, that's hard to answer because obviously you can't turn back the clock and do the control experiment. I did, however, look at eight different companies, 4 that are the products of mega-mergers and 4 that are not and compared their stock performance since Jan 2000. (While short-term stock performance may depend on a lot of things, over 9 years I would believe that stock performance would be some indicator of overall productivity of the companies)

Of the eight companies, Abbott clearly did the best with 60% growth. Sanofi-Aventis and Novartis were next at around 15% and 4%. GSK (-35%), Lilly (-45%), Pfizer (-55%), Merck (-60%), and BMY (-65%) bring up the rear. There really is no trend as to whether it is better to merge or not to merge. Abbott clearly never needed to merge so they were wise not to do so. Merck probably wouldn't have done any worse if they would have merged and may have done better.

My point is that you can mock GSK for saying they are going to avoid M&A activity as hypocrisy considering how they were formed, but from a business standpoint, there is no "right" answer on the question. Some companies are probably correct in thinking they need to merge while some are probably correct in thinking they don't.

If GSK thinks they're better off standing pat at this moment, why are we mocking them?

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6. Hap on February 5, 2009 1:30 PM writes...

Maybe just general mistrust? They're not saying that others shouldn't merge, just not them, so they're not being hypocritical or imposing their beliefs on anyone. I've heard too much of the "we're not planning any [more] layoffs" in public statements to make me confident that they say what they are saying because they mean it and not as a strategy to mollify investors, employees, or potential acquisition targets.

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7. You're Pfizered on February 5, 2009 1:54 PM writes...

re to MTK:

With the growth of Humira's revenue stream, I wonder how many pharma companies wish they could turn back the clock to late 2000 and buy BASF's pharma wing for a mere $5B and change?

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8. MTK on February 5, 2009 2:26 PM writes...

Hap, I can but that.

To 7: Agreed.

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9. CMC Guy on February 5, 2009 3:20 PM writes...

MTK my recollection is GSK was one of the early promoters, if not originator, of the "mega-merger" strategy in Pharma that advocated "Bigger would make us better". Doubly indicting is GSK (Glaxo arm at least) likewise emphasized Marketing over Science as best key to acheive success. Such things are chief reasons industry has gotten in to current sad state IMO via internal strive in R&D and an external tarnished image. If I am mocking is because I see it as GSK lost out in their own game they now want to take the ball home.

I am not sure stock performance is a good measure, especially when it comes to drug discovery and development. While some the companies you mention may not have done mergers I believe all have at least made acquisitions, usually with devastation of small "partner". Outcome appear nearly same as mega-merger just smaller. Certainly most have used in-licensing to fill pipeline voids. Comes down to basic issue if Pharma is strictly Business driven or fundamentally Science based. They used not be mutually exclusive as seem today.

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10. MTK on February 5, 2009 4:12 PM writes...

Here's a table of pharma mergers. I won't judge which are mega and which are not nor when the trend started.

Stock performance, over the long-term, is as good as measure as any, IMO. If you believe that R&D in pharma is what drives revenues then that's going to be reflected in long-term stock performance. That's why Merck did so great in the 80's.

Some companies that went through mergers have done OK, some have not. The same can be said for some that did not merge. So not only is size not everything. It's nothing in the case of the Big Pharma companies.

The point I'm making is that what may have been a reasonable move in the past may not be now. Or better yet, maybe they've learned. At least Derek gave them some due. The other comments one can put in the damned if you do, damned if you don't category.

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11. Jeffrey Clark, CEO of for Life Sciences Professionals on February 5, 2009 4:13 PM writes...

I simply find it interesting that we have at least one open dissenter in the ranks. GSK has made it clear that they are headed down a different path than Pfizer/Wyeth. No one knows what will come of the Big Pharma business model in the next 10 years. But it's refreshing to see some of the biggest in the industry going about it with opposite approaches.

Andy, great comment that drew a smile.

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13. Pfizerite on February 6, 2009 9:27 PM writes...

I seem to remember that Jeff Kindler made the same statement about not doing a big merger about 1 year ago...

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14. Han Stinnette on August 18, 2012 9:47 AM writes...

Thank you for another great post. Where else may anybody get that type of information in such a perfect approach of writing? I've a presentation subsequent week, and I'm on the search for such info.

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