Synergy or Vanity: the Appetite for Pharma Mega-Mergers

The late 1990s and early years of the current decade saw a number of mega-mergers between companies, which defined the current shape of the pharmaceutical industry, and have established a hierarchy of companies commonly referred to as `big pharma’. In recent years, however, there have been no mega-mergers, suggesting that the industry might have lost its appetite for such deals. The publicly explained rationale for these pharma mergers might differ between transactions, but the overall results are fairly consistent throughout the industry. First, combined companies allow a large degree of cost-cutting in overlapping functions, thus increasing profitability and giving an obvious and tangible return to investors. Second, enlarged R&D operations increase the development of new drugs that will drive future sales for the new company. Third, the combined marketing capabilities and sales forces of two already large companies will have a synergistic effect, ensuring that the new company will always have an advantage over its smaller competitors, and allowing a certain degree of power to influence the market in its favour.