A lot of merger and acquisition (M&A) activity has taken place in the pharmaceutical industry in recent years. Between 1988 and 2000 more than 500 billion US dollars worth of merger and acquisition activity has taken place in the pharmaceutical-biotechnology industry. Since the 1980s increasing pharmaceutical mergers have led to the sector being more and more concentrated among fewer leading players. In 1985 the top ten global pharmaceutical companies together contributed 20% of overall pharmaceutical sales. By 2002 however, the contribution of the top ten companies in this industry rose to 48%. This has happened largely due to mergers in the pharmaceutical industry.
Pharmaceutical mergers are driven by several strategically important considerations. Important among these are -
- Economies of scale are an important consideration in mergers. Mergers lead to expansion of operation, lower operating costs and thus higher operating margins.
- Mergers enable better and more aggressive sales and marketing activities which are instrumental to growth in the pharmaceutical industry.
- Better and more effective Research and Development (R&D) activities can be undertaken as a result of mergers.
- More funds are available for funding research activities and for discovery of new and patented drugs.
Some of the shortcomings of pharmaceutical mergers, that have occurred in certain cases are -
- Attrition of leadership.
- Drop in productivity.
- Drop in employee satisfaction levels.
- Job loss.