EXPERT VIEW: Pfizer and AstraZeneca, a marriage not to be – yet?

Mergers and acquisitions may excite the markets and shareholders on both sides but their record of success in delivering the anticipated benefits is not good, writes Stephen Archer, founder of  Spring Partnerships.

Around 80% fail on the key measures of synergies, costs savings and growth in shareholder value. No matter if they are small, medium or large, mergers hold high risks. Nonetheless, ambition, hubris and corporate desperation mean that boards often move with the heart rather than the head. Pfizer is a good example. It has made acquisitions of $240 billion in the past 15 years and yet its current market capitalization is just $189 billion today.

Was the Pfizer ambition for AstraZeneca one of hubris? Actually I don’t think so. It was certainly over reaching ambition with a hint of desperation. To understand the Pfizer move we need to consider the state of the pharmaceutical industry. It has been in relative decline for the past decade. Relative because compared to most industries it is still very profitable, stable and with growing markets, ie, the sick who are generally getting wealthier. With a global population over 7 billion the market is as big as a market can be. But compared to 20 years ago the industry now has far fewer novel drugs and a weaker pipeline of new drugs. This is despite an annual global R&D spend of $88 billion per annum by the top 50 pharma companies. The costs of a new drug coming to market is now circa $1.3 billion but the painful statistic is that the return on R&D investment has halved in the last five years in round numbers.