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Swiss pharma unmoved by Pfizer deal

Analysts say the industry is fragmented prompting new pressures for consolidation Keystone

Swiss pharmaceutical companies, Novartis and Roche, say Pfizer's takeover of Pharmacia is not putting pressure on them to seek merger partners.

Daniel Vasella, head of the Swiss pharmaceutical giant, Novartis, said the group did not feel compelled to do a deal, and that no talks were underway with its rival, Roche, in which Novartis has a 21.3 per cent stake.

“The only that happened is that Pfizer, who was number one, became a bigger number one.”

He added, though, that the deal would “trigger a broadening of the scope for looking for potential partners”.

Roche said its strategy of focusing on internal growth would remain unchanged.

“We are not in discussions [about possible mergers],” spokesman Daniel Piller told swissinfo. “We don’t believe in the value of mega-mergers – we have the strength in research and development and where we need further know-how and technology, we enter cooperative ventures, such as Decode [in the field of genetics].”

New York-based Pfizer surprised analysts on Monday by announcing it had agreed to buy rival US firm Pharmacia for $60 billion in stock.

The Pfizer deal will create a pharma behemoth with combined annual revenue of $48 billion and a research and development budget of $7 billion. Already the world’s biggest drugs company, Pfizer is the producer of the anti-impotence pill, Viagra, and many common prescription drugs.

Fragmented industry

Analysts said the Pfizer deal could trigger a wave of mergers, while not putting direct pressure on Novartis and Roche, could spark a new wave of mergers in the industry, which remains fragmented.

“We could see a chain reaction, with several other consolidation announcements,” Michel Venanzi, a fund manager with Lombard Odier Darier Hentsch (LODH), told swissinfo.

Patrick Bürgermeister, a pharmaceutical analyst at the Zurich Cantonal Bank, said Novartis and Roche were strong in key areas, which is why they were not directly threatened by the increased size of Pfizer.

“Novartis and Roche are not that vulnerable as primary care companies…,” he told swissinfo.

“Roche is a specialist and strong in hospital and secondary care… Novartis doesn’t feel increased pressure because it’s doubled its sales force in the US in the past three and a half years.”

But Bürgermeister said the companies would find it difficult to grow in the fragmented industry and would benefit financially by adding to their product pipelines.

“The industry is still fragmented – the biggest player, Pfizer, still has only about seven per cent of the world market. There is also a huge phase of patent expiries coming up in the next four years, and so the double-digit growth that we have seen in the industry is threatened.”

“The advantages that will come through from genomics and proteomics research will not pay off until about the end of the decade, so merging would be an answer to bridge the years until this research will translate into new products,” Bürgermeister said.

Merger speculation

Speculation of possible merger between Novartis and Roche was fuelled last week when Daniel Vasella told the German business magazine “WirtschaftsWoche” that there would be distinct advantages to the companies working together.

Rumours of a merger surfaced first in May 2001 when Novartis acquired a 21.3 per cent stake in its rival.

Venanzi said a merger would make sense in terms of economies of scale. “These two companies are similar and possibilities exist for restructuring. In market terms they are very complementary.”

But Venanzi said a possible deal would not help Novartis strengthen its position in the United States, which was a key goal.

The Pfizer takeover puts the firm way ahead of its competitors. The combined company will have revenues of almost $48 billion a year, compared with $29.5 billion at closest rival, GlaxoSmithKline. Novartis and Roche command revenues of $19 billion and 17.2 billion respectively.


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