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M&A, Reputational Risks and Pharmaceutical Pricing In Light of Pfizer's Bid for AstraZeneca
There has been a wildfire of criticism from many sectors over Pfizer's proposed record bid to acquire AstraZeneca over the last couple of weeks. Perhaps most notably, it has turned into a political issue in the UK: the Cameron government has been criticised for not doing enough to protect British interests in the ongoing talks, amid fears that a takeover would lead to cost cuts that would affect British jobs, particularly in the scientific/R&D sector.
The same discussion is notable from its relative absence in Sweden, reflecting the fact that the 'Astra' portion of AstraZeneca has gradually lost its leading ties to Sweden - although Finance Minister Borg has commented that he fears there will indeed be further job losses in Sweden, if Pfizer's previous large-scale acquisition of another company with Swedish heritage - Pharmacia - is anything to go by.
Through all this, Pfizer has taken the brunt of the criticism, with question-marks being raised over its underlying intentions in its bid for AstraZeneca. However, it has also raised wider questions over the reputation of the pharmaceutical industry. Last week, I participated in an Al-Jazeera-run debate which focused on the potential implications on pharmaceutical prices if the Pfizer/AstraZeneca merger goes ahead.
It is a fairly tenuous connection to make - for a start, the pharmaceutical industry is one of the most devolved and competitive of all industry sectors, with no company dominating the entire sector. Of course, some companies will have dominant positions in particular therapeutic segments - but if there are any competitive concerns as part of a merger, there are a number of regulatory safeguards in place to protect the interests of patients and society: the companies will be forced to divest the affected assets. Such divestitures have been a feature of most major mergers in the pharmaceutical industry over the years, and have ensured that the markets - and prices - remain competitive. And there is, to my knowledge, no credible evidence that previous mergers have led to pricing issues. Absolutely, there are issues around pharmaceutical pricing, and it is a very pertinent and hot topic - but those issues are not linked to merger-related activity.
So why would Al-Jazeera focus on this particular angle in covering the Pfizer-AstraZeneca story? Ultimately, it is because pharmaceutical pricing continues to be one of the most media-friendly angles on the pharmaceutical industry, a controversial subject where most people have an opinion, often forcefully expressed - and it represents perhaps one of the biggest reputational risks to the pharmaceutical industry. Hence, in a discussion that was ostensibly about Pfizer and AstraZeneca, very little time was actually spent talking about the merger - and this is perhaps to be expected when Medicins Sans Frontier (MSF) is invited to act as a commentator.
And for all its fantastic work, unfortunately MSF shifted towards an aggressively critical position against the pharmaceutical industry a number of years ago, and does not have a constructive engagement with it compared to a number of other healthcare charities and NGOs. In the debate, this manifested itself in the assertion that a merger would not be in the interests of the public because it would result in less research in neglected disease, and could potentially impact vaccines supply - even if neither AstraZeneca nor Pfizer have much research interests in neglected disease to begin with, and there is no evidence that the merger would have any impact on vaccines supply or price.
Ultimately, pharmaceutical companies make careful choices over which therapeutic areas and diseases they target for their research, based on their existing areas of expertise, their geographical location, and where there is a market for improved treatments - they can't be everywhere at once. Some of those companies will focus on neglected disease, others (most) will not - but ultimately it is tangential issue to this merger. If pharma companies decide to remove any parts of their business, it is usually a strategic decision that would have been made irrespective of any merger - and often the business is spun out to operate on its own, or sold to another company...so the business will not be lost, unless it is simply not a productive division.
Of course, there are still major issues around access to medicine, particularly in emerging markets, and particularly for neglected disease. The solution, for MSF, is always centred on the generics industry. But this brings several problems to the table - first and foremost, there are severe pricing issues within generics products themselves, given that generics firms ultimately have no focus on creating new, improved medicines and thus have no meaningful R&D costs that need to be de-risked through the "premium" prices that one sees in the branded space. And whilst MSF can bring up the tired criticisms of the Tufts study which assessed the potential cost of developing a new, innovative pharmaceutical agent, it is ultimately a highly volatile business with absolutely no guarantees of success - and indeed many pharmaceutical companies have fallen to the unpredictable but often unavoidable vagaries of scientific failures. At the same time, governments in many emerging markets spend a fraction of their GDP on pharmaceuticals and healthcare - and this underinvestment continues to represent a huge challenge to access to medicines in these countries, irrespective of the price of a particular pharmaceutical agent.
The reason branded prices are higher than generics is precisely because the business model, approach and solutions are completely different. Both industries play a critical role in healthcare delivery - but the MSF solution to access to medicines is dogmatically linked to only one side of the equation, whilst it complains that pharmaceutical industry is not being creative enough in its pricing and patent strategies...this despite the numerous flexible, risk-sharing and tiered pricing strategies that have been adopted around the world. If governments adopted the same stance as MSF, we might as well say goodbye to the business of improving treatment for deadly, debilitating diseases, whilst neglecting the huge improvements in standard of care in a number of diseases over the last few years...and ultimately the UK would be left without the very R&D industry it is trying to protect in the bid for AstraZeneca.
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