GlaxoSmithKline plc (GSK), the world's second largest drugmaker and the largest in Europe, which has been reported to be on prowl for acquiring Bristol-Myers Squibbs (BMS), a company due to patent expirations and less than impressive product trials, may not go in for an acquisition, it is reliably learnt.
Pfizer Inc is currently the number one in terms of market share of 7.2 per cent and a sales turnover of $34 billion, while GSK has about 7 per cent of the global pharmaceuticals market with a turnover of $29.5 billion.
Addressing a select gathering of GSK employees during his recent visit to India in the first week of May, GSK's CEO Dr J P Garnier denied that there was any such move, sources said.
On May 14, John Coombe, the chief financial officer of the company was quoted by a news agency as saying that the company was monitoring BMS and other takeover candidates. This news has come as a surprise, especially after the CEO issued a denial not long ago, sources said.
Dr Garnier responded to a question on takeovers and mergers by saying, "All the stuff you read in papers about BMS is completely wrong. GSK has all it needs to succeed. There is no reason to look for another merger." However, Dr Garnier did not rule out any acquisitions in the future.
It may be recalled here that GSK plc acquired the pipeline of two mid-sized Japanese companies last year. Therefore, it is very clear that one cannot rule out acquisitions in the future though none are in sight at present.
The qualifying criterion for an acquisition would mainly be the other company's capacity to enhance GSK's pipeline. In other words, if a company does not enhance GSK's pipeline, GSK would not be interested in acquiring it.
According to Prashant Nair, vice-president of Pranav Securities Ltd, BMS can be a good fit for both Pfizer and Glaxo and whichever takes over will gain a sizeable advantage over the other.
If GlaxoSmithkline were to go for Bristol, together they would make a combination suffering from a relative scarcity of new drugs, as GlaxoSmithkline is anyway a company suffering from a paucity of new drugs despite the not so successful merger of two biggies, Glaxo and SmithKline, says Janice Abraham of First Global US Research.
There has been an inherent problem with Bristol Myer's pharmaceutical business, according to her. It has lost three of its most profitable products Taxol, Buspar and Glucophage to patent expirations. And it does not have any product to be launched before the end of 2002.
Its much talked about drug, Vanlev's, clinical trial data was less than impressive. And its $2 billion partnership with ImClone Systems is shaken as U.S. regulators refused to accept ImClone's marketing application for cancer drug, Erbitux. Even its acquisition of DuPont's pharmaceutical business, does not seem to help in this scenario as most of its products are still in the middle stages of development, says Janice.
Consequent to the heavy generic competition for its key drugs, Bristol-Myers has been carrying very high inventory levels and the wholesaler inventory levels in its U.S. pharmaceutical business had increased over time by approximately $800 million to $1 billion. And this inventory sell-down will impact the EPS over the period of the reduction process, which we expect to be carried on till 2003. Given these recent setbacks and the resultant cheap stock price, we believe Bristol-Myers makes a preferred takeover target, according to First Global.
Some of the potential acquirers could be Pharmacia, Novartis, and Sanofi-Synthelabo, because of their business objectives: entry into the cardiovascular and oncology markets, deeper penetration into these therapeutic areas, and U.S. sales presence, says the First Global analyst. Nevertheless, Pfizer, Merck and Johnson & Johnson also fit the bill, as does GlaxoSmithKline and possibly even Roche as these large capitalization drug-makers are rich enough to buy
Bristol-Myers outright even with a premium to its current battered share price, which have fallen to a low not seen since 1997.
The problems of BMS may not deter acquirers as they can always be sorted out, says Nair.