Pharmaceutical Sector Shake-up

In an effort to boost share prices and profits, thereby keeping shareholders satisfied, major pharmaceutical companies are currently negotiating mergers, acquisitions and hostile takeovers which will essentially narrow their focus, allowing them to specialize in various fields. This latest trend of divesting assets is quite a turnaround from a few years ago when drug companies were diversifying through acquisitions to avoid an ‘eggs-in-one-basket’ scenario. Analysts note that deals currently underway are focusing on cutting costs and boosting sales to produce results investors have come to expect based on performance over the last two decades or so. However, the bullish activity in the pharmaceutical sector has been driven, in large part, by marketing of new products. With patents expiring and generic medicines flooding the market, many drugmakers have seen their revenue level out, or dip in recent months and will be hard-pushed to match past performances.

New York-based pharmaceutical company Pfizer’s $106 billion takeover bid for British firm AstraZeneca has reportedly hit an obstacle as British lawmakers are insisting on securing certain commitments from Pfizer with regard to jobs, research and intellectual property. AstraZeneca also has facilities in Sweden which would form part of the deal, should it materialize. Under British law, in certain circumstances takeovers can be blocked if they are damaging to national interests, with economic concerns being among those circumstances. In view of the fact that since 2005 Pfizer has eliminated over 56,000 jobs around the world, job loss concerns are clearly valid. This fear is reinforced by the fact that, in its 2009 acquisition of Wyeth, Pfizer closed six of the company’s twenty research sites. However, Pfizer has indicated that if it fails to secure the support of the British Government, it is prepared to abandon its takeover bid.

In the United States alone, the pharmaceutical industry has cut more than 156,000 jobs since 2009, while adding thousands of jobs in emerging markets. The current wheeling and dealing in the pharmaceutical industry – while understandably making many employees nervous – can present lucrative opportunities for investors.