Tuesday, 6 May 2014

Astra Zeneca Merger

From the Telegraph

One of the lessons from the banking crisis is that when one of these deals comes along that the boss of a giant firm says must be done, or else we are all doomed beyond doubt, it is well worth saying: "Hold on a minute. We've got some questions you must answer."

Senior capitalists who cannot see this are, once again, doing the work of the resurgent anti-capitalists. The biggest risk to capitalism is posed, unintentionally, by some of its own leaders and their supporters who argue that if a deal can be done then it must always be done, hang the consequences and you must be a communist if you are sceptical about the wisdom of institutional investors or ever consider the public interest.

The problem with Iain Martin's article is that while there were some bad mergers and acquisitions, it wasn't mergers and acquisitions that created the lending crisis. Northern Rock managed to collapse without doing a single merger after demutualistion. And while there were were 16 UK clearing banks in 1960 and 5 in 2010, it's also the case that there were only 5 in the mid 1980s.

And what no-one has been able to explain is what the "public interest" is regarding the Pfizer/Astra Zeneca takeover. What's the worst case? Pfizer move all the jobs to America? So, I get the next cancer or erectile dysfunction drug designed by people who say sidewalk instead of pavement? Sorry, but so fucking what?


Mark Wadsworth said...

Glaxo-Wellcome-Smith-Kline-Beecham worked.

Why not PfizerZeneca? If the shareholders are up for it then I'm not too bothered.

Anonymous said...

Certainly shows the gargantuan value of patent protections.

The Stigler said...


what's your alternative?

Graeme said...

paul - doesn't it rather show how costly it is to bring new drugs to market? The regulatory hurdles and legal risks are such that the drug companies are consolidating their research programs.

Anonymous said...

Here are a few.
@Graeme. It is costly and the patent system itself is in part responsible for that. From the above report: "excessive marketing expenses, as firms seek to pursue the monopoly profits associated with patent protection...wasted research spending into duplicative drugs[estimates of up to two thirds of R&D]"

Quite apart from "the neglect of research that is not likely to lead to patentable drugs and concealing research findings in ways that impede the progress of research, and
prevent the medical profession and the public from becoming aware of evidence that some drugs may not be effective, or could even be harmful". All much in evidence in recent years.

L fairfax said...

GSK merger did not work well
"Sir Richard Sykes, the creator of GlaxoSmithKline, the world's second biggest pharmaceutical company, is unsure that it will ever create value for its shareholders. In an interview with The Telegraph, he said: "Is it going to be value enhancing to the shareholder? It's going to take a long time to get an answer to that.""

I know it is from 2004 but has anything changed?
Of course it was the business's own decision so they can do what they want, whether it is wise or not is probably another matter.

BTW I used to work in the pharmaceutical industry so had a vested interest

DBC Reed said...

In the original article Iain Martin worries that Miliband will go too far and press for nationalisation of drug development to be carried out by scientists free of the stimulus of competition.
But all competition achieves is mergers and acquisitions which begin to make money when they shed whole departments and make one back office do the work previously done by two (when they were competing with each other).As was pointed out by King Gillette yonks ago this shows that competition produces duplicate/parallel offices : competition increases bureaucracy.
The rationale of mergers undermines the whole myth of competition.
Moreover Professor Mariana Mazzucato "argues that the most risky and uncertain investments underlying most technological revolutions were undertaken by public sector agencies."
So lets hope Miliband does challenge the present laissez faire revival which is making the Tulip Mania seem grounded by comparison.
There is a negative rent seeking capitalism, you know ,as Adam Smith warned of those who " by keeping the market constantly understocked ,by never fully supplying the effectual demand, sell their commodities much above their natural price".
Dean Baker whom Paul quotes shows the pharmaceutical industry regulates supply.

Mark Wadsworth said...

LF, these mergers are usually bad for shareholders in predator and good for shareholders in target. if you own shares in both companies, then you can be heartily indifferent.

DBC, agreed actually on governments carrying out R&D, they pay for most of it anyway. Kj has expounded on this at length before.

Tim Worstall made the point that governments are good at R&D, but rubbish at putting it to commercial use, which is easily fixed.