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Pharmaceutical industry

Corporate takeovers do not threaten UK pharmaceutical industry

Pfizer’s failed bid for AstraZeneca garnered much media attention. But the fears that such deals can undermine national industries are unfounded.

Source: EMBE2006/Dreamstime

There was considerable media coverage of the proposed acquisition of UK-based AstraZeneca (AZ) by US giant Pfizer. The failed bid would have expanded Pfizer’s product pipeline and lowered the company’s exposure to national taxes.

The sheer size of the £69bn proposed merger meant that the deal came under political scrutiny from both the UK government and opposition parties.

Some commentators claimed that the sale of a flagship British company to a US corporation would be detrimental to the UK economy, its pharmaceutical industry and the ability of the UK-based companies to provide medicines to the UK public.

This extent of the media cover or the political posturing does not necessarily mean the UK pharmaceutical industry as a whole would be damaged or the availability of medicines to patients would have been threatened. Rather such takeovers can bring opportunities to smaller pharmaceutical companies and bring new life to old medicines.

Made in Britain

Britain has an enviable heritage in pharmaceutical research and development. Of all the medicines currently in use worldwide, around one-seventh were developed by UK companies, a share of the world market second only to the United States. These medicines include many of the groundbreaking drugs developed since the industry revolutionized in the 1950s, medicines including propranolol, salbutamol and ranitidine.

Today, the pharmaceutical industry is now a global market. Trade is made possible by the ease of international travel, digital communications, and an increasing cultural openness between countries.

The UK is a global player in pharmaceutical research. It is the third biggest pharmaceutical and biotechnological research investor in the world (behind Japan and the United States), investing £13.3m per day in pharmaceutical research and development.

Furthermore, the UK pharmaceutical industry is highly profitable, generating a trade surplus of around £7bn each year. Many pharmaceutical companies operating in the UK are national affiliates of corporations whose global hub may be in Europe (eg, Sanofi in Paris, France), the US (eg, Eli Lilly in Indianapolis) or Japan (eg, Takeda in Osaka).

Transnational pharmaceutical companies can conduct drug discovery anywhere in the world, and the site they select is often chosen for strategic reasons. These reasons can include financial incentives such as tax rates or the availability of research funding, favourable government policy or regulatory systems, or perhaps to collaborate with particular universities or healthcare providers.

Some UK universities are at the forefront of the life sciences and are attractive to industry. However, overheads in the UK are high compared to many countries making it less attractive as a research base. Furthermore, many pharmaceutical firms, especially those that are US-owned or have a strong trading presence there, will want to structure their business to exploit the lucrative US pharmaceutical market.

Consequently, there is no guarantee that any pharmaceutical company will conduct its research in the UK — either now or in the future.

In recent years, some high-profile pharmaceutical industry research centres have closed in the UK — Astra Charnwood in Leicestershire and Pfizer Central Research at Sandwich, Kent — with considerable local upheaval and job losses.

Globalisation

There have been many mergers and acquisitions in the industry in recent years, with large pharmaceutical companies merging and becoming larger. Bayer’s merger with Schering in 2006 and Pfizer’s acquisition of Wyeth in 2009, are just two high-profile examples.  

These mergers undoubtedly bring various benefits to the companies concerned — the opportunity for tax-efficient restructuring, product portfolio synergies and perhaps increased clout with regulators and health service payors.

These mergers may also have a negative impact on pharmaceutical development and commercialisation.

During the heyday of drug development, pharmaceutical companies conducted much of their own research and development, such as mass screening of chemical entities in order to assess their therapeutic potential. However, screening drug candidates is resource-intensive and, with recent economic constraints, pharma companies has been increasingly looking to acquire new agents or therapeutic modalities from specialist research-based pharmaceutical companies and universities

This new way of searching for drug candidates is enabled by the global business networking, made possible by improved information technology and communications. This means that UK companies have access to a much larger pool of possible new medicines.

Since 2010, the current UK government has sought to encourage pharmaceutical innovation with policy initiatives such as ‘Innovation health and wealth’, access to medicines initiatives and fiscal incentives such as ‘Patent Box’ and the tax credits. 

But are these incentives enough to ensure the economic well-being of the UK pharmaceutical industry, the retention of research talent and the supply of medicines to the British NHS in the context of a global market place?

Indeed, the interventionist approach of the UK government in the Pfizer-AZ bid might suggest that the UK pharmaceutical market is not responding to government policies promoting research innovation.

Innovation and trade

Industry trends in recent years suggest that it would be simplistic to say that the large-scale mergers and acquisitions of recent years have directly stifled pharmaceutical innovation and trade.

Any pharmaceutical company can decide to conduct research anywhere they want, and likewise any UK-based pharmaceutical firms might choose to offshore their research activities for a range of reasons including tax or regulatotion.

Many of the deals made by big pharmaceutical companies are complex and it is important to understand the nuances of any deal to assess its full impact on the British pharmaceutical development sector. The proposed Pfizer-AZ deal, for example, included a commitment to a research facility in Cambridge, and an agreement that the UK will be the centre of European business of the new combined company.

A common pattern following the mergers and acquisitions of big pharmaceutical companies in recent years has been the divestment of so-called “heritage” product, for example, Diamox products (acetazolamide) now available from Amdipharm Mercury Pharma, to enable focus on newly marketed products and pipeline innovations.

Consequently, many older medicines, some of which have niche therapeutic uses and may still command large market shares, have been given a new lease of life after being divested and acquired by smaller pharmaceutical companies. Alliance Pharma in Chippenham, for example, has built a respectable portfolio by scooping up divested agents from larger companies.  

The big players in the UK pharmaceutical market represent only a fraction of the total number of pharmaceutical companies in the UK marketplace. Although the Association of the British Pharmaceutical Industry, which represents the interests of the big pharmaceutical companies, gets much of the national press coverage afforded to the pharmaceutical industry, the Ethical Medicines Industry Group (EMIG) comprises over 200 small- to medium-sized (SME) pharmaceutical companies and service providers, whose activities generate an estimated 80% of the pharmaceutical innovation in the UK.

Many of these SMEs are commercialising new medicines, either their own developments or in-licensed from other companies. These companies have a critical role to play in UK pharmaceutical innovation and supply 40% of the branded products used by the NHS.

It might be argued that changes in the 2014 Pharmaceutical Price Regulation Scheme (the price regulation agreement between the UK Department of Health and the pharmaceutical industry) could have more of a detrimental effect on the activities of these smaller companies, whose contribution to innovation and medicines supply is so important.

The big deals of big pharma will always make big news — and both pharmaceutical scientists and pharmacists should be interested in the major market trends in their areas of specialism. The UK government will continue to incentivise research in pharmaceuticals and biotechnology in order to ensure continued innovation and to safeguard employment and investment. The globalisation of the pharmaceutical industry, and the business decisions this entails, does not mean availability of medicines to UK patients will be affected.

 

Stephen Goundrey-Smith is consultant Pharmacist at PDC Healthcare Ltd.

 

 

 

 

Citation: The Pharmaceutical Journal DOI: 10.1211/PJ.2014.20065572

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