Paper - Wyeth
Introduction
The pharmaceutical-biotechnology industry has become increasingly consolidated over the past 15 years; in 1985 the 10 largest firms accounted for about 20 percent of worldwide sales, whereas in 2002 the 10 largest firms accounted for 48 of sales. Much of this consolidation is the result of mergers. The value of M&A activity in this industry exceeded $500 billion during the 1988 to 2000 period. A commonly cited rationale for this consolidation by proponents of these mergers is the existence of economies of scale in research and development (R&D) and in sales and marketing. However, despite rising R&D spending the productivity of the pharmaceutical industry, as measured by the number of compounds approved by the Food and Drug Administration (FDA) have deteriorated since 1996.
Furthermore, the number of new drugs entering clinical trials has declined since 1998, which calls into question the effectiveness of mergers and the scale economies hypothesis more generally. Moreover, several of the largest pharmaceutical firms have been trading at significantly lower price-to-earnings ratios than many of their smaller rivals, indicating investors believe the larger firms will experience lower growth rates.
Wyeth
Prior to merger with Pfizer, Wyeth was a multinational corporation consisting of four reportable segments: Wyeth Pharmaceuticals, Wyeth Consumer Healthcare, Fort Dodge Animal Health and Corporate. Corporate was responsible for audit, treasure, tax and legal operations of the Company’s businesses (could have potential synergies with Pfizer). All four reportable segments were being managed separately since they developed, manufactured, distributed and sold district products and services requiring different technologies and marketing strategies. Exhibit 1 describes principal business operations and product categories for the main business segments, depicts pharmaceuticals that have been the main source of revenue
The pharmaceutical-biotechnology industry has become increasingly consolidated over the past 15 years; in 1985 the 10 largest firms accounted for about 20 percent of worldwide sales, whereas in 2002 the 10 largest firms accounted for 48 of sales. Much of this consolidation is the result of mergers. The value of M&A activity in this industry exceeded $500 billion during the 1988 to 2000 period. A commonly cited rationale for this consolidation by proponents of these mergers is the existence of economies of scale in research and development (R&D) and in sales and marketing. However, despite rising R&D spending the productivity of the pharmaceutical industry, as measured by the number of compounds approved by the Food and Drug Administration (FDA) have deteriorated since 1996.
Furthermore, the number of new drugs entering clinical trials has declined since 1998, which calls into question the effectiveness of mergers and the scale economies hypothesis more generally. Moreover, several of the largest pharmaceutical firms have been trading at significantly lower price-to-earnings ratios than many of their smaller rivals, indicating investors believe the larger firms will experience lower growth rates.
Wyeth
Prior to merger with Pfizer, Wyeth was a multinational corporation consisting of four reportable segments: Wyeth Pharmaceuticals, Wyeth Consumer Healthcare, Fort Dodge Animal Health and Corporate. Corporate was responsible for audit, treasure, tax and legal operations of the Company’s businesses (could have potential synergies with Pfizer). All four reportable segments were being managed separately since they developed, manufactured, distributed and sold district products and services requiring different technologies and marketing strategies. Exhibit 1 describes principal business operations and product categories for the main business segments, depicts pharmaceuticals that have been the main source of revenue