European drugmakers sit out M&A dance

Analysts have been predicting consolidation among biotech and pharma companies for some time now. And the major players haven't disappointed. First there was Pfizer's surprise buyout of Wyeth, then the Merck/Schering-Plough deal, and finally Roche's more-agreeable $95-per-share offer for Genentech. But despite what's happening in the U.S., most European companies say they'll sit this M&A round out, the International Herald Tribune reports. The pressures across the Atlantic are still the same--slowing drug sales, dropping prices, patent expirations--but European companies say mergers offer short-term cash improvements that won't fix inadequate pipelines.

GlaxoSmithKline, Novartis and Sanofi-Aventis--all created by mega-mergers--are all saying "no thanks." GSK CEO Andrew Witty has been vocal about his lack of interest in big M&A deals. Chief Daniel Vasella says Novartis is focusing on the Alcon buyout. Sanofi's Chris Viehbacher says a mega deal isn't on the agenda right now; the company will focus on smaller deals below $15 billion, although large scale M&A hasn't been ruled out.

Analysts say this consolidation is driven by oversupply in the industry. M&A allows companies to cut costs and reduce capacity. According to UBS analyst Gbola Amusa, AstraZeneca and Sanofi are the most obvious examples. "Sanofi and AstraZeneca still have a lot of excess capacity," Amusa tells the IHT, "and I would expect that at some stage in the future we would see somewhat sizable deals from both of them." But with the uncertainty over Crestor's patent protection, Amusa predicts buyers will steer clear of the company and AZ will instead make a buy. Amusa lists Shire Pharmaceuticals and Bristol-Myers Squibb among the likely targets.

Some analysts are warning companies that if they sleep on this opportunity, they make wake up with a shrunken market share and a weakened competitive edge. "The Europeans are asleep at the wheel--they need to react to this," said Navid Malik, an analyst at Matrix Corporate Capital. "They cannot allow the U.S. peer group to consolidate and effectively take market share away from them."

- check out the International Herald Tribune article for more