Pharma Bolt-Ons

How should we think about bolt-on mergers for Big Pharma?

Recent deals have included Schering-Plough's pending buyout of Akzo Nobel's Organon BioSciences unit for $14.4 billion, AstraZeneca's pending acquisition of MedImmune for $15.6 billion, and Mylan Laboratories' pending takeover of Merck KGaA's generics business for $6.7 billion.

It is really pretty simple. It is all about filling portfolio gaps and adding new products and capabilities without all the hassles associated with major acquisitions.

Less dilutive, less complex, more complimentary.

This approach is sound from both an asset management and asset acquisition point of view.

This approach isn't new. Warner-Lambert acquired Agouron in 1999 to get its eye business and library of compounds, a nice simple complimentary acquisition.

Then Pfizer, to preserve its access to Lipitor, bought Warner-Lambert and then, to preserve its access to Celebrex, Pharmacia. Ouch, indigestion that even Nexium couldn't fix. Getting Lipitor has buoyed Pfizer for years, but Celebrex ran into problems and millions of dollars in shed expenses and thousands of lost jobs, hasn't been able to salve the Pfizer stock prize or offset the rising tide of patent expirations.

Making more strategic bolt-on acquisitions over recent years could have added more products to maintain and to ultimately grow the company's product portfolio. Witness what Pfizer is now doing in vaccines.

Pfizer Vaccines Research is a new area of research committed to the belief that biotherapeutics, including vaccines, will grow to form 20 percent of the Pfizer portfolio, leading to the launch of one biotherapeutic product a year, every year, by 2016.

Here is a strategically sound bolt-on combination of small and large molecules.

Look for more of these kind of acquisitions in the future across the industry. The pressures of the marketplace demand it.