drug giants’ struggle for dominance, The
The pharmaceutical industry took only two days to allow the world to see its future. The gigantic struggle began with Roche Holding purchasing Syntex for a huge $5.3 billion on May 2. Less than 24 hours later, Eastman Kodak put Sterling Winthrop on the block. Kodak began fielding bids for Sterling almost immediately. Smithkline Beecham then revealed a plan to purchase Diversified Pharmaceutical Services for $2.3 billion and to create an alliance with the unit’s parent company, United Health-care Corp. Pfizer jumped on the merger bandwagon with its decision to embark on a venture with Value Heath Inc.
If the acquisitions and mergers are approached individually, they seem normal enough. Sterling has been a weak unit for Eastman Kodak since the company purchased it in 1988, and Syntex has also faced financial difficulty recently. However, when you look at the bigger picture, the moves seem to suggest a deeper struggle for financial control in the health-care business.
Hospitals and pharmaceutical companies are continuing a recent trend of working together and within their industries to lower their prices and become more accessible to the individual, while giving the tough insurance companies a tough fight. As the Clinton administration struggles over a nationwide health-care plan, the newly emerging pharmaceutical structure seems to be getting a jump on the White House.
Another unusual strategy for the drug companies reveals itself in light of the recent upswing in mergers — as profits in the industry remain soft, drug companies are attempting to sell more products. To combat the growing strength of distributors they have begun purchasing the distributors. In short, they are buying “muscle” since simply “working out” and marketing their products is not producing better and faster results.
As with any completely new venture, the mergers and acquisition may be fraught with mistakes. Many analysts consider the purchase price for Syntex to be one of the earlier ones.
Despite the potential mistakes, the new alliances could be most beneficial for consumers in the long run, giving drug manufacturers data on the patients covered by the distribution companies they acquire that could help keep drug costs down and boost the drug companies abilities to provide the drugs Americans truly need, eliminating some of their less useful products.
The one piece of cautionary advice many analysts now give consumers is this: Get a periodic report from your HMO if it is working with a major medical company to ensure you get a fair deal.
STANDARD & POORS’ INDEX OF DRUG MANUFACTURES’ STOCKS
1/4/93 — $131.66
4/5/93 — $107.68
6/7/93 — $125.09
8/9/93 — $99.91
1/3/94 — $124.03
4/11/94 — $98.21
5/3/94 — $110.90
Copyright Quality Services Company May 30, 1994
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