Bristol Myers Squibb Analysis
of these reasons BMS’s best option for solving its current woes is to allow itself to be acquired by a major competitor. As for possible partners for BMS, the most likely appear to be Glaxo Smith Kline (GSK) or Wyeth (formerly American Home Products). GSK faces the same problems as the rest of the industry, competition from generics and the need to shore up its pipeline and existing drug portfolio. A merger or acquisition of BMS would be appealing given that there is little conflict between the two company’s product portfolios. The combined firm would be more competitive in a wider range of fields. While GSK is strong in the areas of HIV and gastro-intestinal medicine, BMS’s portfolio of cancer and anti-depressants drugs would make it a nice addition.
Another potential partner would be Wyeth for many of the same reasons, little overlap in product portfolio and strong presence in both the prescription and over the counter market. A third benefit of the combination would result from the firms nutritional products divisions. Wyeth is strong in most overseas markets and BMS is strong in the United States. A combination would produce a company that would become a dominant force in the global nutritional market. One hurdle to a Wyeth-BMS combination is the relative small market capitalization of Wyeth. If a larger company decides to enter the bidding for BMS, they will easily be able to outbid Wyeth as was the case when Pfizer outbid what was then American Home Products which had agreed in principle to a merger with Warner-Lambert.
The proposed combination of Pfizer - Pharmacia company will create the world’s largest Pharmaceutical company more than twice the size of the next competitor. The proposed merger has set a new level for big pharmas to aspire to, with combined pro-forma ethical sales expected to top $40 billion. What is certain is that Pfizer's move will spark a round of consolidation within the pharmaceutical industry as firms strive to remain competitive.
As the industry prepares for a new round of mergers and acquisitions, patent expiry of blockbuster drugs should become a factor. The potential for generic competition to decimate revenues is perhaps the key factor influencing Pfizer's decision to merge with Pharmacia. Companies with a high dependence on drugs that have lost patent protection are forced to devote resources to safeguarding these revenue streams; this is clearly the spot that Bristol Myers finds itself in.
For financially strong firms, one solution to the short- to mid-term revenue gaps is to acquire another company, maximize the opportunities presented by the marketed portfolio and hopefully strip out some costs to keep the bottom line growing healthily. For firms such as Bristol Myers, facing more dire realities being on the receiving end of a acquisition is a best case scenario and possibly there only hope for remaining competitive and generating any sort of return to their shareholders.
Finally, and perhaps most pertinent in the current market, the [next page]