Pfizer bids for AstraZeneca: five reasons why we should care

Keeping R&D in Britain

At first glance, AstraZeneca may not appear too significant. It only directly employs around 6,700 people in the UK, and along with many big pharmaceutical companies went through a difficult period in the late 2000s, with many patents coming to an end and issues arising in the final stages of drug testing.

But the company is fast becoming an attractive proposition – and not just because of the Pfizer bid. AstraZeneca produces drugs that make up 2.3 per cent of all British exports and its recent “open innovation” strategy has paid off, particularly in its development of drugs to treat diabetes and cancer. Worldwide, it employs 51,000 people.

Pfizer is like the Real Madrid of pharma. Regardless of opposition, they will keep persevering Kevin Grogan, Pharma Times

And insiders are concerned that the takeover from a US giant like Pfizer, which has a market capitalisation of £116.7bn, would dilute the UK’s skills in this area. Just under 70,000 people are employed in the industry in the UK, a third of whom specialise in research and development.

The board itself said the bid undervalued the company, adding that its share price had performed “strongly and consistently” since late last year, “in particular the strengthening of its diabetes franchise and the progression of its oncology pipeline”.

But despite Astra’s rejection of the bid, few believe that opposition will make a difference. “Pfizer is like the Real Madrid of pharma,” Kevin Grogan, senior news editor of Pharma Times told Channel 4 News. “Regardless of opposition, they will keep persevering”.

AstraZeneca and cancer

AstraZeneca now concentrates on developing drugs to treat three core areas: cancer, respiratory and inflammatory diseases, and cardiovascular and metabolic problems. It has also forged collaborations with charities, researchers, and even rival companies like GlaxoSmithKline, to further drug development.

But it is the company’s progress on drugs for some cancers that has been getting interest more recently. It was behind the launch of Breast Cancer Awareness Month 30 years ago, and it has teamed up with Cancer Research UK and Experimental Cancer Medicine Centres (ECMC), for the first collaboration of its kind in Europe, in trials that allow patients to test several drugs at once. As a result, it makes it a hugely important asset.

Read more: Why the NHS thinks a healthy year of life is worth £20,000

Giant pharma

It is difficult to comprehend just how big this new super company would be. The joint market cap of Pfizer’s £116.7bn and Astra’s £51.47bn would make the new company a major global player – and one whose drug products we all hugely reliant on. Outside the world of pharma, the takeover would be by far the biggest foreign acquisition of a UK company, dwarfing Kraft’s £12bn buy-up of Cadbury in 2010 and Telefonica of Spain’s £17bn takeover of O2 in 2005.

Farewell to pharma jobs?

AstraZeneca recently cut hundreds of posts, but it has plans to relocate all its sites across the UK to one mega research and corporate site in Cambridge.

“However, those plans could go up in smoke if Pfizer gets its way and any link-up will inevitably see jobs slashed,” said Mr Grogan.

Pfizer’s last dealings with the UK led to the loss of 2,400 jobs, when it closed its R&D (research and development) centre in Sandwich. And Ian Read, Pfizer chief executive, said there were no guarantees for manufacturing jobs staying in the country if a takeover were to take place: “I cannot make any firm commitments.” However he added: “We do see the UK as an attractive place to do science.”

Part of the reason the UK is so “attractive” is that Pfizer, whose biggest export is Viagra, would benefit hugely from tax savings if it invests in Astra. Mr Read said the company would ideally be domiciled in the UK, while keeping its HQ in New York, to benefit from lower corporation taxes – and this is why it is willing to pay such an astronomical sum.

Labour has said a takeover needs to be judged on whether it promoted jobs and growth, protected Britain’s research and skills base and guaranteed long-tem investment for the UK.

Merger trend

The Pharmaceutical Price Regulation Scheme (PPRS) is in place to control the price these companies can charge the NHS for drugs over the next two years. After that, it can only “grow slowly”, says the agreement.

But a takeover would give this new giant company more bargaining power, and make governments more reliant on fewer powerful companies.

It could also mark a growing trend of the merging, or sharing between the big pharmas, after a decade or so of decline and remodelling of the way they are run.

Just last week, the UK’s GlaxoSmithKline and the Swiss company Novartis agreed a multibillion dollar swap of assets which would combine brands including Beechams and Tixylix. Pfizer’s bid could be the start of a new phase for big pharma.