Drug deal follow-up
The rash of drug announcements last week continues to bring consequences.
Another European deal
That deal is the purchase of the drug division of privately-held Germany-based Altana by Danish-based drug maker Nycomed, or rather by its equity fund owners, including CSFB Private Equity and Blackstone Group. Altana will hold on its specialty chemicals business. According to various sources, Altana has been trying to sell the drug division for a year, but no-one matched its asking price. The final deal is for €4.5 billion. Altana until last year was a research partner with Pfizer.
Nycomed, sells pain, heart-disease and osteoporosis drugs. Altana sells ulcer drug Pantoprazol, but its patent is being challenged. It also sells high-blood pressure medicine.
In a Financial Times article "Two Deals for Europe's Drug Makers" (9/22/06), the writers point to the struggles of midsize companies like the fur European firms involved in recent deals. "Midsize drug companies have found it hard to compete with the likes of Pfizer Inc. and GlaxoSmithKline PLC, which have larger research budgets and sales forces. Midsize companies also often find themselves too reliant on one or two drugs, making their sales vulnerable when generic copies of their products are launched."
And it's not just Merck and Nycomed that have expanded
"The need to pool resources and products has motivated other European drug mergers in recent years, including Bayer's $21.3 billion purchase of Schering this year, and Belgium-based UCB SA's $2.7 billion takeover of Celltech Group PLC of the United Kingdom in 2004."
Wal-Mart: the race to the bottom begins
Right on the heels of Wal-Mart's announcement of a variety of $4 generics, rival retailers Target and Kmart both came out with "me too" announcements. The drug chains have kept mum to date.
The Miami Herald, in a study after the Wal-Mart announcement, did some comparison shopping. They shopped for Enalapril, a commonly used blood-pressure medication. The prices they found ranged from $18 dollars to $25 and more at current sellers, including Wal-Mart. When Wal-Mart puts its program into force, it will cost $4. Of course, most insured users pay between $5 and $10 for the drug, but there are lots of uninsured.
Other commentators have pointed out that the Wal-Amrt price is possible bacuse it cuts drug wholesalers out of the picture and deal directly with the generic manufacturers. Drug wholesalers basically buy drugs from the drug makers and sell them to the retailers. The big problem may be that the drug chains will be forced to buy directly ot to slice wholesalers' margins razor-thin. This disintermediation will strike hard at these companies, which #1 McKesson, #2 Cardinal Health, AmerisourceBergen and Omnicare.
6:02:32 PM 
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