Fitch Sees Pharmaceutical Industry Maintaining Targeted M&A (MRK) (IDIX) (PFE)

Additional mergers and acquisitions (M&A) activity in the pharmaceutical sector highlights an increased focus on large branded drugmakers seeking to fill gaps or expand into various therapeutic areas, according to Fitch Ratings. Merck & Co. (NYSE: MRK) Monday announced it had agreed to buy Idenix Pharmaceuticals Inc. (Nasdaq: IDIX) for approximately $3.85 billion in order to amplify options for treatment of hepatitis C (HCV).

HCV is an important disease in terms of mortality, morbidity, and growing number of addressable patient populations. Merck said the agreement would create shareholder value by pairing Idenix's success in HCV regimens, which includes a portfolio of HCV candidates, with Merck's experience to develop fixed dose combinations. The transaction is expected to close at the end of the third quarter.

The pharmaceutical space has seen a spate of M&A activity as firms attempt to amass scale, broaden portfolios, and explore tax advantages as a function of transactions. Despite past and ongoing industry consolidation, we are mindful that there are still a significant number of smaller players performing research in areas where some big pharma companies have not ventured or had success.

Fitch believes the industry will still maintain high interest on targeted acquisitions/joint ventures to support their internal research and development and commercialization efforts. Fitch views the recent attempt by Pfizer (NYSE: PFE) to acquire AstraZeneca (NYSE: AZN) as an exception to the broader trend of targeted transactions.

As we have stated prior, we expect major pharmaceutical companies will continue to consider divestitures of businesses that are not core to a business model focused on biomedical innovation.
Merck recently sold its consumer products business to Bayer AG and has also strengthened its product pipelines in an attempt to support long-term growth.

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