Zeneca-Astra Merger Seen As Insignificant To U.S. Drug Mkt
By Melanie Trottman and Raymond Hennessey
NEW YORK (Dow Jones)--The link-up of Zeneca Group PLC (ZEN) and Astra AB (A) will have little effect on the U.S. pharmaceutical market, save for a few markets where the companies currently are players.
The two companies announced Tuesday that they are in "advanced" talks for a "merger of equals." The companies didn't elaborate, but said "a further announcement will be made as soon as possible."
The combination would create a European drug giant with strong market positions in oncology and asthma. The new company would be bigger than Schering-Plough Corp. (SGP) and Warner-Lambert Co. (WLA) in overall revenue and comparable with the two in market capitalization, said Hemant Shah, an analyst with HKS & Co.
But a combined Zeneca-Astra wouldn't approach the size or scope of industry giants like Merck & Co. (MRK) and Pfizer Inc. (PFE)
So, Shah said, the merger "doesn't really threaten anyone in the U.S. in any way, shape or form."
A look at U.S. sales for the two companies proves this, said Hambrecht & Quist Inc. analyst Alex Zisson. Currently, Astra is ranked 13th and Zeneca is ranked 17th in the U.S., he said.
"Together in the U.S., they'll barely break into the top 10," he said.
While a combination may help the companies make further inroads into the U.S. market, Zisson said he doesn't believe this will "change the landscape at all."
In Europe, though, a Zeneca-Astra merger would follow a string of deals that have emerged over the past few weeks, as drug companies overseas try to gain scale.
Germany's Hoechst AG (HOE) and France's Rhone-Poulenc SA (RP) last week agreed to create Aventis SA, a combination of the company's drug, veterinary and agrichemical businesses. The companies said Aventis is a first step toward a full merger of the two companies.
Also last week, French companies Sanofi SA and Synthelabo SA unveiled their own merger.
Astra was one company in need of a partner, HKS's Shah said, because it was "going to face the biggest patent expiration of any drug company." The patent for the company's ulcer drug Prilosec - the world's most-prescribed drug, which is marketed in the U.S. by Merck - expires in late 2001.
Zeneca, too, has been rumored to be looking for a partner. But U.S. companies weren't biting, probably because European companies don't enjoy the kind of market valuation that American companies do, Shah said.
Zeneca and Astra could benefit from the increase in their research-and-development pipelines and budgets that a merger would provide, said Steve Paspal, senior research analyst with Sovereign Asset Management, a unit of John Hancock Funds.
"Smaller companies are finding it harder and harder to compete," Paspal said.
The true impact on the U.S. market, though, may be felt in the areas where the individual companies have strong market positions already, analysts said.
Zeneca is big in oncology, though its single largest drug is Zestril, for hypertension. Zestril competes with Merck's Prinivil.
Astra, on the other hand, is strong in the respiratory market, holding the second-largest market position globally, said HKS & Co.'s Shah.
Astra could help Zeneca relaunch Zeneca's antiasthma therapy Accolate, which is facing much competition from Merck's Singulair, a once-a-day tablet to treat chronic asthma in adults and children, Shah said.
Short of that, though, they don't have anywhere near the product mix of the large U.S. competitors. "Combined, they focus on three or four therapeutic classes," Shah said. "They're not really broad-based companies."
Zeneca's American depositary receipts closed up 4 1/4, or about 10%, at 45 Tuesday, while Astra's ADRs gained 3 5/8, or 20%, to close at 21 7/8.
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