Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, August 22, 1995 TAG: 9508220060
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
SOURCE: Associated Press
DATELINE: DETROIT LENGTH: Medium
The merger announced Sunday between Upjohn and Pharmacia AB will create the world's ninth-largest drug company, Pharmacia & Upjohn Inc., with 34,500 employees worldwide and combined annual sales of $7 billion. It will be incorporated in the United States but have headquarters in London. About 4,000 job cuts are anticipated as the companies eliminate duplication.
The merger, in the form of a stock swap, comes at a time of growing competition and consolidation in the drug industry, which is facing increased pressure from health care insurers, providers and foreign governments to lower costs.
In Wall Street's first trading since the weekend announcement of the deal, Upjohn opened lower but recovered to rise $1.621/2, or by 4.1 percent, to $41.25 a share at late afternoon on the New York Stock Exchange. On Friday, when rumors of the deal spread, Upjohn had gained $3.371/2.
Pharmacia's American depository receipts, or ADRs, were up 1.121/2, or by 4.4 percent, at $26.50 at late afternoon on the Nasdaq Stock Market. ADRs are shares in a foreign company that are held in trust by U.S. banks and are traded on U.S. stock markets.
Upjohn, based in the Michigan city of Kalamazoo, makes a broad swath of medicines well known to American consumers, ranging from Kaopectate stomach medicine to the baldness drug Rogaine and sedative Halcion.
However, patents on many of its biggest selling drugs have run out, including Halcion and the anti-anxiety drug Xanax. They are now facing substantial competition from cheaper generics. In addition, Upjohn has few new blockbuster drugs in its research pipeline. One of its best hopes, Freedox, a drug proposed for head injuries, has faced stiff scrutiny from U.S. regulators.
It has maintained profit growth in recent years through cost cutting and partnership arrangements under which its sales force promoted drugs made by others. Its weakened position in the industry has made it a prime takeover target for more than a year.
Pharmacia, based in Stockholm, is one of Europe's largest drug companies, but has a relatively small presence in the United States - something that the merger would change overnight.
It specializes in drugs in targeted niche areas such as breast cancer, drugs to aid eye surgery and a hormone to help abnormally short children grow. The strategy is designed to let it dominate in areas where there are few competitors. It has a strong research department, which includes a hefty investment in genetically engineered drugs.
Pharmacia recently received U.S. approval for the use of the blood thinning drug Fragmin to prevent blood clots during surgery.
``If you look at this industry, the future is in research,'' said Upjohn Vice President Phillip Carra. ``We're going to have a $1 billion annual research and development operation.''
The merger, which still needs shareholder approval, calls for Upjohn's stockholders to get 1.45 shares in Pharmacia & Upjohn for each share in their old company. Pharmacia shareholders would get one share for each of theirs.
Shares in the new company would be equally divided between current shareholders in both companies.
Upjohn chairman and chief executive officer John Zabriskie will serve as president and CEO, while Pharmacia's chief executive Jan Ekberg will be chairman of its board.
``This really is a merger of equals, two companies about the same size strategically coming together with a very compelling business logic,'' Zabriskie said Sunday.
Upjohn had $3.3 billion in sales last year and Pharmacia had $3.6 billion.
by CNB