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Near and Far: The Multi-Faceted Implications for Pfizer-AZ
The Pfizer-AstraZeneca courtship raises many fascinating questions about the future shape of the international pharmaceutical industry, but it is also revealing some remarkable displays of parochialism. Even the olympian Financial Times has been displaying some nationalistic sympathies that sit oddly with its customary laisser-faire liberalism. A recent editorial seemed to argue strongly for some form of government intervention to prevent an industrial crown jewel being ripped from British hands by dubious foreigners.
The most striking--if most understandable--example of this self-inflicted myopia was perhaps a report by the Manchester Evening News, the local newspaper in the northwest of England, where AstraZeneca (and its forebear, ICI) had its traditional base. "The prospect of a multi-billion pound buyout of drug firm AstraZeneca has raised concerns over a fresh jobs blow to the region", it lamented this week.
This observation glibly minimizes the fact that AZ is already set to move the majority of its research and development operations from the region to a new base in Cambridge. The concern expressed by the Manchester Evening News that AZ "still employs hundreds at a manufacturing plant in Macclesfield" (a small town in the region) is on a par with the legendary approach of the local Scottish newspaper that reported the sinking of the Titanic under the headline "Scotsman lost at sea".
No one is--or should be--callously indifferent to the jobs of local workers or to the fate of the industrial assets of a country. But sensitivity has to be balanced with sense. The dynamics driving the Pfizer-AZ relationship derive from other-- and more demanding--imperatives. Some of those imperatives may provoke legitimate questions about the fiscal policies of the US: it is indeed perverse that American tax laws on repatriated profits are so punitive that the industrial policy of many US multinationals becomes unduly subject to treasury considerations. But the attractions for Pfizer of investing profits outside the US are not uniquely the consequence of domestic tax law. AZ is attractive in its own right, partly because it has been something of a jewel, and partly because much of its operating base is in European countries where conditions are broadly favorable to jewels of this sort.
Pfizer's desires for expansion and acquisition are entirely consistent with the nature of the industry that it forms—currently--such a successful part of. AZ's value as a potential source of new products springs equally from the same logic. Its own successes in the past are a consequence of pursuing opportunity where it perceived it. And the evocations of time in the advised use of "currently" and "in the past" also relate to the case in hand: Pfizer has not always been the powerhouse it is today--and nor will it necessarily remain one in the future. Just as AZ was once eminent (if not pre-eminent) in some of its areas of specialisation, it is now no longer so convincingly at the forefront of innovation, and as a consequence its star has paled, and left the company in its current state of vulnerability. There are no fixed and guaranteed positions in innovative industries--and a fortiori in international industries.
The international dimension of the sector is the key to the discussion. National loyalties have their place in the world, but the history of the drug industry demonstrates that they have only a small role to play in business--and attempts to build national champions have floundered more often than they have succeeded. Where strong companies have emerged, it has not been predominantly because of national industrial policies.
In the week that it was announced (even if on the basis of some dodgy calculations) that the Chinese economy was outstripping the US economy and was about to become the biggest in the world, few reminders are needed of the shifting pattern of international trade and international business. Those are realities that should attract the attention of industry strategists and interested policymakers.