Several drug companies last week spent billions of dollars to buy new channels through which to sell their products, as well as new products to sell.
SmithKline Beecham, for example, said it would pay $2.3 billion for the drug-benefit management arm of United HealthCare Corp. The subsidiary had $142 million in revenues in 1993. The move is intended to ensure King of Prussia, Pa.-based SmithKline has access to the growing managed-care market. The company also said it would build programs to manage the treatment of certain conditions, such as depression.
Meanwhile, two clinical laboratory chains announced multimillion-dollar acquisitions. National Health Laboratories, a La Jolla, Calif.-based company built on sales to physicians, made plans to buy Nashville, Tenn.-based Allied Clinical Laboratories, a company known for its hospital business (See related story, this page).
The word from Wall Street is that added market share will protect companies' profits as the changing healthcare system demands lower prices. Stock prices for the companies involved in the transactions soared.
Such deals also might help integrated delivery systems because they won't have to work with as many companies to buy the products needed in physicians' offices, hospitals and other healthcare facilities. Other benefits are less clear.
"Just because you have consolidation, you're not necessarily going to see lower pricing," said Teri Louden, a partner in Louden & Co., a Nashville-based consulting firm. "It depends how the acquisition is handled. These are tough things to carry off. You can have an acquisition that results in a lower cost structure, but this takes time."
In other acquisitions, the Swiss pharmaceutical company Roche Holdings said it would pay $5.3 billion for Syntex Corp., a Palo Alto, Calif.-based company with $2.1 billion in annual sales. The combination will be the world's fourth-largest drug company.