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Why pharma companies merge

Data: FactSet; Chart: Chris Canipe/Axios

This week's mega-deal was the announced $74 billion acquisition of Celgene by Bristol-Myers Squibb. BMS is paying one share of its own stock, plus $50 in cash, for each share of Celgene, which works out to about $68 billion at current prices. The combined company looks to be worth on the order of $150 billion, making it the 6th-largest pharmaceutical company in the world.

The big picture: Pharmaceutical mega-mergers are common. (Wikipedia has an exhaustive list.) Pfizer, in particular, is a product of M&A, having bought Pharmacia, Wyeth and Warner-Lambert in deals worth a combined $244 billion. Meanwhile, technology mega-mergers are rare, with the disastrous exception of AOL-Time Warner.

  • Yet despite the relative lack of M&A, the technology industry is much more concentrated than the pharma industry. The top 10 largest tech companies, led by Microsoft, Alphabet, Apple, Facebook and Tencent, account for 41% of the sector. The equivalent number in the pharma sector is just 29%.
  • Worth noting: A capitalization of $150 billion doesn't even get you into the top 10 in tech.

Be smart: Mega-mergers don't necessarily make for highly concentrated industries, especially not when it comes to pharmaceuticals. Patents have a finite lifespan, which means that if a company wants to stay big, it needs to acquire new drugs, either via R&D (which has a relatively low success rate) or else via M&A. Big pharma mergers are often a case of running to stand still.

Go deeper: The drug pricing maze