bioMerieux's and Pierre Fabre's Surprise
Executive Summary
Alain Merieux and Pierre Fabre surprised the world by announcing the merger of the two companies they founded, bioMerieux, the world's eighth largest diagnostics company, and Pierre Fabre, the second largest pharmaceutical house in France. The stated purpose of the proposed merger is to allow both companies, which will have combined sales of $1.6 billion, to better compete in consolidating industries than either could on its own. They will focus on four therapeutic areas, with a goal of linking diagnostics to therapeutics. The companies are unlikely partners from a strategic point of view: bioMerieux makes in vitro diagnostics instruments and reagents, while Pierre Fabre is a mid-sized pharma company.
Alain Merieux and Pierre Fabre are founders of two of France's most eminent private health care suppliers—bioMerieux SA , the world's eighth largest diagnostics company, and Pierre Fabre SA , the second largest privately held French pharmaceutical company. Both men, who are in their 70s, are long-time friends, facing retirement and the challenges of bringing their companies into the 21st century.
And that may go a long way towards explaining their surprising announcement that they are merging their companies to form a new entity, bioMerieux-Pierre Fabre[See Deal]. At first glance, the idea hardly makes strategic sense—Pierre Fabre is a mid-sized pharmaceutical company with expertise in oncology, immunology, and cosmetics. BioMerieux makes in vitro diagnostics instruments and reagents, mostly for infectious diseases.
The stated purpose of the proposal, however, is to allow both companies, which will have combined sales of $1.6 billion, to better compete in consolidating industries than either could on their own. BioMerieux-Pierre Fabre will focus on oncology, immunology, central nervous system and cardiovascular diseases, with a goal of linking pharmaceuticals to highly specific diagnostic tests in order to better determine which patients are most likely to benefit from a particular treatment.
Alain Merieux admits the move isn't "classical." But, he argues, he and Fabre share a long-term vision of the future in which the use of diagnostics and pharmaceuticals are closely intertwined. Moreover, the merger is the first of several deals the partners expect to make as a unified entity—although they haven't yet outlined what kind of relationships they are looking for. "It's a new platform but not the end of the trip," Merieux emphasizes. "It is a step towards building a new company."
Echoes Thierry Dieuleuveux, an executive at Pierre Fabre: "Alain Merieux and Pierre Fabre have had a close relationship for years and share similar views about the future of medicine." Moreover, he points out, bioMerieux and Pierre Fabre have some synergies in R&D, which they will integrate, notably Pierre Fabre's small immunology effort near Geneva and bioMerieux's infectious disease programs. BioMerieux subsidiary Transgene SA , a biotech company involved in gene therapy, is also a possible link.
The deal is structured as a merger of equals—Merieux and Fabre will be joint heads, with Fabre serving as chairman of the board of directors and Merieux as president of the directoire, which is a French governing board. Jean Luc Belingard, president of Pierre Fabre, and Francois Guinot, CEO of bioMerieux, will share responsibilties for running the new company.
Clearly, Pierre Fabre and bioMerieux independently had to do something in response to relentless competition and consolidation in their respective industries. Both companies aren't large enough on their own to build competitive R&D and distribution infrastructures necessary to sustain global businesses. And both have succession uncertainties—Pierre Fabre has no direct heirs and Merieux has a physician son working in the business who reportedly isn't interested in running it. Pierre Fabre derives half of its $1 billion revenues from pharmaceuticals and the rest from two other businesses, cosmetics and homeopathy, making it a small player in a field dominated by much, much larger multinational companies. It has some significant oncology products, notably Navalbine(vinorelbine), which has worldwide sales of 1 billion French francs, but in general it faces an aging product line and reimbursement pressures in France, from which it derives more than 60% of its sales.
BioMerieux (see "Focused Consolidator: bioMerieux,"IN VIVO, May 1998 [A#1998800111), which derives nearly 60% of sales from microbiology and the remainder from immunoassay tests with an emphasis on infectious diseases, is growing at 6-7% a year, slightly above the diagnostics industry average. It is the second largest player in microbiology, behind Becton Dickinson & Co. , but it isn't large enough to compete head-on with the top diagnostics companies. Moreover, although a collaboration with Gen-Probe Inc. in molecular diagnostics goes part of the way towards addressing the issue [See Deal], it has gaps in important technologies. Merieux is more global than Fabre, deriving 70% of its sales overseas, but its immunoassay business has struggled in the important US market.
What's not clear is how this merger addresses the companies' basic problems. As experts point out, it doesn't give bioMerieux critical mass in diagnostics and it doesn't help Pierre Fabre increase its position in the pharmaceutical world. The companies appear to have few synergies in sales and marketing or R&D. Both companies will need cash they don't have to make further acquisitions. Getting the money or finding the right acquisition targets might not be easy; France doesn't have many small pharma or diagnostics companies left to choose from. And the combination might not help their chances of getting acquired, if that is an option; they might be better off as pure plays.
One explanation for the deal, some believe, may be Jean Luc Belingard, the former head of Roche 's Roche Diagnostics unit. A highly regarded executive with a broad background in diagnostics and pharmaceuticals, he engineered the merger between Boehringer Mannheim and Roche Diagnostics in 1997 [See Deal]. While his role in the current deal isn't publicly known, he has been a strong proponent of the pharmaceutical-diagnostics interlink. He is also on board of directors of Chugai Pharmaceuticals Co. Ltd., which owns Gen-Probe, one of bioMerieux's key strategic alliance partners.
The large French holding company CGIP also may be another driver, some experts are guessing, since it owns 33% of bioMerieux. It hasn't publicly indicated its attitude towards the merger or its involvement, if any, with Merieux's decision. Although its stake in the new company would be diluted to 17%, some speculate it could be a source of funds for further acquisitions.
The real reasons, however, may be more obvious. The deal keeps both companies from being absorbed by a less culturally-compatible acquirer, at least for the moment. And the short-term considerations may be most important to the two corporate patriarchs unwilling to see their creations end up in the hands of outsiders.