AstraZeneca takeover could spell end of big pharma in Sweden

As Pfizer offers the British government promises to protect the UK research base in order to smooth its planned takeover of AstraZeneca, a lack of similar pledges to Sweden is ominous for the country's dwindling big pharma sector.

Although headquartered in the UK, AstraZeneca is still known as the 'Anglo-Swedish pharma company', having been created from the merger of the British Zeneca and Sweden's Astra in 1999.

But the intervening years have seen the company loosen its ties with Sweden, when once it had three R&D centres in the country, just one now remains, in Mölndal, near Gothenburg.

This now looks odds-on to be shut down if Pfizer secures the takeover bid in the next few weeks. Many US commentators are predicting closure of Pfizer and AstraZeneca research sites in the US if the deal goes through, but Mölndal will be equally vulnerable to post-merger cuts.

The site's future had looked secure last year after it was named as one of the firm's three core global R&D centres (alongside Gathersburg in the US and a planned new centre in Cambridge, UK) following AstraZeneca's major reappraisal of its research strategy.

Mölndal is focused on two major disease areas - cardiovascular/metabolic diseases and respiratory/inflammation/autoimmunity – with around 2,200 scientists employed at the site.

If Mölndal were shut down, it would spell the end for Sweden as a major player in global pharma research. The country has a large number of small biotech companies, and one or two speciality pharma firms, but nothing on the scale of AstraZeneca.

AstraZeneca - a lost cause?

Sweden's enterprise minister, Annie Lööf said on Friday that a potential take-over would threaten Swedish jobs.

"In my contact with Pfizer, I have put forward the government's strong wish to safeguard Swedish jobs and research," Lööf told the TT news agency. "It's important that both research and development stay in Sweden, regardless of who owns [the company]."

Torun Nilsson, an experienced journalist with Sweden's business publication Dagens Industri says a Pfizer takeover would 'definitely be bad' for Swedish life sciences research, put predicts that an increased bid would be almost impossible for AstraZeneca's board to resist.

She says that apart from the remarks made by the enterprise minister, Sweden's politicians are not fighting, or even debating, Pfizer's takeover bid for the country's last remaining big pharma company.

That's because, she says, most politicians think it is a 'lost cause'.

"The politicians haven't said very much, even though there is a general election this year. I think they have given up on the big pharma industry."

Nilsson says she can't be sure that Pfizer would definitely close the Mölndal facility. However Pfizer's track record of closures following two previous mergers is a major warning sign for the Swedish centre. When Pfizer bought another major Swedish pharma company, Pharmacia, in 2003, it pledged to maintain its R&D centres, but within a few years these had been closed.

Leif Johansson – defending independence – for now

Many in the UK's science and business communities have expressed dismay at another foreign takeover of a former British 'national champion', with Prime Minister David Cameron's Conservative following a recent tradition of UK governments reluctant to intervene in such deals. But critics say new owners frequently strip these companies of their assets and make employees redundant, thereby eroding the country's industrial base.

While the UK has seen a number of major homegrown firms swallowed up by foreign-owned firms, Sweden has suffered even more. One of Sweden's most famous exports, Volvo cars, was sold to Ford in 1999, while truck maker Scania is currently facing its own foreign buyout by Germany's automotive giant Volkswagen.

AstraZeneca's chairman Leif Johansson, is one of Sweden's leading industrialists, a former president and CEO of the country's iconic automotive firm Volvo, and also currently chairman of telecoms giant Ericsson.

His arrival at AstraZeneca in 2012 was seen as a reaffirmation of the company's Swedish roots, and he played a key role in appointing former Roche executive Pascal Soriot as the company's new chief executive.

Johansson last week took the highly unusual step of releasing a video message in which he rejected Pfizer's takeover bid, saying he had faith in his firm's future as a standalone company.

But industry experts in Sweden are pessimistic about the chances of Johansson holding out against an increased Pfizer bid, which could come any day.

There is a consensus that Johansson is sincere in his wish to repel Pfizer – not least because he wants to finish the job of turning round AstraZeneca, and because of his connection to Swedish industry. It is perhaps no coincidence that it was Johansson who was the Volvo chief executive responsible for selling the car division to Ford for $6.4 billion in 1999, a move which horrified many Swedes.

In an interview with the Financial Times last week, Johansson indicated that he views pharma differently to the car industry.

"There are other industries where I would be the first to stand up and make a case for consolidation, he said. "But this is an industry in which a very significant part of the long-term value is in research and development and it is far from clear that big mergers increase productivity."

Torun Nilsson says Johansson's reputation in Sweden will be on the line, depending on how the deal pans out, but says he has limited options if Pfizer raises its bid again.

"I think he will have to say yes finally, I don't know how he can oppose it." She adds that AstraZeneca's biggest shareholder groups will also be in a similar position. The Wallenbergs, one of Sweden's richest families, with investments across the country's industry, still holds a 4% stake in AstraZeneca, but don't hold enough sway to block a predator as large as Pfizer.

The tax question

Anders Ydstedt is a policy advisor to Swedish industry and organisations and chairman for free market think tank Captus. He says Pfizer's move raises big questions about how individual countries should promote free enterprise and their homegrown industries. He thinks Sweden's failure to update its tax regime and industrial policy has allowed large institutions and foreign owners to muscle in on its industry, against the best long-term interests of the country.

He believes Sweden's high taxes on ownership such as taxes on capital gains and dividends have squeezed out entrepreneurial owners, the kind of industrialists who have a long term vision for growing a company rather than short term profit-making.

Taxes are also a prime motivator in Pfizer's latest move - it is planning to use the AstraZeneca acquisition to switch its tax base to the UK, and exploit the country's increasingly favourable tax regime.

Ydstedt is wary of country's competing to have the most competitive tax base – calling it a 'race to the bottom', and warns that corporations will explore further loopholes to dodge taxes internationally.

"I think change of ownership is generally good for business," he says. "And globalisation gives new opportunities to buy or sell companies - but when M&A are driven by taxes, that is not good for the economy."

Pfizer's opportunistic tactics on tax look set to make Sweden a clear loser – but the US as well, which stands to lose significant tax revenues. Yet the US could well lower its own corporate tax levels, thereby prompting Pfizer to perform a swift switch back to a US domicile. Sceptics say this could potentially leave the UK high and dry, and with a much diminished pharma industry.

Links

Pfizer promises long-term commitment to UK