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Pfizer and AstraZeneca

Volume 753: debated on Tuesday 6 May 2014


My Lords, with the leave of the House, I shall now repeat in the form of a Statement the Answer given by my right honourable friend the Secretary of State for Business, Innovation and Skills to an Urgent Question in another place on the Pfizer bid for AstraZeneca. The Statement is as follows.

“The life sciences industry is of paramount importance to the UK as part of the Government’s industrial strategy, which is securing a long-term plan for key sectors where we are global leaders. We are committed to ensuring that we continue to be at the forefront of life sciences research and development, with high-quality jobs, manufacturing and decision-making in the UK.

There has been a lot of comment and debate in the press recently on this important issue, although I should stress that there has not been a formal bid from Pfizer to take over AstraZeneca. The Government must and are approaching it from the position of even-handed neutrality and recognise that this is ultimately a matter for the shareholders of both companies. But I can assure the House that my colleagues across the Government and I engaged early with both companies to ensure the outcome is positive for the long-term future of this sector in the UK, precisely to avoid previous Governments’ failure in this type of situation.

The Opposition call for changes to the law, but we are operating within the framework that they introduced in 2002. They removed Ministers from making decisions about mergers apart from in a few specified public interest areas. I notice that they chose not to reform the regime in response to the Cadbury/Kraft merger.

One of our options as the Government would be to consider using our public interest test powers. This would be a serious step and not one that should be taken lightly. We are open-minded about it, but we should stress that we are operating within serious European legal constraints. I can, however, assure the House that we are very alive to the national interest considerations here. We see the future of the UK as a knowledge economy, not as a tax haven. Our focus is on what is best for the UK: securing great British science, research and manufacturing jobs and decision-making in the life sciences sector”.

My Lords, I thank the Minister for repeating the Statement made by his right honourable friend the Secretary of State in the other place.

The bid from Pfizer for AstraZeneca, like others before it in recent years, raises questions. We are a party of business. We believe in free trade and open markets. We also celebrate the extraordinary success of the UK over decades in attracting FDI and R&D. There is no doubt that the largest global companies see the UK both as a centre of excellence and as a gateway to European markets. However, we have to work hard to retain that position.

We have heard a lot from the Government over the past few years about the need to rebalance the economy. The recently published BIS industrial strategy suggests that pharmaceuticals, and life sciences more generally, is one of the sectors that could make the greatest contribution,

“to future growth and employment in the UK”.

Given that, and the need to ensure that we have sustainable clusters of industrial activity across the whole UK, we need to consider the proposed takeover very carefully. This company contributes more than 3% of our exports and provides more than 7,000 jobs directly around the country. Any takeover could have a big impact on employment in Cheshire, Macclesfield, Luton and Bristol, as well as in London. Many more small and medium-sized firms are part of their supply chain, and they, too, are at risk.

The issue is whether this transaction will be good for jobs and growth in the UK, whether it will protect Britain’s knowledge, research and skills base, and whether it represents a long-term investment in the UK. However, it is also a question of whether such key decisions can be left to shareholders and boards. With that in mind, perhaps I may ask the Minister the following questions. First, Pfizer has said it is committed to making a long-term investment in the UK through this purchase, but this is the same company that shut down its R&D facility at Sandwich in 2011. Why do the Government believe that the same fate will not befall AstraZeneca? Have they not learnt the lessons of the Kraft takeover of Cadbury Schweppes? What assurances will they obtain from Pfizer? Secondly, do the Government support the case for an immediate independent assessment of this deal and the impact it may have on our science base, as called for by the Leader of the Opposition? If not, why not?

My Lords, the good news is that this country is very attractive for inward investment from across the world. Long-term economic plans play a key role in making Britain the best place in the world for global companies to invest and create jobs. Therefore this approach by Pfizer, which will be one of the biggest investments in Britain in our history, is a vote of confidence in our economy. However, as it is a vital part of the scientific research base and supports thousands of high-quality jobs, we will scrutinise any proposal extremely closely to ensure that it is in the UK’s best interest.

On the history of Pfizer in Kent, this is like any other large corporate company. We live in the age of the global economy, when large companies quite often take over our companies, and our companies do the same abroad. They tend to consolidate and try to remove duplication. What happened in Kent was regrettable. We lost 2,500 jobs. I am glad that the site has been regenerated. However, we are keeping a very close eye on the situation. A large number of Cabinet Ministers are involved in this proposal. There has not as yet been a formal approach for a takeover—it is just being discussed—but Cabinet members are involved, as are some civil servants, and the department is keeping a very close eye on this bid by Pfizer.

My Lords, it would be unwise for the Opposition to make a party issue of this. I will put a point to the Minister which I have not heard made before. It is said that the only people who have an interest in the outcome are the shareholders, but surely there is a wider public interest here. Does not the taxpayer, through the National Health Service, spend more than £12 billion a year on branded drugs? Is it, therefore, in the interests of the British taxpayer that there should be fewer but ever more powerful companies in this market?

My Lords, AstraZeneca is a global company with activities around the world. It has a strong Anglo-Swedish heritage. It is not 100% British-owned, having a large number of shareholders right across the world. It is a business that brings expertise from both the UK and the US. It has a French CEO and a Swedish chairman. Yes, it supplies drugs to the NHS and makes a very good contribution in that respect, but I am sure that if the deal goes through we will watch very closely to make sure that we protect ourselves. It will go through the Competition Commission. The deal will also go through the European Commission to make sure that this takeover is in the best interests of this country, taxpayers and the public.

My Lords, the history of acquisitions in the pharma industry is that R&D facilities are shut down. AstraZeneca has developed a very strong collaborative culture with scientists, working particularly in the life sciences, in drug development. What effect will the merger have on our science base and the excellent facilities that AstraZeneca has for drug development?

I agree with the noble Lord that AstraZeneca does some of the best research in this country. This is why it is in our interests to make sure that if the merger does take place, we will scrutinise everything that is being put forward by Pfizer to our Government. As I said earlier, the NHS makes very good use of this company when it comes to research and development.

My Lords, we cannot get away from the fact that Pfizer has form. It closed its successful R&D facility in Kent, as was mentioned; it bought and gutted three American competitor companies; and now it plans to set up a tax-inversion wheeze to buy a British gem. Does the Minister agree that this deal is not in the British interest, that it is not even in the American interest and that it is certainly not in the interests of one of our great science-based companies?

My Lords, as a Government we have a role to play—but a very limited one—when it comes to takeovers and mergers. All takeovers and mergers depend on boards of directors and shareholders. Like all global pharmaceutical companies, Pfizer has faced challenges from many of its drugs going off-patent and having to replace them with new, innovative medicines. Both Pfizer and AstraZeneca have had to restructure major research projects around the world. That is a reality for some of these research and development companies.

My Lords, it seems that without a formal bid it is important that the Government maintain their neutrality on the merits of any bid but that they still have a major interest in jobs and research. Have the Government researched whether the advantages of the so-called tax-inversion scheme could be obtained without Pfizer establishing their international corporate headquarters in the UK?

I agree with the noble Lord; the Government are very neutral on this thing and there is no formal bid at this stage. If the merger or acquisition process continues, we will keep a close eye on the subject to make sure that Pfizer cannot come and invest in this country simply as a tax haven.

My Lords, the World Health Organisation advises that priority number 1 in public health is to develop new antibiotics, because germs are becoming resistant to old ones. The Government’s major responsibility is public health. In what way will this merger help public health in this country?

My Lords, as I said earlier, as yet there is no formal bid for this merger. The relevant government department is looking into a number of things, including public health and the supply of medicines to the NHS by AstraZeneca. We will have to wait and see what developments take place over the next few weeks on this merger.

My Lords, I was glad to hear the Minister say that the Government would do whatever was best in the UK public interest in this case. I was disappointed that the Cadbury merger was not fully scrutinised or blocked, and concerned about a succession of takeovers by utility companies, which ensured that they are now owned from Germany or France and that the UK interest is not always preserved. What powers do the Government or the EU have to ensure adequate scrutiny of this important merger, and how will they ensure the observance of any promises on jobs or R&D?

The noble Baroness makes a very important point. The law already backs boards that feel that a takeover would be against the long-term interests of their company. Directors must have regard to the likely long-term consequences of their decisions. With regard to foreign takeovers, the code was amended to make it explicit that directors are not required to consider the offer price as a determining factor when deciding whether to recommend a bid. They can take full account of the bidders’ plan which, since 2011, has also had to be set out in more detail.

Quite often takeovers or mergers are looked at on a case-by-case basis. Cadbury Schweppes was a classic example of a large takeover. Although there is a limitation on what the Government can do under present legislation, the party opposite, when it was in government, had the opportunity to make the necessary changes. It did not happen, and the Cadbury Schweppes takeover went very smoothly. We are very concerned to make sure that the interests of British research and development and British exports are taken into account if any such merger or takeover takes place.