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									                                         Pharmacia & Upjohn

                                        “A Merger of Equals”

In August 1995, John L. Zabriskie, CEO of The Upjohn Company of Kalamazoo, Michigan, and
Jan Ekberg, CEO of Pharmacia of Sweden, announced a “merger of equals”creating Pharmacia
& Upjohn (P&U)1. The merger was implemented to take advantage of complementary
geographic reach, product portfolio, and R&D pipeline strengths. Pharmacia had merged the
year before with a leading Italian pharmaceutical firm.

The Upjohn Company‟s most successful prescription products included Motrin, Xanax, Halcion,
the Medrol family, Cleocin Phosphate, Micronase, Rogaine and the consumer products Unicap
vitamins, Kaopectate and Cheracol D cough syrup. The company‟s 100 year history had shown
consistent growth until the mid-1980‟s. R&D productivity hit a decade-long dry spell and the
company faced a “Gap” in maintaining future revenue streams and growth. The Board of
Directors determined the best course of action was to seek a partner with complementary

Pharmacia was a leading pharmaceutical firm based in Europe with a focus on allergy medicines
and human-growth hormone. It had a strong molecular biology approach. Pharmacia‟s leading
products included Genotropin, a growth hormone and Adriamycin, an anti-cancer drug.
Pharmacia‟s presence in the United States was modest compared to that of The Upjohn

Through the merger, Pharmacia acquired access to Upjohn‟s U.S. sales, marketing, and
distribution infrastructure. Upjohn gained Pharmacia‟s sales and marketing support in Europe.
The synergy created was to benefit both companies.

The merger started with a strong balance sheet, as no costs were associated with financing or the
amortization of goodwill. Based on 1994 results, the operating income of the merger was
estimated in August 1995 to be $1.2 billion, the net income $835 million and the combined sales
$6.8 billion. With R&D expenditures of $1.1 billion and market capitalization of $13 billion, the
merger ranked fifth in sales in Europe and in the top 15 in the world. The company expected in
1995 to launch 28 products over the following three years. A new logo was designed, derived
from cave drawings, and included a hand for “human inventiveness”, a bird for “challenge and
hope” and a star for “inspiration”. To drive profit growth the new company decided in 1995 to
slash $500 million from its budget and cut headcount from 34,500 to 30,500.

In setting up the headquarters for the merged company, senior management took an unusual
approach. The headquarters would be neither in Kalamazoo, Michigan nor Stockholm, Sweden.

 This case is prepared by Shaojie Cui and Michèle van de Walle under the direction of Prof. S. Tamer Cavusgil,
Michigan State University and John Riesenberger, for class use only.

It was decided that the new corporate management center would be based in London, both Mr.
Zabriskie and Mr. Ekberg would be located at the London headquarters, along with
approximately 100 staff members. The center‟s responsibilities would cover world science and
technology (R&D), finance and administration, and legal affairs.

Three commercial operations headquarters, Pharma Product Centers (PPCs), were based in
Stockholm, Sweden, Kalamazoo, Michigan, and Milan, Italy. PPC US had responsibility for
CNS/neurology, critical care, infectious diseases, inflammation, and women‟s health. PPC
Sweden covered metabolic diseases, nutrition, ophthalmology, plasma, thrombosis and urology,
and PPC Milan in Italy was responsible for oncology. Each PPC operated independently and
each maintained their former unique and separate systems of work processes. No senior
executive was appointed to maintain overall responsibility for global commercial operations or to
coordinate or integrate the leadership of the three PPCs.

The geographic dimension includes the market regions for the Americas, Europe and Asia-
Pacific. Each of those entities had sales and earnings responsibilities for the pharmaceutical
business in its region. This included local regional business development, marketing, sales, and
administration. A group of 18 senior officers including the PPCs heads met once a month to
make the decisions for the corporation. Former Upjohn CEO John Zabriskie was appointed CEO
and President.. Former Pharmacia CEO Jan Ekberg was appointed as Chairman of the Board.

In June 1996, the profit of the company reached a record high: 70 % higher than in August 1995.
At the end of 1996, the new company had shown a better performance in R&D, and it had
obtained 10 approvals for new products or product extension.

But going global is a lot tougher than it appears. At the new Pharmacia & Upjohn Inc., Swedes
complained of having to write detailed monthly reports demanded by the Americans. Americans
grumbled when Europeans opposed Upjohn‟s policy of drug and alcohol testing of workers, and
when they had to cancel summer meetings in August because their European colleagues were
taking their vacations. Italians decried a supposed takeover by American executives.

At the end of 1996, several top R&D people had departed. A product launch was delayed due to
communications problems between departments, and costs related to the merger had reached
$200 million higher than projected. In January of 1997, the CEO John Zabriskie departed for
“personal reasons”. Several executives said that the American‟s hard-charging style had
infuriated the Europeans. Jan Ekberg operated as both Chairman and CEO..

Few had anticipated the obstacle culture would pose. The problems were foreshadowed by the
issue of deciding where to establish the company's headquarters. Under the merger accounting
rules, the new company had to be registered in the U.S., but the Europeans feared U.S. control
over Europe. The choice of London as a compromise proved unwieldy. The extra layer of
management slowed approvals, product launches, and staffing decisions. People in Milan and
Stockholm were frustrated as well as people in London. Goran Ando, executive vice-president
for research, was quoted as saying “Loads of little things,” had disturbed operations, “We
messed up endless numbers of meetings” because of summer vacation issues. A failure to mesh
computer technology delayed printed material used in a new drug application process. Due to

shortcomings in the computer system, the company was late to realize that a year-earlier gain
from currency hedging was not going to be repeated in the 1996 third quarter.

Work rules also became a point of contention. At Pharmacia‟s Italian business centers wine was
served in the company dining room and smoking was allowed in boardrooms. Upjohn had to
drop its strict drug and alcohol policies in Europe. Management styles, too, were different.
Swedes were used to an open system, where teams were left on their own. Upjohn was used to
commanding captains. Swedish managers were suddenly required to produce frequent reports,
budgets and staffing updates. Dr. Borg in Milan said, “I was spending hours on these reports
which no one could possibly read. Eventually I just stopped writing them in such a detailed
way”. He left the company to join Ferring AB in Sweden. During one meeting, Zabriskie
overruled a top development executive on the pricing of a generic drug. “It was degrading”, said
the former head of cancer research in Italy, Stener Kvinnsland.

Pharmacia in Italy had to mix the two cultures of Swedes and Italians. For example, the Swedes
are used to working as equals. In contrast, the Italians place great stock on hierarchy. The
addition of a third country added even more strains. Upjohn quickly sent a crew of managers to
examine the Italian operations. The Americans did not trust the Italian data and were asking for
constant verification.

According to the analysis of Geert Hofstede, four primary dimensions measure a national culture
or character: power distance, uncertainty avoidance, collectivism/individualism, and
femininity/masculinity. On a scale from high to low of power distance (the number of
management layers between the board and the lowest ranked employees) Italians scored the
highest, followed by Americans and Swedes. For individualism Americans scored the highest,
followed by Italians. Italians scored high for masculinity, followed closely by Americans, with
Swedes at the bottom of the range. They also outscored Americans and Swedes for uncertainty
avoidance. Such differences in the three national cultures present in the merger added
unnecessary strain on the management of the operations.

In less than two years after the merger, the company‟s R&D organization began experiencing
difficulties.. Sales and earnings were both declining. Industry observers pointed to an exodus of
senior scientists and managers at an alarming rate. Morale among employees was at an all-time
low. Between the Fall of 1996 and the Summer of 1997, the stock of the merger fell by 25 %,
while the Standard & Poor„s Pharmaceutical Index increased by 34 %.

In May 1997, Fred Hassan was appointed as CEO Hassan, an American citizen born in Pakistan,
had worked for 17 years with Switzerland's Sandoz in executive marketing positions. Previously
at American Home Products (AHP) Hassan had succeeded in integrating Cyanamid and AHP‟s
merger. Hassan announced in July that he would restructure the company around key markets
and products. Jan Ekberg returned to his position as Chairman of the Board.

Hassan initiated cost savings through the reduction of infrastructure and the elimination of
resource duplication. It was intended to realize $250 million in annual cost savings by the year

Carrie Smith Cox was hired as the Senior Vice President and Head of Global Business
Management. She was responsible for setting up the global commercial operations organization
and charged with ensuring the successful launch of new product candidates including Detrol
indicated for stress urinary incontinence, and for maximizing the potential of key products
currently in the marketplace. Other accountabilities included enhancing the interaction between
the company's research and development organization and the sales and marketing functions,
including the early identification and prioritization of compounds with significant commercial
potential. Ms. Cox was based at Pharmacia and Upjohn's corporate management center in the
United Kingdom and reported to Mr. Hassan.

Several other new appointments were made early 1998, adding to the top management team.
Paul L. Matson from Moore Corporation Ltd. of Lake Forest, Illinois, the global information-
handling products and services company, was appointed as Senior Vice President of Human
Resources. Matson had extensive experience in building high quality human resources within
large and complex organizations, and doing so on a global level across diverse cultures. He was
expected to bring a demonstrated ability to work with line management to improve overall
performance by enhancing the work culture and accountabilities. In his new capacity, Matson
would report directly to Hassan.

Christopher J. Coughlin from Nabisco, Inc was appointed as Executive Vice President and Chief
Financial Officer. In Nabisco, Coughlin served as President, Nabisco International and earlier as
Executive Vice President and Chief Financial Officer. Prior to joining Nabisco in 1996,
Coughlin spent 14 years in the pharmaceutical industry with Sterling Winthrop, Inc., where he
had major responsibility for the company's international operations. Coughlin would be a
member of Pharmacia & Upjohn's Executive Management Committee and would report to

The size of its board of directors was also reduced from 15 members to 12. The action were
aimed to bringing the size of the board into line with other global companies, improving
efficiency, and augmenting the diversity of business expertise represented on the board. The
former Chairman of the board, Jan Ekberg retired.

It was announced that the new corporate headquarters would be located in the United States..
The management center in London was closed. The firm settled in New Jersey, the center of
excellence for the U.S. pharmaceutical industry.. A major element of change was the dismantling
of the 3 PPCs located in Kalamazoo, Milan and Stockhlom in favor of a unified commercial
operations headquarters based in New Jersey. This new headquarters was responsible for all
corporate functions. The prescription pharmaceutical marketing and sales organization for North
American operations was also moved to New Jersey... This change created a unified global

Another step to simplify the decision-making structure resulted in a major reorganization of its
research and development organization. The new global decision-making structure consisted of
four integrated decision-making bodies, which had the core responsibility for ensuring that the
resource allocation to the R&D portfolio was focused on the right product candidates. The
reorganization also created a clearer division between decision-making groups responsible for

managing the R&D portfolio and the functional organization that is responsible for implementing
these decisions.By prioritizing key projects, rationalizing resources and establishing clear
accountabilities throughout the organization, the reorganization was aimed to increase the focus
on managing the transition of candidate drugs to early development, alignment of R&D with the
company's marketing and global supply groups, and integration of clinical and regulatory
functions across the company. The annual R&D budget was targeted at 17% of Total Annual

In the prioritization of key projects, Zyvox, an antibacterial agent for multi-resistant gram-
positive infections, was designated as a top priority for R&D. By the end of 1997, the
development of the drug progressed into Phase III.

In 1997, the company introduced a number of new products with significant market potential, in
particular Xalatan, Detrol and Edronax. Xalatan, a therapy for glaucoma, made a good
contribution to the top line. Edronax and Detrol made immediate top-line contributions. Edronax,
a new antidepressant, became available in its first market the United Kingdom in July, while
Detrol was introduced in its first market, Sweden, in September. Other new products launched in
1997 included Mirapex for Parkinson's disease, Rescriptor for the treatment of HIV and Vistide
for cytomegalovirus, a complication of AIDS. These new product launches tied the year‟s lead
for the number of new launches among companies in the pharmaceutical industry.

In August 1997, the company completed the merger of Pharmacia Biotech and Amersham Life
Science to form Amersham Pharmacia Biotech, Pharmacia & Upjohn. Pharmacia Biotech was
the Upsala-based biotechnology supply business of P&U. P&U held 45% of the new company,
which became the largest research-based biotechnology supplier in the world.

The company saw growth in the first quarter of 1998, with the turnaround program beginning to
yield results. Excluding currency impacts, sales increased by 8% with a 24% increase in U.S.
sales and a 10% sales increase in Europe. Earnings in the quarter increased 5%, excluding the
impact of currency. In 1998, the company delivered consecutive quarterly growth and double-
digit earnings for the whole year.

In 1999, Pharmacia & Upjohn achieved double-digit increase in both sales and earnings for the
fourth quarter and for the full year. Fred Hassan was named 1999 CEO of the Year in the global
pharmaceutical industry at the Financial Times Global Pharmaceutical Awards.

At the same time, the development of Zyvox was progressing to the last stage clinical trials.
Preliminary results from Phase III clinical trials suggested it was effective for the treatment of
Gram-positive bacteria infections frequented in hospitals. Zyvox was the first drug from the new
oxazolidinone class developed for clinical use, the first new antibiotic with a novel mechanism
of action in more than 35 years. The New Drug Applications for Zyvox was submitted to the
FDA in October 1999 and approved in April 2000.

In August 1999, the company completed the acquisition of SUGEN, a biotechnology company
and worldwide leader in target-driven drug discovery and development for novel development-
stage cancer therapies. SUGEN had an outstanding scientific team and proprietary technology,

which Pharmacia & Upjohn expected to leverage across its core research areas. Hassan referred
to the acquisition of SUGEN as “another example of the new P&U's strategy to supplement our
internal R&D initiatives with external innovation.” and “an important investment in sustaining
P&U' s long-term growth.” SUGEN would remain based at its headquarters in South San
Francisco. Peter Hirth, SUGEN's Executive Vice President and Chairman R&D Committee was
appointed as President of SUGEN.

Another bold move was the merger with Monsanto that resulted in the formation of the
“Pharmacia Corporation.” Monsanto owned the valuable G.D. Searle pharmaceutical business,
developer of the blockbuster arthritis medication Celebrex. An innovative new treatment for
arthritis launched in 1999, Celebrex achieved sales of $1.4 billion in less than one year. Searle
also had a rich pipeline, largely spurred by the research conducted into the physiology of
inflammation by Philip Needleman, Ph.D., Monsanto‟s chief scientist, who would hold the same
position in the combined company.

The merger was completed in March 2000. The new company had one of the strongest sales
forces in the global pharmaceutical industry, an expansive product portfolio, a robust pipeline of
new product candidates. The combined company achieved 1999 sales of $17 billion. Their R&D
budget totaled more than $2 billion. The expected annual cost saving from the merger was $600
million. With Monsanto‟s strong agricultural business, the new company maintained one of the
world's leading fully integrated agricultural businesses.

Pharmacia Corporation's corporate and pharmaceutical business remained headquartered in
Peapack, New Jersey.. The agricultural business headquarters was located in St. Louis and
retained the Monsanto name.

The year 2000 saw continued growth. For the full year, pharmaceutical sales increased 14% to
$12.6 billion and agricultural sales increased 5% to $5.5 billion. Full-year earnings per share
increased 31%. The sales of key products Celebrex, Camptosar, Detrol and Xalatan kept fast
growth with full year sales reaching $2.6 billion, $693 million, $441million and $432 million
respectively. Celebrex became the company‟s best-selling drug and broke all records for the
fastest sales growth in the industry's history. Zyvox, launch in the U.S. in 2000 recorded sales of
$48 million for the first 8 months and received regulatory approval in the United Kingdom.

November 2001, Pharmacia announced its plan of spinning off the Monsanto agricultural
subsidiary. The spin-off was completed in August 2002. In July 2002, as the spin-off plan
proceeding to the end, the company announced its merger with Pfizer Inc, which agreed to buy
Pharmacia for $60 billion. On April 16, 2003, Pfizer and Pharmacia merged operations,
creating the world's largest research-based pharmaceutical company.


1)    Did The Upjohn Company and Pharmacia have a well thought out strategy for the

2)    What were the complementarities between the two companies prior to the merger?

3)    How appropriate was the decision to locate the headquarters in London, away from each
      of the company‟s original headquarters?

4)    Was the location of the headquarters better in New Jersey or London? What were the
      potential problems with this new location?

5)     How did Fred Hassan address the problems caused by cultural conflicts? What were
       some of the key strategies developed for a turnaround?

6)     What roles did the mergers of Pharmacia Biotech and Amersham Life Science, SUGEN,
       and Monsanto play in the strategy of turning around and sustaining a long-term growth of
       the company? Were they effective?

7)     What are the leading factors for success in the pharmaceutical industry?

8)     What can we learn about organization structural design options from this case?


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Anonymous (1997) “Professional profile: Pharmacia & Upjohn” Purchasing. 122: 37.

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