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February 24, 2014
Big Drug Mergers: So They're OK, Right?
Several people sent along this article from McKinsey Consulting, on "Why pharma megamergers work". They're looking (as you would expect) at shareholder value, shareholder value, and shareholder value as the main measurements of whether a deal "worked" or not. But John LaMattina, who lived through the Pfizer megamerger era and had a ringside seat, would like to differ with their analysis:
The disruption that the integration process causes is immeasurable. Winners and losers are created as a result of the leader selection process. Scars form as different research teams battle over which projects are superior to others. The angst even extends to one’s home life as people worry if their site will be closed and that they’ll be unemployed or, at best, be asked to uproot their families halfway across the country to a new research location. In such a situation, rumors are rife and speculation rampant. Focus that should be on science inevitably get diverted to one’s personal situation. This isn’t something that lasts just a few weeks. Often the integration process can take as much as a year.
The impact of these changes are not immediate. Rather, they take some years to become apparent. The Pfizer pipeline of experimental medicines, as published on its website, is about 60% of its peak about a decade ago, despite these acquisitions. Clearly, a company’s success isn’t assured by numbers, but one’s chances are enhanced by more R&D opportunities. I would argue these mergers have taken a toll on the R&D organization that wasn’t anticipated a decade ago.
Well, there have been naysayers along the way. "I think the Pfizer-Wyeth merger is a bad idea which will do bad things". "I'm deeply skeptical" is a comment from 2002. And here's 2008: "Pfizer is going to be having a rough time of it for years to come".
But here's where McKinsey's worldview comes in. Look at that last statement of mine, from 2008. If you just look at the stock since that date, well, I've been full of crap, haven't I? PFE has definitely outperformed the S&P 500 since the summer of 2008, and especially since mid-2011. There's your shareholder value right there, and what else is there in this life? But what might they have done, and what might the companies that they bought and pillaged have done, over the years? We'll never know. Things that don't happen, drugs that don't get discovered - they make no sound at all.
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