360° Coverage : McKinsey's View That Pharma Megamergers Work Is Short...

2 Updates

McKinsey's View That Pharma Megamergers Work Is Short Sighted

Feb 24 2014, 7:16am CST | by

In the article, “Why pharma megamergers work”, McKinsey authors Myoung Cha and Theresa Lorriman argue that: “Unlike deals in many industries, big mergers and acquisitions among...

Filed under: news

 
 
 

34 weeks ago

McKinsey's View That Pharma Megamergers Work Is Short Sighted

Feb 24 2014, 7:16am CST | by

In the article, “Why pharma megamergers work”, McKinsey authors Myoung Cha and Theresa Lorriman argue that: “Unlike deals in many industries, big mergers and acquisitions among pharmaceutical companies generally have resulted in positive returns for shareholders.” They believe that megamergers have created shareholder value and that consolidation deals have generated greater economic growth.

Interestingly, they use the three megamergers that Pfizer engaged in over the past 15 years (Warner-Lambert, Pharmacia and then Wyeth) to help make their points. There is no doubt that from an immediate business impact, these deals can make a lot of sense. Benefits include a broader portfolio of products, opportunities to cut costs by eliminating duplication and overlap, and increased availability of working capital. Indeed, it is not unusual for a company’s stock price to increase when such an acquisition is announced.

However, a pharmaceutical company, by the nature of its business, requires a long-term vision. Because the drug discovery and development process can take 12- 15 years, oftentimes the impact of a major event isn’t felt for a number of years. The integration of two organizations is incredibly difficult. This is particularly true in an R&D organization. New organization structures need to be developed; new processes must be implemented; decisions need to be made as to which programs should progress, which should be eliminated; new leaders need to be selected, others moved aside; and, in order to generate the synergies promised to Wall Street, research sites need to be shuttered.

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.

One wonders why McKinsey chose to publish such an article. Perhaps the answer can be found in the article’s closing line. “Given the proven track record of consolidation deals generating economic profit, we would not be surprised to see them come back in vogue.” McKinsey would love for this to happen. They are usually in the middle of facilitating these mergers, generating their own economic benefits.

Source: Forbes Business

 
Update
2

8 weeks ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

8 weeks ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of the double tragedies of MH370 and MH17" hits ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Mauritania closes border with Mali after Ebola death
Nouakchott, Oct 26 (IANS) Mauritania has closed its border with Mali after an Ebola death was confirmed in the border area this week, a health official said Saturday.
 
 
Number of Ebola cases crosses 10,000: WHO
Geneva, Oct 25 (IANS/EFE) The World Health Organisation (WHO) confirmed Saturday that the number of Ebola cases has risen to more than 10,000 in the eight affected countries, two of which, Nigeria and Senegal, had recently been declared free of the virus.
 
 
India-born Sundar Pichai is Google's new product chief
Washington, Oct 25 (IANS) In a major restructuring of Google management, India-born Sundar Pichai, who is already in-charge of Android, Chrome and Google Apps, has been made the chief of core Google products, according to a technology magazine.
 
 
Mali: Country with 300 Indians records first Ebola death
Accra (Ghana), Oct 25 (IANS) The authorities in the West African nation of Mali, where the Indian embassy says there are between 200 and 300 of its nationals, have confirmed the death of the country's first Ebola patient, a two-year-old girl.
 
 
 

Latest from the Network

Second MERS case reported in Qatar
Doha, Oct 23 (IANS) A 43-year-old man in Qatar has tested positive for Middle East Respiratory Syndrome (MERS) in the second confirmed case of the deadly virus in 10 days, media reported Thursday. The patient had...
Read more on Business Balla
 
Two people die in Pakistan bomb blast
Islamabad, Oct 23 (IANS) At least two people were killed and 12 others injured in an explosion that took place in Pakistan's Balochistan province Thursday, media reported. The bomb was planted on a motorcycle, Dawn...
Read more on Politics Balla
 
Trott extends contract with Warwickshire till 2017
London, Oct 23 (IANS) England batsman Jonathan Trott, whose mental issues led to his abrupt departure from last winter's Ashes tour, has confirmed his successful comeback to competitive cricket by signing a new three-...
Read more on Sport Balla
 
Srikanth, Kashyap big movers in BWF rankings
Kuala Lumpur, Oct 23 (IANS) Indian men shuttlers Kidambi Srikanth and Parupalli Kashyap jumped seven places each in the latest Badminton World Federation (BWF) rankings released Thursday while Olympic bronze medallist...
Read more on Sport Balla
 
Alvin Stardust dead
London, Oct 23 (IANS) English singer Alvin Stardust died after a short illness. He was 72. Stardust's manager confirmed the news about his demise Thursday, reports mirror.co.uk. He was recently diagnosed with...
Read more on Celebrity Balla
 
Indian man reunited with family after 40 years
Dubai, Oct 23 (IANS) An Indian man, who had disappeared from his hometown in Kerala nearly 40 years ago, has been found by his family at a hospital in Dubai in the UAE, a newspaper report said. Now in his 60s, Abdulla...
Read more on Politics Balla
 
Srikanth, Kashyap, Saina rise in world rankings
Kala Lumpur, Oct 23 (IANS) Indian men shuttlers Kidambi Srikanth and Parupalli Kashyap jumped seven places each in the latest released Badminton World Federation (BWF) rankings Thursday while Olympic bronze medallist...
Read more on Sport Balla
 
Flintoff signs for Big Bash side Brisbane Heat
Brisbane, Oct 23 (IANS) Former England captain and all-rounder Andrew Flintoff, who retired from international cricket in 2009, Wednesday confirmed that he will play for Brisbane Heat in the Big Bash League (BBL) this...
Read more on Sport Balla
 
OPEC daily basket price falls again
Vienna, Oct 23 (IANS/WAM) The basket of 12 crude oils of the Organization of Petroleum Exporting Countries (OPEC) closed at $81.94 a barrel Wednesday compared to $82.09 Tuesday, the OPEC Secretariat said. The new OPEC...
Read more on Business Balla
 
Lopez to sign multi-million dollar deal?
Los Angeles, Oct 23 (IANS) Singer-actress Jennifer Lopez is reportedly in the final stages of securing a multi-million dollar deal to perform in Las Vegas. The 45-year-old is being offered $350,000 per show at The...
Read more on Celebrity Balla