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

 
 
 

27 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

3 days 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 new company (NewCo) and slashing the workforce of 2 ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

4 days 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 t ...
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

Nigeria to get Japanese drug for Ebola treatment
Abuja, Sep 2 (IANS) Nigeria will soon get a Japanese drug to treat Ebola, the country's Health Minister Onyebuchi Chukwu said Monday.
 
 
Japan to aid connectivity upgrade in northeast India
Tokyo, Sep 1 (IANS) India and Japan Monday decided to strengthen cooperation for improving connectivity and socio-economic development in northeastern states of India.
 
 
Three Ebola cases recorded in Nigeria oil hub
Abuja, Sep 1 (IANS) At least three cases of Ebola virus disease (EVD) have been recorded in Nigeria's oil hub of Port Harcourt, where a fatality was confirmed last week, the country's Minister of Health Onyebuchi Chukwu said here Monday.
 
 
India, Japan to elevate strategic partnership
Tokyo, Sep 1 (IANS) Prime Minister Narendra Modi Monday said relations with Japan were of the "highest priority" for his government and announced a slew of initiatives, including turning the strategic partnership into a "special" partnership and a fast-track channel for Japanese investors.
 
 
 

Latest from the Network

Modi stresses on women empowerment, education
Tokyo, Sep 2 (IANS) Prime Minister Narendra Modi Tuesday stressed on the need for women's empowerment in the present-day world. Modi, who was addressing students of the Sacred Hearts University here, said he has...
Read more on Politics Balla
 
Country with knowledge will lead world: Modi
Tokyo, Sep 2 (IANS) Prime Minister Narendra Modi Tuesday said that 21st century is the century of knowledge and the country with "knowledge and information will lead the world". "...the one who has knowledge and...
Read more on Politics Balla
 
Eight killed in China landslides
Beijing, Sep 2 (IANS) At least eight people were killed and 24 missing Tuesday after heavy rains caused landslides in China's Chongqing province. Rescue teams, including fire-fighters and police, have evacuated over 7...
Read more on Politics Balla
 
Spain returns Colombian treasure
Bogota, Sep 2 (IANS/EFE) Spain has returned to Colombia 691 indigenous artefacts seized in a police operation 11 years ago. The items - from different epochs, cultures and regions, include objects with organic and...
Read more on Celebrity Balla
 
Travel across India for enhanced learning: Modi
Tokyo, Sep 2 (IANS) Prime Minister Narendra Modi Tuesday asked IT experts to step out of their rooms and travel across India to enhance their learning. "You will learn as much outside your rooms as you will learn...
Read more on Politics Balla
 
New anti-terror measures to be introduced in Britain: Cameron
London, Sep 2 (IANS) British Prime Minister David Cameron Monday said his country will introduce a slew of measures to prevent terror suspects from travelling abroad, imposing tougher constraints on suspected...
Read more on Politics Balla
 
I don't enjoy my voice: Romeo Santos
Los Angeles, Sep 2 (IANS) Singer Romeo Santos is often baffled by fans who pay to listen to him sing, because he hates his own voice. The 33-year-old says he hates both his speaking and singing voice, reports...
Read more on Celebrity Balla
 
Eight killed in France building collapse
Paris, Sep 2 (IANS/EFE) As many as eight people have died due to a building collapse in Paris till Monday, French emergency management services said. Firefighters had recovered before dawn Monday the bodies of two...
Read more on Politics Balla
 
Modi focuses on women's empowerment, education
Tokyo, Sep 2 (IANS) Prime Minister Narendra Modi Tuesday stressed on the need for women's empowerment in the present-day world as he began the fourth day of his visit to Japan. Modi, who was addressing students of the...
Read more on Politics Balla
 
George Clooney's back pain continues
Los Angeles, Sep 2 (IANS) Almost 10 years after filming the Oscar-nominated movie "Syriana", actor George Clooney is still feeling the effects of his on-set back injury. The actor traveled to Duke University earlier...
Read more on Celebrity Balla