PharmExec Blog

Deals Don't Need Science To Be A Success

Deals don’t need science to be a success
By Brian McGilligan, Partner, Pharmaceutical Practice, PIPC
Ex Pfizer R&D boss, John L. LaMattina recently proclaimed that Big Pharma mergers are crippling science. Whether or not you agree, mergers are a core part of business and the chances of safe-guarding future R&D investment in merged companies will best be achieved by ensuring mergers are delivered in a way that doesn’t negatively affect share-holder value and, therefore, cash-flow.
The last time we witnessed merger-mania in the sector was just over two years ago when, during a heady six weeks in the first quarter of 2009, Pfizer agreed to buy Wyeth, Merck & Co and Schering Plough followed suit. Then just a couple of days later, Roche won its long-running battle for full control of Genentech.
Whilst the announcement of such deals tend to herald opportunities to grow market share and, in many cases, reduce costs, if a detailed post-mortem was carried out you would not only find that the benefits outlined prior to the deal hadn’t been realised, but value may have been eroded rather than created.
Clearly, some deals in the sector have already been identified as failures by sector analysts. For instance, the Wall Street Journal reports; in the case of Daiichi Sankyo, the Tokyo-based pharmaceutical company who acquired Gurgaon-based Ranbaxy for $4.6billion in June 2008, more went wrong than right. Analysis suggests that this deal failed largely because of a lack of due diligence. This isn’t uncommon but, by far, the greatest reason for mergers failing is poorly planned and executed integration activity.
Unfortunately for many companies the Executive team often see this as peripheral, treating it as a secondary element while they work with any number of nominated advisors, incentivised only on doing the deal, not on its downstream success.
So whilst deals may not need science to increase their success rate, they do need a greater emphasis on post integration planning during the deal making phase and some fundamental (non-scientific) principles should be followed.
Firstly, it may sound simple, but it is important to have a clear and well-architected direction/end state design. This factor is so often the root cause of so many integration failures, resulting in a tortuous technical process to knit together disparate systems and data structures.
Secondly, integration must be the priority. This is not the time for fixing every operational issue en route or pandering to internal pressures to add additional functionality to the business operating model. It’s a time to look at ways to take complexity (and change) out of the plan not add unnecessary change to it.
The next thing to consider is that no plan will be perfect and striving for it will lead to delays rather than a perfect plan. There will always be unpredictable events that will shape decision making during the integration. Single accountability and a dedicated focus on delivering the integration is also hugely important as managing the delivery of a successful integration is not a part time activity … nor is it for the uninitiated.
Finally, the logic of the acquisition and the integration plan – and the progress made against it – must be communicated to the external market and employees. As a result of past acquisitions within the sector, huge global networks (e.g. Novartis in 140 countries), are in even greater need of regular communication!
Whilst Mr LaMattina may highlight that R&D is suffering as a result of some mergers, surely if the integration is delivered on time and to budget, then this could allow more money for those very same cash strapped R&D departments?
-ENDS-
About PIPC
PIPC is a leading project and programme management consultancy responsible for some of the largest business transformations and post-acquisition integrations in corporate history. Founded in 1992, the firm operates globally from 16 international offices across over 25 countries.

But what they do need is a greater emphasis on post-integration planning during the deal-making phase and some fundamental (non-scientific) principles, writes Brian McGilligan.

Ex-Pfizer R&D boss John L. LaMattina recently proclaimed that Big Pharma mergers are crippling science. Whether or not you agree, mergers are a core part of business and the chances of safe-guarding future R&D investment in merged companies will best be achieved by ensuring mergers are delivered in a way that doesn’t negatively affect share-holder value and, therefore, cash-flow.

The last time we witnessed merger-mania in the sector was just over two years ago when, during a heady six weeks in the first quarter of 2009, Pfizer agreed to buy Wyeth, Merck & Co and Schering Plough followed suit. Then just a couple of days later, Roche won its long-running battle for full control of Genentech.

While the announcement of such deals tend to herald opportunities to grow market share and, in many cases, reduce costs, if a detailed post-mortem was carried out you would not only find that the benefits outlined prior to the deal hadn’t been realized, but value may have been eroded rather than created.

Clearly, some deals in the sector have already been identified as failures by sector analysts. For instance, the Wall Street Journal has reported, in the case of Daiichi Sankyo, the Tokyo-based pharmaceutical company that acquired Gurgaon-based Ranbaxy for $4.6billion in June 2008, more went wrong than right. Analysis suggests that this deal failed largely because of a lack of due diligence. This isn’t uncommon but, by far, the greatest reason for mergers failing is poorly planned and executed integration activity.

Unfortunately, for many companies the executive team often see this as peripheral, treating it as a secondary element while they work with any number of nominated advisors, incentivised only on doing the deal, not on its downstream success.

So while deals may not need science to increase their success rate, they do need a greater emphasis on post-integration planning during the deal making phase and some fundamental (non-scientific) principles should be followed.

Firstly, it may sound simple, but it is important to have a clear and well-architected direction/end state design. This factor is so often the root cause of so many integration failures, resulting in a tortuous technical process to knit together disparate systems and data structures.

Secondly, integration must be the priority. This is not the time for fixing every operational issue en route or pandering to internal pressures to add additional functionality to the business operating model. It’s a time to look at ways to take complexity (and change) out of the plan not add unnecessary change to it.

The next thing to consider is that no plan will be perfect and striving for it will lead to delays rather than a perfect plan. There will always be unpredictable events that will shape decision making during the integration. Single accountability and a dedicated focus on delivering the integration is also hugely important as managing the delivery of a successful integration is not a part time activity … nor is it for the uninitiated.

Finally, the logic of the acquisition and the integration plan – and the progress made against it – must be communicated to the external market and employees. As a result of past acquisitions within the sector, huge global networks (e.g. Novartis in 140 countries), are in even greater need of regular communication!

Whilst Mr LaMattina may highlight that R&D is suffering as a result of some mergers, surely if the integration is delivered on time and to budget, then this could allow more money for those very same cash strapped R&D departments?

Brian McGillian is Partner, Pharmaceutical Practice, PIPC.

About PIPC
PIPC is a project and programme management consultancy responsible for some of the largest business transformations and post-acquisition integrations in corporate history. Founded in 1992, the firm operates globally from 16 international offices across over 25 countries.

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2 Comments

  1. gnaneshps
    Posted September 22, 2011 at 6:41 am | Permalink

    Great to read regarding the emphasis on Post Merger Integration issues in a deal making activity. Just read an excellent white paper on strategies for successful merger integration http://bit.ly/pGoP25

  2. Posted September 23, 2011 at 8:02 am | Permalink

    Brian,
    The presumption of your commentary is that these mega-mergers are done to improve performance of the company. In reality they are done to provide a near-term financial fix for struggling companies and for management to demonstrate they are doing something. The only winners in these acquisitions are the shareholders of the acquired company (get a premium price for an under-performing company), bankers, lawyers, and senior level executives of both companies. mike@PharmaReform.com

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