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.

Sanofi has agreed to pay $74 a share for Genzyme — totalling a $20.1 billion upfront payment. But the CVR could boost the payments to Genzyme’s stockholders by up to $14 a share, dependent, largely, on Lemtrada becoming an MS blockbuster. Sanofi is backing this outcome — it says the drug has the potential to achieve annual sales of up to $3.5 billion — but the CVR, said CEO Chris Viehbacher in a press conference call announcing the deal, “was an extremely important tool to bridge differences in value.”

Sanofi will pay $1 per CVR if Lemtrada wins US approval, which the company expects will happen in the second half of 2012; increasing amounts of dollars-per-CVR depend on it passing various sales milestones. Lemtrada is currently in Phase III in the US. A Phase II trial of 334 people with early stage, active relapsing remitting MS, conducted over a three-year period in Cambridge, UK, reported in 2008 that the drug led to a 71% reduction in disability progression in participants (compared with those taking beta-interferon) and a 74% reduction in the relapse rate per year. On average, participants also experienced an improvement in disability at six months that was sustained for the three years.

But Lemtrada’s path to ‘blockbusterdom’ is far from certain. The side effects reported in the Cambridge study included a high rate of (mainly respiratory or urinary tract) infections (affecting 66% of participants). Around 30% suffered from thyroid disorders and there were six cases of immune thrombocytopenic purpura (ITP). Speaking to Bloomberg, Howard Weiner, of the Brigham & Women’s Hospital in Boston, said Lemtrada “is a theoretical cure, but to know that you need to follow people for 10 years. It’s a very strong drug and has potential side effects.” Phil Nadeau, an analyst with Cowen & Co.  (New York) added: “We think the side-effect profile is going to relegate [it] to later lines of therapy,” predicting “relatively modest peak sales estimates,” of $500 million to $1 billion.

Although the number of new MS therapies on way is showing that the basic science of innovation is working, the unknown side effect profiles potential in all these drugs show that the transition from bench to actual bedside is harder than ever.

The Multiple Sclerosis Activism Foundation has also expressed concerns about Lemtrada’s role in the Sanofi-Genzyme deal and what it might mean for subsequent pricing, saying that “for it to be used as a possible treatment for MS, and for Genzyme to be using this as leverage for a higher asking price, is… in our opinion, shameful considering the price of Campath, aka Lemtrada.” Campath, MS Activism goes on, “now sells for $30,000 for leukaemia treatment. But MS patients need only a fraction of the dose used in cancer patients. At the current price, MS patients could get Campath for $7,000 or so. That’s far less than other MS treatments.” But what would stop doctors from using the cancer-priced vials rather than the far more expensive MS priced vials, the group asks — could this have anything to do with rebranding Lemtrada “to make us think it isn’t a cheaper drug?”

The CVR aspect of the Sanofi-Genzyme deal, of course, reflects some of these uncertainties, despite Sanofi’s optimistic pronouncements of Lemtrada’s sales potential. But with both companies putting most of their eggs into the Lemtrada basket, there is a danger some of it could end up on their faces.

MedImmune, the biologics shop bought by AstraZeneca (AZ) for a staggering $15 billion in 2007 promising one new drug a year for the foundering British firm, has made precious little news since the deal. But all of a sudden the post-Labor Day wires were crackling with MedImmune stories: its big new monoclonal antibody, motavizumab, for prevention of a common but serious respiratory virus in infants got shot down by FDA for the second time, while the SEC charged a hedge fund heavy and his buddy who just happens to be executive director of business development at Merck’s vaccine unit of insider trading around the AZ/MedImmune deal.

With neither story lending itself to happy spin, MedImmune made a lame effort to change the subject with what appeared to be a hasty pitch to PE (and, we presume, other rags) that caught our interest: Its new R&D strategy for copycat biologics will focus exclusively on so-called biosuperiors rather than biosimilars. Now, given that FDA has been authorized to define a regulatory pathway for generic versions of biologics only with the passage of the healthcare reform legislation, MedImmune’s bet on biosuperiors might be viewed as putting the marketing before the molecule, so to speak. Yet it’s a signal that the top pharmas are already deep into their plans for how to play in this largely notional market, albeit one that is estimated to reach $17 billion by 2017, according to Decision Resources.

Biosuperiors, aka “biobetters,” are to biosimilars what, say, Apple’s iPod Touch is to its iPod shuffle. Where a biosimilar will be a mere structural imitation of an Avastin or an Enbrel promising the same effect at a reduced price, a biobetter will possess some molecular or chemical modification or other that constitutes an improvement over the originator drug (and its biosimilar competitors). The enhancement may range from a longer half-life, allowing for less frequent dosing, to more potency or less toxicity. If these were small-molecule drugs, the gussied-up me-too version would be a branded product that had proved its specific advantage to FDA.

So why would MedImmune commit entirely to developing biosuperior antibodies? Unfortunately, we can only speculate, because the Virginia-based biotech told us it was “premature” to get into the weeds about the refocus.

Although little is known for certain about how the biosimilar market will develop, the one unambiguous feature is that copycat biologics are unlikely to cannibalize sales of the innovator product with the same bottomless appetite as small-molecule generics. The discounted price tag of a biosimilar is estimated to range from as little as 10 percent to as much as 50 percent off the branded drug. That’s more than chump change for products that may typically run $100,000 or more, but given the anticipated cost of manufacturing and marketing, the margins may not inspire sufficient awe to attract the kind of intense competition that would make substitution a no-brainer for doctors and consumers, who are expected to remain more than a little wary of the entire idea of copycat cancer drugs and the like for some time. Over the several years since the launch of growth-hormone Omnitrope, the first-ever FDA-approved biosimilar, the drug has managed to capture a mere 1 percent of the total market and make less than $4 million in annual sales, according to IMS Health.

After sizing up all the hurdles, MedImmune apparently came up with a sound economic rationale for taking the higher risk, higher reward route promised by value-added biobetters. And the risk will most definitely be higher, says Ernst & Young’s Global Biotechology Leader, Glen Giovannetti. “In order to support any claim of superiority, FDA is almost certain to require Phase 3 trials,” he says. “They may be smaller and faster than those for innovator drugs, but the investment will be greater—perhaps considerably so—than for a straightforward biosimilar.”

When asked for clarification, FDA gave a rather frosty reply. “The addition of a pathway for those biologics that do not intend to be ‘biosimilar’ but instead facilitate development of improvements to currently licensed products was not included in the legislation.”

It’s worth noting that AstraZeneca is widely viewed as the most wobbly pharma giant, due to lose up to half of its profits over the next few years as a result of patent expirations. And MedImmune has already bailed on its promise of a drug a year. To compete with the presumed biosimilar big boys like Novartis, Merck, Pfizer, Teva, not to mention the Indian pharmas that are already selling knockoff biologics in the developing world, AZ has to move fast to make the most of MedImmune’s impressive antibody development and manufacturing assets.

“From the outside, all we can say is that a biosuperior strategy makes sense economically, in terms of being able to make a ‘cheaper but better’ pitch,” says Giovannetti. “But MedImmune may have other more technical reasons, such as the fact that they already are an originator biotech or they want to leverage their existing technology.”

Suffice to say, it will be entertaining, at the very least, to watch Big Pharma do battle over the biosimilar and biobetter (and biobest?) billions.

• Just days after its purchase of Genentech, Roche has made another acquisition, albeit a much smaller one, of the German firm Innovatis. Roche will pay EUR 15 million for the cell analytics company.

• Oxford Gene Technology (OGT) is to acquire Sense Proteomic, a UK-based company engaged in the discovery of disease-specific biomarkers based on its innovative functional protein array technology.

• ACM-Pivotal, which provides clinical trials services to the pharmaceutical and biotech industries, has been acquired by its US counterpart for an undisclosed sum. Following a management buy-out in 2005, Pivotal and ACM Medical Laboratories formed an alliance to extend their global capabilities and have been operating as ACM-Pivotal for the past three years.

• US-based contract research organization (CRO) Covance has expanded its clinical pharmacology footprint in Europe by acquiring Swiss Pharma Contract (SPC), a clinical research company based in Basel, for an undisclosed sum.

Pfizer Broadens Beyond Pills with $68 Billion Wyeth Buy: Pfizer has agreed to acquire Wyeth in a $68 billion deal that’s the largest merger in the pharmaceutical industry in nearly a decade. In announcing the deal, the companies made clear that the Pfizer has in mind to cut its reliance on traditional pills. (WSJ)

Cheering a Pfizer-Wyeth Deal: With Wyeth, the combined company might earn $2.48 in 2012, still down from Pfizer’s prior year, but only by 11 percent and just a touch below what the two companies might have earned if they’d merged at the start of 2009, $2.46 per share. (Barrons)

A Pfizer-Wyeth Merger Isn’t the Cure-All: Acquiring Wyeth might boost Pfizer’s fortunes in the short term, but it won’t solve the long-term problems that are roiling the major pharmaceutical makers. As many observers have noted, Pfizer and the rest of the drug industry suffer from a lack of promising new products to replace older ones going off patent. What is less widely understood is that Pfizer also will face an increasingly constrained marketing environment, even if it succeeds in bulking up with Wyeth. (Business Week)

Pfizer-Wyeth Deal Could Stir Restive Rivals: With its lucrative vaccine business and biotechnology drugs not facing imminent patent expirations, Wyeth has become a target for companies bracing for generic competition for their most important drugs while struggling with development pipelines that have recently yielded few major new medicines. (Reuters UK)

Pfizer To Swallow Wyeth’s Good Medicine: The acquisition will give Pfizer a much larger presence in areas where it has been viewed as weaker than the competition, namely biotech drugs and vaccines. Wyeth, which makes the top-selling vaccine for children, Prevnar, would help fill this void. Wyeth also co-markets Amgen’s Enbrel biotech drug for rheumatoid arthritis. That is exactly what Pfizer needs as it looks to fill the void that will be left by Lipitor when it loses patent proteciton in 2010. (Forbes)

After Pfizer-Wyeth, Who’s Next?: Those who may sit on the mega-deal sideline, however, include giants GlaxoSmithKlineand Bayer, both of whom have indicated that they haven’t seen any big targets that tempt them, focusing instead on smaller purchases. (NYT)

Pfizer to Buy Wyeth in $68 Billion Deal: It would also be the first big merger backed by Wall Street in months. While credit has been notoriously tight of late, five banks have agreed to lend Pfizer $22.5 billion to pay for the deal. Pfizer, which has roughly $26 billion in cash, would finance the deal through the loans, some of its cash and stock. (NYT)

Behind Pfizer’s Deal to Buy Wyeth: Pfizer and Wyeth are facing a problem, which is systemic and not isolated to their industry. Each expects revenue to fall in the near future as some of their largest-selling drugs lose patent protection. Putting the two companies together will allow them to fire tens of thousand of people and cut other overlapping costs. The firms are nearly identical, which makes expense savings certain. (TIME)

The low-ball $43.7 billion buyout offer was made late Sunday night. Although widely viewed as a fait accompli, by Friday the Wall Street Journal’s Health Blog was reporting that “it sounds like Genentech may put up a fight.” 

Even more interesting, TheStreet.com’s Adam Feuerstein was floating the prospect of Genentech, backed by private equity, making its own hostile bid for Roche. “If I were [Genentech CEO Arthur] Levinson, I’d get in the face of [Roche Chairman Franz] Humer and tell him, ‘You don’t buy us, we’ll buy you, punk’” is how one analyst put it.

Everyone loves a good fight. But lost in the breaking story was the news on Tuesday of another Roche acquisition. The Swiss drug giant paid $125 million for a little biotech in Madison, Wisconsin, called Mirus Bio, the maker of a systemic delivery technology for RNA interruption therapeutics. Called Dynamic PolyConjugates (DPC), these tiny transporters are amazingly target specific—they seem able to enter a single cell and dump their payload without apparent spillover.

An effective, efficient delivery system is the Gorgon blocking the road to RNAi drug development, and the Mirus purchase indicates that Roche is up for the challenge. Pharm Exec spoke to Louis Renzetti, Roche’s global head of RNAi therapeutics, to find out what’s cooking.

All of a sudden, Roche is a leading player in the RNAi space. How did that happen?
We’re serious about the further evolution of medicine—especially better efficacy in more people and gaining better control of some serious diseases. And whenever we were looking at emerging technologies, RNA interference always came to the top of the list.
But we knew that if we were going to get into this, we had to make a very real and focused commitment. We began investing a year ago, and that’s how we ended up with our [$1 billion milestone] deal with Alnylam [for an IP license] and acquisition of its European RNAi research site.

Why Mirus Bio?
Mirus offers us two things: a really cool technology and a team of scientists with deep know-how. They addressed the delivery problem almost from a virus approach and developed DPC technology, which selects a particular cell—much like an antibody—and gives nearly 100 percent gene knockdown.

So this week it’s Genentech and Mirus. What’s on the shopping list for next week?
Well, we’re developing a global RNAi network of scientists—we have the Madison site, the Center of Excellence in RNAi Therapeutics in Germany, as well as labs in Nutley, New Jersey, and Basel, Switzerland. We have efforts going on using proteins as a delivery technique. We all agree that there’s probably not going to be a one-size-fits-all approach because these are complex diseases and we’re looking at knocking down multiple genes and different genes in the same population.
This is all part of Roche’s ongoing drive toward personalized medicine. Our diagnostics division can help identify biomarkers and pathways. Genentech has deep expertise in oncology and immunology, and we expect there to be synergy between monoclonal antibodies and RNAi.
We believe in this area as a therapeutic. We want to turn RNAi into drugs.

For more on how Roche is rockin’ RNAi therapeutics—and why they may leave Merck and Pfizer in the dust—read Dirk Haussecker’s blog here.