The short-term business rationale for so many mergers and acquisitions might have been reasonable, but but such deals have seriously damaged R&D productivity, according to former research chief at Pfizer, John LaMattina.
Writing in Nature Reviews Drug Discovery journal, Dr LaMattina noted that "when people bemoan the poor productivity of the pharmaceutical industry at present, they often refer back to the heyday of new drug approvals" by the US Food and Drug Administration, namely the 1990s. An average of 31 per year got the green between 1990 and 1999 (compared with 24 per year between 2000 and 2009), with a peak of 54 drugs in 1996.
He argues that an underlying factor contributing to the productivity observed in the 1990s "was the large number of pharmaceutical companies at that time. Many of the drugs that were approved in 1996 originated from companies that no longer exist".
42 PhRMA members down to 11
Indeed, Dr LaMattina, who spent 30 years at Pfizer and was head of R&D from 2003 to 2007, notes that out of the 42 members of the Pharmaceutical Research and Manufacturers of America in 1988, only 11 remain today. The R&D portfolios of these companies, although differing in size, tended to be broader in scope than those of start-up companies that arose during this time, "and it is likely that when a new idea for treating cancer arose in 1990, 20 companies would have initiated projects on it".
He argues that "the greater diversity of portfolios among a larger number of companies - both large and small - could increase the chances of finding new drugs in general".
From a business perspective, he argues that M&A is seen to be attractive as it removes duplication and costs and produce synergies. Indeed, Dr LaMattina praises the merger of Bristol Myers with Squibb in 1989, where "programme overlap was minimised and new projects were added, and major R&D cuts did not occur".
This has changed "radically in the past decade" he notes and "in major mergers today, not only are R&D cuts made, but entire research sites are eliminated. Nowhere is this more evident than with Pfizer".
Before 1999, Pfizer had never made a major acquisition. Over the next decade, it acquired Warner-Lambert (in 2000), Pharmacia (in 2003) and Wyeth (in 2009) - and multiple smaller companies, such as Vicuron, Rinat and Esperion. However, he says that "to meet its business objectives" (a euphemism for raising its stock price) Pfizer closed numerous research sites" and the same pattern has been observed after most mergers by other major pharmaceutical companies during the past decade.
Ability to exploit information compromised
Dr LaMattina writes that historically, pharma has prided itself on investing more in R&D as a percentage of revenues than any other industry, at times as much as 20%. However, Pfizer now projects that in 2012 this figure will only be 11% and other big players are following suit. Thus, "at a time when our understanding of the basis of diseases continues to increase substantially, the ability to exploit this information in the private sector is being compromised".
He goes on to note that R&D organisations will be the last part of the companies to begin merger discussions before regulatory approval because of the commercial sensitivity of the pipeline and intellectual property issues. When talks finally occur, the initial focus is on Phase III programmes, and early-stage R&D comes last and can get lost. Dr LaMattina says that "undergoing one merger will have a substantial negative impact on the momentum of research programmes, but enduring this multiple times can be crippling".
Leaders of organisations have completed multiple mergers "may express the view: 'We've done this before and we know how to do it'.” he says, and "mechanically, this may be true, but for many employees who survive mergers, the thought of repeating the exercise is not embraced, and could prove to be numbing to their motivation".
He goes on to note that Eli Lilly chief executive John Lechleiter has stated his opposition to large-scale combination and his Merck & Co counterpart believes in more not less R&D. Dr LaMattina says "whether other leaders in the pharmaceutical industry will come around to the views of Lechleiter and Frazier remains to be seen. However, the experience from the past decade on the negative impact of mergers and acquisitions on R&D productivity should make these leaders pause when considering major mergers in the future".
He concludes by saying that industry consolidation has resulted in less competition and less investment in R&D. "At a time when there is a major need for new treatments for conditions such as Alzheimer's disease, drug-resistant infections and diabetes, such a trend is alarming".