Friday, August 14, 2009

Interesting Financial Times Commentary -- On R&D, And "What's Wrong" With Pharma Mega-Mergers. . . .


Andrew Jack, for tonight's Financial Times online, offers a very thought-provoking set of opinions (collected last month at a meeting of The Athenaeum Group), on pharmaceutical R&D practices -- and the rising wave of consolidation in multi-national pharma concerns. Do go read it all, but here's a tantalizing snippet:

. . . .Kenneth Kaitlin, director of the Tufts Centre for the Study of Drug Development. . . says: “The industry has been talking about the issue for many years, but there were never the drivers that there are now. I don’t think it has ever had so much at stake. There are companies that are not going to survive.”

He cites as symptomatic the large-scale takeovers this year of Wyeth by Pfizer and Schering-Plough by Merck, which he argues were primarily designed to defer patent expiries and cut costs rather than provide a solution to falling research productivity. . . .

Companies are also seeking to create structures that foster innovation. Chris Viehbacher, who has been overhauling Sanofi-Aventis since he became chief executive late last year, says: “We had 11 management levels in research and development and you had to dig down quite a few before you found anyone doing research. We need to reconfigure. We’ve just been tweaking things. We have to change how people think and interact”. . . .

[Ed. Note: graphic of possible "partnering"/bust-up of Consumer Health at Schering-Plough, post close, per Merck CEO Dick Clark's July 2009 remarks.]

2 comments:

Anonymous said...

The conclusion that mega mergers were "designed to defer patent expiries and cut costs seems to me to be an overanalysis. In the case of SP and Merck, it appears to have been designed solely to line the pockets of company directors. I fail to see how it benefits SP or Merck in the least. I am sure there will be economies of scale in production and support functions but history has shown that sustainable success is built on top line growth not on bottom line contraction.

Wolf

Condor said...

Welcome back, Wolf! --

We've missed reading you, here.

Of course, you'll not be surprised to learn that I am inclinded to agree with your view of the Merck/Schering-Plough merger.

I think what you say is completely accurate, but omits the idea that the merger decision was "forced upon" the board by its supine acceptance of gross mismanagement in almost every facet of the business model -- by CEO Hassan, and his executive team -- the EMT.

You'll also not be surprised to learn that those interviewed (interviews that formed the basis for the commentary) were mostly executives of pharmaceutical behemoths.

Even so, it is a step forward to see these same executives accepting the truth that mega-mergers will be no longer-term answer.

What is needed, I think, is a more reasoned approach to the market.

As I've written before, it is an unusual market -- the pharmaceuticals market traffics almost exclusively in "opaque" goods -- goods that the market participants are not able to accurately assign value-prices to, without extensive expert help, from many disciplines. That is, to accurately ascertain a "fair price" (comparative efficacy vis-a-vis safety), takes several layers of required self-disclosure, from the makers.

That is something they are loathe to undertake -- and do so grudgingly, if at all -- as Salmon's fine "Asenapine Chronicles", here prove.

And so pure free market rules won't work. I put the piece up, in part, to remind readers just how far away from acepting this paradigm most pharma executives still are.

Thanks again -- do stop back!

Namaste