These deals are appealing to smaller biotechnology firms lacking cash for marketing campaigns. The drug industry is relying on genomics, the latest scientific revolution. Genomics refers to the efforts to exploit all of the scientific information flowing into gene databases around the world. Every big pharmaceutical company has genomics expertise, but some companies, such as SmithKline, have made it central to their discovery and development efforts.
When considering a merger or an acquisition, pharmaceutical companies must question whether or not the action will truly deliver the anticipated results and the economic benefits of consolidation will be achieved. The latest round of mergers in the industry (Pfizer and Warner- Lambert, Monsanto/Searle and Pharmacia, and Glaxo Wellcome and SmithKline Beecham) involved much complexity and took place in an environment of significant social, economic, and regulatory change.
Rapid transformation of research and development that must incorporate processes for recombinant and genome/protein based drug development:
i. Need to accommodate remarkable increases in discovery research yield and its implications for development capacity
ii. Move away from significant reliance on “blockbusters” to greater reliance on “category killers,” individual therapies that will deliver more focused therapeutic impact to narrower segments of the population.
iii. Need to justify funding for discovery, development, and commercialization in an environment of external pricing constraints and shrinking profit margins.
Based on these issues, will mergers truly be able to result in productivity, savings, and profit. In general, the industry is currently striving towards process innovations and cost controls, irregardless of mergers. Therefore, pharmaceutical companies must question whether a merger will really be able to provide more cost savings than those savings that each company could have separately.
Also, a merger will result in the erosion of product prices and additional costs related to post-merger integration activities. Therefore, the savings resulting from a merger need to be substantial in order to offset these merger results.
In defining organizational complexity, Pharmaceutical Executive of February 2001, writes that “A successful merger has a lot to do with managing “complexity” so that the benefits of scale are not lost or reversed and the value of the merger is not destroyed.
This requirement must be made manifest in most functional areas and across most processes of the organization.” As a strategy for advancing business goals and addressing shareholder needs, pharmaceutical companies consider mergers, acquisitions, and alliances.
Pharmaceutical companies need to consider “committing to the unification of practices and processes, eliminating or outsourcing all functions and processes that are not of strategic importance, and forging external partnerships that reduce complexity and allow a focus on strategic initiatives and the building of organizational competence” as they compete in an industry that is expected to see more consolidation.