Sometime soon, it’s entirely possible that Pfizer will buy AstraZeneca for a price that would exceed the gross national product of all but about 50 countries worldwide.
Should that happen, a long, complicated process will unfold. Pfizer (NYSE: PFE) will talk about bringing together two titans with franchises in big fields like oncology, inflammation, and cardiovascular disease, while its financial people tout massive tax savings. Shareholders of AstraZeneca (NYSE: AZN) will walk away with a lot of extra cash and perhaps stock. Analysts will prognosticate the new company’s pipeline and footprint, and where they think the stock will go. Years from now, it’ll be looked at as either a huge success, or the latest in a long line of pharma megamerger follies.
From the ground level, however, the view of deals like this is much different. Thousands of jobs become expendable, or up for review, as the word ‘synergy’ is thrown around. A complex integration process ensues. Some people lose their jobs. Others flee on their own, and a handful start their own companies. When Pfizer bought Wyeth for $68 billion in 2009, for instance, it announced plans to cut about 20,000 jobs. It subsequently closed several research centers in the U.S. and U.K.
The fallout from these megamergers also lands, often heavily, on the companies’ biotech partners. Communication is at a premium as everyone wonders what’s going on. A portfolio review takes place, and biotechs across the globe start to realize their standing as a partner with the new, giant company—and scramble if the news isn’t good.
NPS Pharmaceuticals president and CEO Francois Nader has seen this type of thing first-hand several times. He’s logged more than 30 years as a biopharmaceutical executive, and much of that time was spent riding out the deals and international mergers that have culminated in the company known today as Sanofi. He’s also recently felt the ripple effect of a big merger from his current post at Bedminster, NJ-based NPS (NASDAQ: NPSP). NPS had a licensing deal in place with the Swiss firm Nycomed to help develop and sell two late-stage drugs for the rare disorders short-bowel syndrome and hyperparathyroidism. Nycomed was scooped up by Takeda in a multibillion dollar deal in 2011, leaving the drugs subject to a portfolio assessment by Nycomed’s new Japanese owner. (Takeda wasn’t interested in rare disease therapies, so NPS ended up reacquiring the rights to the two drugs, teduglutide (Gattex) and recombinant human parathyroid hormone (Natpara), last year.)
“These [deals] should be done for the right reasons, and the right rationale, and the rationale has to be more than just putting two struggling companies together, because the odds are, the joint company won’t be stronger than the two struggling companies individually,” says Nader, though not talking specifically of a potential Pfizer/AstraZeneca combination.
With all this in mind, I spoke recently with Nader, an Xconomist, about the ins and outs of pharma M&A from three perspectives: the rank-and-file employee, the executive, and the nervous outside biotech partner looking in. Here are some excerpts from our conversation:
Xconomy: What’s the biggest reason, in your mind, that megamergers either do or don’t end up working?
Francois Nader: Cultural fit at the top, and throughout the organization. I went through some of these where, frankly, there was a cultural fit, and the integration was seamless from a human interaction perspective. Others were just the opposite, and did not survive for very long. So I think the culture is very important and very often underestimated. At the end of the day, one of the reasons these mergers fail is because you lose people, you lose the passion, [and] products and projects get delayed. Synergies might be found, but they’re not where they should be found. Synergy by attrition is not good news. You create a culture that is nonexistent, and after three, four, or five years, the company is completely different from the concept where it started. And all of a sudden it looks for another merger, or another acquisition.
X: How have you seen that play out unsuccessfully?
FN: [In the Hoechst, Rhone-Poulenc merger that created Aventis], we really did not merge. The culture remained an American culture, a French culture, and a German culture, with very little interaction operationally, humanly, synergistically. It was not really an integration. It ended up being two entities that happened to be “working together,” and it ended up not surviving very long.
X: How about an underestimated factor beyond culture?
FN: We need to be mindful of the role consultants play. Consultants usually suggest doing the ‘best practice.’ Well, that is fine, but the best practice at times ignores the inherent strengths of each of the two companies within their contexts. So if one company is strong in one segment, and the other in another segment, putting the two together might not work. So the notion of best practice versus core competencies are two very different concepts that are very often, unfortunately mixed up. I went through three successive mergers where the consultants brought in the same template—literally—because we used the same consultants. And each of those situations was extremely different. Every integration is different—totally different—and they each have to be thought through in a very, very thoughtful way.
X: Which strategy works better: a full integration or leaving the target an independent operating subsidiary?
FN: It’s very much integration-dependent, but pick one and stick to it. If the merger calls for an integration, let’s do it. If the integration calls for maintaining the two entities for good reasons, let’s do it. The problem is … Next Page »