Integrating R&D Within M&As

Nov 01, 2010
By Pharmaceutical Executive Editors

Rick Heinick
The level of research productivity in drug discovery is going down and R&D expenditure is going up, while yielding fewer applications and approvals. In general, CEOs realize they have to acquire the portfolio to achieve speed to market.

This need, in combination with greater access to capital, means mergers and acquisitions in the pharmaceutical industry will increase dramatically over the next few years. Acquisitions already under way include Pfizer and King Pharmaceuticals, Bristol-Myers Squibb and Zymogenetics, and possibly Sanofi-Aventis and Genzyme, as well as others that are starting the courting process.

The best acquisitions occur when the acquiring company has particular expertise that matches the market experience in the pipeline they are acquiring—but they still need to get the integration right.

The challenge for CEOs involved in M&As will be how well their companies integrate R&D across the merging entities so they are not just achieving cost synergies by closing research labs or efficiency of scale, but instead actually bringing drugs to market that meet the evolving needs of patients. To be successful they need to embrace a multidisciplinary integration approach of scientists and business people. This requires an increased flow of information between the two merging companies across scientific disciplines, therapeutic classes, and the commercial organization. The integration has to drive this, but in a simplified way.

For the next wave of mergers, CEOs should insist that their organizations focus on the aspects of integration that drive value. Too many companies use a highly mechanical approach based on their past deals. CEOs today should simplify the integration process so it focuses on real value creation. Start by setting the merger intent, demonstrate results through 100-day projects, and declare success only when the value has been created.

Set a Merger Intent that Captures Value

How Many 100-Day Periods Does Your Post -Merger Require?
An often overlooked step pre-close is to set the merger intent. Sure, companies have synergy targets that their business development people create from due diligence. But the CEO should be able to communicate the vision of the deal on one piece of paper by describing what the newly integrated organization will look like strategically, financially, operationally, and organizationally.

This "merger intent" is the vision for the company at some point in the near future—ideally one year post-close—in order to satisfy key constituents, employees, customers, investors, and analysts who are desperate for confirmation that the deal is successful sooner rather than later.

Created in joint executive-team sessions or coalesced through one-on-one dialogue with executives, the merger intent should answer questions about anticipated changes, projected growth and profits, organization size and structure, quality requirements, competitive strategies, product development, customer service platforms, and much more. This may seem so obvious, but most CEOs do not do this in a way that clarifies the path for return on investment.

The CEO must be the champion, the point person, and the driving force in the effort to persuade employees to dedicate themselves to helping achieve the merger's goals. Generating broad enthusiasm and active support is essential for overcoming the many obstacles that work against M&A success and which derail so many mergers. The CEO must win everyone's hearts and minds to make integration of the merger successful. This is done by providing clear direction at all points during the pre-merger and post-merger periods.

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