The Pfallergan Phallacy

(from NP Nov-Dec, released 10/31/15)

As this issue of NP is released, the business media world is all aflutter with news that Pfizer and Allergan are discussing a merger. The headlines emphasize the massive scale of the potential alliance and the hope that Allergan’s growth and tax rates will pump up Pfizer’s tepid numbers. This relies upon the premise that size matters in the pharma world, which it does, but not in a good way. For example: Regardless of the business school spin, we will never buy into the illusion that the neuroscience sector in specific, and the pharma environment in general, was enhanced by Pfizer’s merger with Wyeth. Similarly, this marriage would be driven largely by Euro-domicile tax inversion considerations, as was Pfizer’s previous overture to AstraZeneca, thankfully rebuffed. Astra Zeneca’s Pascal Soriot ‘got it’ when it came to the correlation of size with productivity: To the degree to which they are correlated, it is in a negative direction, and he fended off Pfizer’s entreaties. Pfizer has revitalized its neuroscience programming, albeit under an umbrella of fiscal nitpicking that makes us think that a merger would lead to the kind of culling of programs and talent that only makes street analysts happy. John LaMattina*, a former head of Pfizer R&D, today made the reasonable observation in Forbes that the two companies have little overlap in R&D capability at present, and that the greater risk would be if Allergan’s Brent Saunders were to eventually ascend to the Pfizer CEO role: Saunders is certainly no champion of internal research. We prefer to not find out. Allergan’s acquisition of Naurex, and their Forest legacy in CNS late-stage drug development, gives us some hope that, on their own, they may prove to be a healthy contributor to the neuroscience resurgence already underway. While Biogen has gone through a difficult period of late–no one is immune to setbacks–that company has demonstrated over time what we believe is the productivity benefit to be garnered from maintaining focus and some degree of organizational nimbleness, both of which suffer in the wake of mega-mergers. We just hope that Pfizer and Allergan do not create a business school case study for 2018; another example of a corporate marriage driven by the wrong priorities, and a vision of the future driven by girth rather than excellence.

*LaMattina wrote a followup piece published in Forbes today (11/11/15) that is well worth reading, focused on the lack-of-fit between Saunders’ lack of affinity with inhouse research and the Pfizer R&D culture.

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