Amid the merger frenzy, some are second-guessing

The euphoria attending a surge in megadeals over the past few weeks is now wearing off, and doubt is setting in. Call it the M&A hangover. Some pharma-watchers point out that billions are now riding on the success of three company combos: Roche/Genentech, Pfizer/Wyeth and Merck/Schering-Plough. Other, more skeptical types assert that mega-mergers will only mega-size pharma's current problems. Still others decry the deals, predicting a stultifying effect on R&D. Here's a sampling:

  • Negotiating a combined $150 million in deals may turn out to be the easy part, the Wall Street Journal says. Drug megamergers have a "spotty record," sometimes yielding more problems than profits. How might the current crop fare? Take Pfizer; its previous big buyouts haven't exactly been home runs. But R&D chief Martin Mackay says the company has learned from its mistakes. This time, Mackay predicts, the merger will be so successful, it's "going to be used as a Harvard Business School case study." Roche and Genentech are longtime partners, but they're also diametrically opposed, culture-wise, and ironing out the differences may destroy the kinks that have made Genentech so great. Roche promises not to iron too vigorously; we'll see if the Swiss execs have enough willpower to desist. Check the story for more, including a take on Merck/Schering.
  • The future of a pharmaceutical company rides on its pipeline. But the recent wave of pharma mergers doesn't bode well for the process of replacing off-patent drugs with new-and-innovative ones, BusinessWeek reports. The one part of a drugmaker's operation that never seems to do well in a megamerger is research and development.
  • The fact that so many companies are now merging reflects the failure of each company to discover and develop its own replacement pipeline, The Atlantic opines. But the current wave of mega-mergers exacerbates the industry's deeper problems. Its emptying product supply will never be filled without a reliable research-and-development engine. "Radical restructuring, not merger mania, is the need of our time," the magazine asserts.

More second-guessing and this-time-it's-different promises are sure to come as the deals work toward closing. But real judgment won't be possible for months and years to come. Stay tuned.

- see the BusinessWeek story
- get more from the WSJ
- read The Atlantic article

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