Written by Mark Osterman, Senior Vice President, Kineticos
Recently, I wrote about the current climate for mergers and acquisitions, and referenced the Pfizer/Anacor deal. Pfizer has continued its buying spree with the Medivation acquisition along with the purchase of AstraZeneca’s antibiotic business. We can expect this activity to continue as multiple companies are in need of new revenue streams. These mega-mergers do provide revenue in the short-term, but what are the long-term effects, especially on innovation? In a recent Harvard Business Review article, they found that patent production and R&D output is actually negatively affected by merger activity.
The article evaluated 65 post-merger companies, and found that innovation was negatively affected to a significant degree after merging. They came to the conclusion that competitors saw a decline in patents and R&D production, and postulated some reasons for this issue. Often, merging companies have similar patent portfolios, and this leads to less innovation due to less need to create new patents. For competing companies, there is also now one less threat. Additionally, they ceded that innovation is difficult to predict and that other factors may need to be considered.
So if M&A activity is going to continue at this pace, what is the risk to innovation? Innovation is already being challenged by value-based pricing models and other cost constraints. With further consolidation, life-saving or changing therapeutics will have more obstacles to overcome within large post-merger companies. What can be done to foster innovation and continue the successes within our industry?
Perhaps the answer is already occurring. Since the biopharma industry model already relies heavily on licensing and outsourcing, the solution will be to extract more and more innovation from smaller biotechs versus mature pharmaceutical entities. As big pharma become less innovative, start-up biotechs and early development companies will have to carry the burden of scientific innovation. It will reinforce the trend that we have witnessed for decades. Leading biopharma companies will need to identify and strengthen the core capabilities needed for development and commercialization, while start-ups provide new breakthrough technologies.
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Mark Osterman, Senior Vice President of Kineticos’ Biopharmaceutical Practice, brings 25 years of experience in the biopharmaceutical industry to the team. His team is focused on helping growth-oriented biopharma companies realize their commercial potential at the corporate, portfolio and product levels. Mark’s therapeutic expertise includes cardiovascular, pulmonary, metabolics and cell/gene therapy.