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March 22, 2012 by admin

M&A in Big Pharma: Holy Grail Or Buying Time

We have seen a number of major mergers and acquisitions among pharmaceutical companies over the last few years. The question arises, is M&A the ultimate answer for Big Pharma? Is long term success in this industry an issue of size? This article will take a look at the reasons why mergers are so tempting. But it also discusses why becoming bigger is not enough.

The pharmaceutical industry is changing rapidly. There is an ever increasing demand world-wide for new treatments of diseases such as cancer, diabetes, Alzheimer’s etc. The world-wide pharmaceuticals market was estimated to be $825 B in 2010 and will break the one trillion barrier soon. This growth is driven by stronger near-term growth in the US market and the expansion of drug consumption in other parts of the world. At the same time, pharmaceutical companies are working hard to make a business model work that relies heavily on their ability to launch block buster drugs. These need to hit the market in time to finance the infrastructure necessary to invent, develop, manufacture, distribute and market new drugs.

 

Acquirer Acquire

t

€/$

Schering Plough Organon 03/2007

€11 B

GSK Reliant Pharma 07/2007

$1.65 B

Shionogi Sciele Pharma 08/2008

$1.42 B

Eli Lilly ImClone 10/2008

$6.5 B

Pfizer Wyeth 01/2009

$68 B

Roche Genentech 03/2009

$46.8 B

Johnson & Johnson Cougar Biotech 05/2009

$1 B

Dainippon Sumitomo Sepracor 09/2009

$2.6 B

Merck Schering Plough 11/2009

$41.1 B

GSK Stiefel 07/2009

$3.6 B

Abbott Solvay 02/2010

$4.5 B

Abbott Piramal’s Healthcare unit 05/2010

$3.72 B

Pfizer King Pharma 10/2010

$3.6 B

Novatis Alcon 12/2010

$51 B

Forest Lab Clinical Data 01/2011

$1.2 B

Teva Taiyo 05/2011

$460 M

Takeda Nycomed 05/2011

$9.6 B

Gilead Sciences Pharmasset Inc. 11/2011

$11 B

Dainippon Sumitomo Boston Biomedical 02/2012

$200 M

Fig 1: M&A Deals in Pharma between 03/2007 and 02/2012

Over the last few years we have seen a strong level of M&A activity across the globe (see fig 1 for key M&A deals between 2007 and February of 2012. Is M&A the Holy Grail for big pharma? Is size the ultimate path to long-term success? Without any question, one of the driving forces is the never-ending quest to improve the pipeline of these major players. The hope is that post-merger, the acquiring company will have a stronger pipeline of drugs that can be carried forward in their R&D organization. Additional benefits are an enhanced worldwide distribution system. In some cases, companies can retire plants because of redundant manufacturing infrastructure. These are the main reasons why it is so tempting for CEOs to look at M&A.

But there is a catch. It’s one thing to put an M&A deal together. It’s another to make a deal work. Overcoming post-merger integration issues is a non-trivial task. First, there are cultural issues between the two companies starting at the executive level down to the lab level. It takes years for companies to fully develop a combined culture, and sometimes it really doesn’t happen at all. Second, the promise of a solid pipeline of drugs could be overestimated. In other words: 1+1 < 2. Third, post-merger integration slows down a business considerably. The day a deal is announced people begin to worry about their future instead of being focused on the task at hand. What will happen to my organization? What will happen to me? Should I start looking for a new job? This kind of thinking happens on both sides – the acquiring company as well as the acquired one. During the integration phase, organizations spend a lot of time making it all work. Who is in charge? Who is part of the go-forward team? What should our process be?

In an industry where speed of drug development is everything, given that there is only a limited amount of time to benefit from a patent, slowing down the ability of an organization to execute is probably one of the least desired consequences of an M&A deal. It’s a hidden cost that is potentially in the billions of dollars and is not seen on any P&L statement. One thing is for sure. When the deal making is over, the ability to execute is essential. The fundamental necessity to drive execution from the board room level down to each and every project team will decide over the success or failure of a merger. Post-merger, it’s vital to gain traction quickly. Some will argue that a relentless focus on operational excellence early on would have made some of these M&A moves unnecessary.

This article was also published with Contract Pharma.

Filed Under: Blog Posts Tagged With: Eli Lilly, M&A, Merck, Mergers and Acquisitions, Pfizer, Pharma, Salto Partners

February 24, 2012 by admin

Revenue Enhancement is Top Priority in 2012

At the beginning of this year, Salto Partners conducted a survey among business leaders. Here are the key take-aways. In contrast to the previous two years companies are shifting their focus away from survival towards planning for growth in 2012 and beyond, citing revenue enhancement as their top priority.  But there is a catch. Businesses are looking for smart (a.k.a. profitable) growth. As one survey participants put it, “We don’t throw the ball downfield hoping someone will catch it. We are running the ball for a few yards at a time. This year we are just happy that there is a game.”

Over 60% of the surveyed say that their company possess as much or more cash today as three years ago. A majority of the survey participants expressed ongoing concern about the threat of a sovereign-debt default in the euro zone. Similiarly, the majority of surveyed companies is still concerned about the possibility of a double-dip recession. Government inventions are seen helpful in the following areas:

1. increase investment incentives,
2. cutting taxes and
3. reducing regulatory burdens

A key take-away of the survey is that companies see themselves proceeding cautiously in the next 12 to 36 months. The still fairly high level of geopolitical uncertainty are resulting in the search for smart growth. 

Here are some key priority areas for companies looking for growth:

1. investing in IT infrastructure and better processes
2. mergers and acquisitions (M&A) and,
3. entering new markets, notably new markets in the Asia-Pacific region

On the plus side, there is a shift in focus compared to 2009 and 2010. Businesses are beginning to cautiously looking for top-line growth. We will discuss more findings over the next few weeks.

Filed Under: Blog Posts Tagged With: Salto Partners, Survey 2012

February 6, 2012 by admin

The Myth About Multitasking

To make it short: Humans are not good at multitasking.

Yet, knowledge workers in Corporate America are being asked to do exactly that. They are being expected to stay on top of incoming email exceeding easily hundred, in some cases hundreds a day. They are being asked to be reachable, go to meetings and handle multiple assignments with ease.  Multitasking is seen as a virtue. The ability to do so receives praise. However, multitasking comes at a significant cost.

In my work with knowledge workers, I find many examples that show that our brains cannot fully focus when we multitask. People take longer to complete tasks and are predisposed to error. When we attempt to complete many tasks at one time, or rapidly shift between them, errors go way up and it takes far longer. It takes more time to get the jobs done than if the tasks were done sequentially. This is largely because the brain is forced to restart and refocus. A study found that in the interim between each exchange, the brain makes no progress whatsoever. Therefore, multitasking people not only perform each task less suitabe, but lose time in the process.

Even computers are not good at multitasking as we find out when we open too many applications and windows on our desktop machines. Our system slows down and sometimes comes even to a stop. We need to reboot then. In computer science speak this effect is called “thrashing”. Our computers use hard-drives as extended memories. If they cannot hold enough data in their memories they push them out to disk. If you have enough applications running in parallel the system performance is reduced because files have to be swapped from the computer memory to the hard-disk back and forth. You can bring any computer system to its knees by increasing the number of parallel processes.

A similar thing happens with the human brain. Let’s say we write a document (task 1) and get interrupted by a phone call (task 2). 

  1. Writing a document requires focus. Blood rushes to the anterior prefrontal cortex – the switchboard of our brain. It basically activates the brain region required to perform the task at hand.
  2. Then there is the identification of the neurons within this region capable of completing the task as well as the triggering of the actual task processing itself. This process is called “rule activation” and takes several tenths of a second to accomplish. We begin to write.
  3. While we are typing, our sensory system picks up the ring tone of our cell phone. Speaking and engaging in conversation are handled by a different brain region. Via the anterior prefrontal cortex the process of disengaging from our writing task is managed. We store enough information to resume this task later. Then, the new task 2 is started (see steps 1 and 2).
  4. We start another rule activation for task 2. We have real measurable switching costs.

These are the steps that occur between two tasks. Imagine to what extent we are taxed with switching costs in a work environment, where we process daily hundreds of emails, tens of calls and deal with multiple project assignments. Anything that can be done to bring focus in the work day, anything that can be done to bring hours of uninterrupted work time will enhance productivity.

I have found in my work with corporate clients that people who are regularly interrupted take up to fifty percent (50%) longer to finish their tasks. Also, the amount of errors goes up about that much. There are very effective excercises to demonstrate this effect. Keep that in mind when you organize your day.

Filed Under: Blog Posts

February 2, 2012 by admin

Five Steps To Build Momentum

Here is how it feels to have momentum. The phones are ringing. We don’t have time to read the morning newspaper because we have a tough time keeping up with the proposals we need to review and the contracts we need to read. Our delivery teams are busy. At the water cooler people talk about their premier airline status. We try to squeeze more functionality into the next release to make clients happy. We look at new hires, we even find more office space. The company is buzzing.  The opposite of momentum is imply silence.

We all like to see the former, and we all dread the latter. The recession is over, but we are very far away from a booming economy. What are the lessons learned from the last few years operating in an economy that is trending sideways at best? How do you create momentum? What can we do to make our customers believe in our company and our solution? What can you do to make your own people believe they can make the “impossible” possible?

Here are five lessons learned while operating successfully in a tough market environment.

1. Messaging – In any economy, our messages should be customer-focused, not product-focused. We need to know what the pain points are of our customers and how we can address them. Keep in mind that in a tough economy, customers’ needs and concerns change.  We need to adjust our messaging accordingly

  • Demonstrate value and return on investment. This can be done by pointing out that customers can do more with less, by simplifying a process or enhancing the value of our client’s offering. For example, if your product is exceptionally easy to use, you can demonstrate how the improved ease  translates into savings.
  • Decision-makers are increasingly worried about their jobs, too. They need to understand how to enter a relationship with us safely.

2. Laser focus on target markets – If business gets tough the natural inclination is to chase every opportunity in order not to miss out. Someone drowning in the ocean flails frantically trying to keep his head above the water. I would recommend the opposite approach. Use coordinated strokes to keep your company’s head above the waterline.

  • Have laser focus on the core companies and industries that can use your products or services. Make sure that you truly provide value and then pursue these markets relentlessly. Instead of simply increasing the “shots on goal” increase the quality of your company’s pipeline.
  • In tough times, businesses will enter a relationship with our organization if we provide them with good reasons. (e.g strategic reasons, operational efficiencies, ROI).

3. Pricing – Take a look at your approach to pricing. This doesn’t mean you should enter deals at steep discounts, but here are some options to consider.

  • Update pricing models. If we have been selling bundled products, consider un-bundling and offering products/solutions in smaller chunks. A number of smaller deals is better than no sale at all.
  • Consider try-and-buy offers. Give customers a taste of the solution and, assuming the product or service is as irresistible as you know it is, you will only defer revenue briefly. This also helps to reduce the perceived risk of your customer betting her career on entering a relationship with your company.

4. Engage customers – Focus the marketing on “conversations” with customers. The days of one-way marketing are over. Customers want to talk with you on their terms, so narrow the gap. Make it personal. Be accessible.

  • Nurture prospects until they are ready to do business.
  • Encourage customers to be part of the conversation by building online communities that provide value to them while keeping you front-of-mind.
  • Stay close to existing customers and maintain the relationships. Customer events such as user conferences are a great way to accomplish that.

5. Internal communication – Make sure that the people in the organization share your convictions. They need to believe that the goals for the company are achievable.  And they need to see the path. Be authentic in the way you deliver your strategy within the organization.

Filed Under: Blog Posts

February 1, 2012 by admin

7th Annual Biopharmaceutical Project Management Conference

PMI Pharmaceutical Community of Practice Announces the 7th Annual Biopharmaceutical Project Management Conference Leadership, Relationship and Partnership – Applying Project Management to the Complex Internal and External Network of Pharma Collaborations
 
Click here for more information.

Filed Under: Blog Posts

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