Monday, January 4, 2010

Marriages Made in Heaven

Maybe it’s because we recently celebrated 23 years of marital bliss, but I’ve been thinking about all the recent discussion about M&A in the Biotech/Pharma space.

I had lunch a few weeks ago with a C-level executive at a major biotech in town. We were talking about the recent Pfizer-Wyeth deal, Biogen and Idec, Genzyme and GI, etc. He said something that I loved: “there are no mergers.” This seems particularly relevant as we are witnessing a “blizzard of new pacts” according to a recent FierceBiotech article. It seems that big Pharma once again has its collective eye on the biotech pipeline, and cash-strapped biotech is all too willing to acquiesce given the constipation in the VC community.

When I was starting out as a consultant with Kendall Strategies, we did a project for BBC (BASF Bioresearch Corp.), just after they had acquired Knoll. We pulled into the Knoll site in New Jersey and they were literally changing the sign at the entrance. Knoll had inherited a product from their prior Boots acquisition and we were doing a go/no-go analysis on the PhIII. We walked in and saw big banners proclaiming unity or announcing company-wide integration seminars, or the new logo being displayed on giant TV monitors (no flat screens in those days). I remember turning to my boss and saying, “they must be spending a million dollars on this BS! Why don’t they just tell everyone to get back to their desks and get back to work?”

Many years later I was at Elan headquarters in South San Francisco in my BD capacity for Athena Diagnostics (a subsidiary of Elan at the time). Elan in those days was on a buying spree and they had just acquired Neurex and made Paul Goddard, the Neurex CEO, President of Elan North America (the new name for the old Athena Neurosciences). I had been there many times, but this time, something was different. Walking through the halls, I saw people, but there wasn’t the customary “Hi, Chris!” or nods of acknowledgement. It was dead silent. In fact, you could cut the tension with a knife. Finally, I asked the Medical Director what was going on. I got a terse response: “we bought them and they’re running us?!” It instantly became clear to me why BASF had been spending so much money convincing people that the merger was a good idea.

My comment to my boss as a young associate at Kendall displayed my naïveté, but in the fullness of time I have learned that integration is no easy task. My lunch guest crystallized it, albeit somewhat harshly. I think mergers do happen, but they take waaaay more time and effort to accomplish than anyone anticipates. The efforts I saw at Knoll were not even the beginning of what needs to happen. Even sophisticated organizations have deep trouble integrating. Here’s what a Tuck School review of the failed Daimler-Chrysler merger had to say about the importance of aligning the views and sentiments of the people involved:

“Although DaimlerChrysler’s Post-Merger Integration Team spent several million dollars on cultural sensitivity workshops… the larger rifts in business practice and management sentiment remain unchanged.”

Last week the In Vivo blog announced their winner for the DOTY (Deal Of The Year). Of the three they discussed, Pfieth (Pfizer/Wyeth), Merck/Schering and Roche/Genentech, the prize went to Roche/Genentech not because of the size of the deal, but because “…the Roche/Genentech deal seems most likely--of the big three mergers at least--to actually work as advertised.” I would argue that the likelihood of its working is in no small measure a result of the close relationship the companies have had for the last 15 years. It was clearly not the result of a few banners in the hallways.

It’s the people, stupid. Mergers that are concocted because of a lust after another’s assets, without regard for cultural differences and true integration, are doomed. Even in the case of Roche/Genentech, there are ‘old-timers’ at Genentech who still resent the relationship and long for the days of the “DNA” ticker symbol. Only time will tell how the latest Pharma mergers will pan out, but I have a new appreciation for ‘post-merger integration teams,’ and suspect that they are actually understaffed and underappreciated by senior managers who are probably in their corner offices wondering why people aren’t just going back to their desks and getting back to work.

No comments: