Mergers are worse – incentivizes bad R&D for higher profits.

Of course, pharmaceutical companies operate in the private sector and have the right to pursue mergers and takeovers as a means of securing future growth for their shareholders. Nevertheless, critics argue that an over-reliance on M&A in the pharma industry is ultimately unsustainable because of the damaging effect it has on the industry’s R&D capacity. Business goals must be met, but when it’s at the cost of R&D in a research-intensive industry like pharma, there’s a risk that companies are fuelling growth through the synergies and efficiencies that come with mergers, while reducing what should be their raison d’être – the development of new drugs.

John LaMattina, a former president of global research and development at serial M&A player Pfizer, has been particularly prominent in his criticism of mergers and their affect on pharma research. “A consequence of any merger is the inevitable consolidation of the two companies,” he wrote in a June 2014 editorial for Forbes.

“The goal, of course, is to streamline the new organization, make it more efficient, and wring out redundancies. In this process, however, cost cutting is inevitable…The Pfizer acquisition of Wyeth is a perfect example. In 2008, the combination of the R&D investments of the two companies was close to $12bn. In 2013, Pfizer spent $6.55bn. Clearly, $5.5bn in R&D savings post the Wyeth acquisition is not only the result of efficiencies. Rather, it comes from the elimination of research sites, programs and scientists.”

The cost-saving, research-cutting pattern LeMattina describes appears to have been borne out by Actavis’s $66bn acquisition of Allergan in November 2014. To achieve expected cost savings of $1.8bn a year from 2016, Actavis CEO Brent Saunders noted in a call with analysts that the combined company would undergo a “mid to high teens cut to our R&D spend”. Again, ready cash and market presence goes up while innovative research is cut back.

“Pharma mergers and takeover bids are often used as cost-saving measures through the streamlining of operations.”

During a speech at Yale University earlier this year, LaMattina summarised his position succinctly when he described pharma mergers as “bad for science, bad for patients, bad for medicine”. It’s a position fully endorsed by Nick Bosanquet, professor of health policy at Imperial College London.

“I would agree 100% with that statement,” says Bosanquet. “If you compare the record of the industry in the 15 years from 1985 to 2000 with its record since, I think that makes the overwhelming case.”

Bosanquet points to the major innovations developed by the industry in the ’80s and ’90s, and the positive effects they’ve had on public health on the largest scale, from anti-emetic treatments making cancer therapies immensely more tolerable to the introduction of statins and the associated 40% fall in heart disease mortality. Ongoing consolidation, he believes, has made the industry turn away from developing medications for mass use in primary care and towards therapies for smaller patient bases, which are cheaper to take through the approvals process.

Competition breeds innovation

Another side effect of the pharma industry’s M&A binge is the decline of healthy competition, which is key to successful investment in R&D, says Bosanquet. “[M&A] produces a preoccupation in management with internal re-structuring, rather than pressure to actually produce a new generation of drugs, which hasn’t really emerged. The areas where there has been the most competition have been the ones where there has been continuing success, like the AIDS area, where there are some powerful new challengers like Gilead.”