Mentioning Pfizer/Allergan prompts me to strongly recommend this post by Bernard Munos: “Pfizer Does Not Need a Merger – It Needs a Rebellion”. He takes the long view, and the long view here is not pretty. Over the last ten or fifteen years, you’d have been better owning the S&P than Pfizer (and yes, that includes dividends). Over the last thirty, well:
As can be seen, neither acquisitions nor increased R&D spending had any detectable impact on the rate at which new drugs reached the market. Over the last 35 years, Pfizer brought 34 drugs (New Molecular Entities) to market, almost one per year on average. Yet, its acquisitions boosted R&D spending from $4.4 billion in 2000 to $9.1 billion in 2011 (+115%), before easing back to $8.4 billion last year, all for naught.
This could be a Red Queen’s Race, though – Pfizer may have had to spend all that money and tear up all those huge swaths of the industry just to keep that NME rate where it is. But that’s not what they were telling everyone at the time, of course – it’s probably not what they even thought themselves. For what it’s worth, you can go back to when they acquired Warner-Lambert in 2000, and read that they were going to create “the world’s fastest-growing major pharmaceutical company”. When the Pharmacia deal went through in 2002, the press release says that the new company was “positioned to deliver a stream of innovative new products and cost-effective health care solutions”. When they merged with Wyeth in 2010, the talk was of “enhanced ability to innovate”, a “distinct blend of diversification, flexibility, and scale (that) positions it for success in a dynamic global health care environment”.
The real take-home, though, as Munos puts it, is that “A company that needs repeated mega-acquisitions to keep afloat is inherently unsustainable“. And that’s the point: it’s not that Pfizer does these deals to become even larger, more dominant, and more productive. They’ve been doing these deals just to keep from sinking into the mud. You won’t get that from the press releases, that’s for sure, and you won’t hear it from Pfizer’s management now. But it’s true.