Drug Development Portfolio and Spending Practices after Mergers and Acquisitions

Abstract

The recent volume of merger and acquisition activity in the biopharmaceutical industry has been high and is expected to accelerate in 2009 and 2010 due to global economic conditions. In order to understand changes following merger and acquisition (M&A) in clinical research investment and activity, Tufts Center for the Study of Drug Development analyzed development pipeline and spending data for 24 of the largest independent M&As occurring between 1998 and 2004 that each exceeded $1 billion in transaction value. Organizations that had experienced a merger or acquisition were evaluated across three time periods and compared with industry benchmarks: 2 years prior to an M&A announcement, and 2 years and 4 years after the transaction was announced. The results indicate that following a transaction, companies initially limit R&D spending growth to accommodate integration challenges, uncertainty, and instability. However, 4 years post-transaction M&A companies rapidly increase R&D spending across a significantly consolidated portfolio of late-stage (phase 2 and 3) development projects. Due to resource constraints and integration uncertainty, phase 1 and 3 product attrition rates for M&A companies are higher than the industry average. Statistically significant differences are observed in development pipeline and spending practices between small and large acquirers and between companies undergoing mergers versus acquisitions. The results of the study offer biopharmaceutical executives and financial professionals insights into better forecasting of drug development productivity and resource requirements following M&A transactions.