Pfizer (NYSE:PFE) Chairman and CEO Jeff Kindler last year repeatedly said big deals in big pharma don't work. But, he added, he'd never say never. And sure enough, this year Kindler's buying Wyeth (WYE).
But here we have the Chairman and CEO of one of the two remaining unmarried big pharmas (Eli Lilly (NYSE:LLY) and Bristol-Myers Squibb (NYSE:BMY)) putting his opinion of a mega-merger in black and white on the Op-Ed page of yesterday's Wall Street Journal.
LLY's John Lechleiter wrote, "Already in defensive mode, several large pharmaceutical companies are restaging the old merger play--continuing to narrow the ranks of firms with the full-scale capacity to innovate." Does that mean he definitely won't ever do a big deal? I don't think so. But based on that and his previous, less blunt comments about M & A, I think it's a pretty safe bet that Lechleiter will do whatever he can to make sure it's a last resort. So, perhaps yesterday's Op-Ed may go a long way to put to rest recurring rumors and speculation about LLY and BMY hooking up. Lechleiter has said, however, that he is interested in maybe doing more deals in the single- and low-double digit billions. For example, he just bought ImClone for $6.5 billion.
And in what looks to me like a very carefully and craftily orchestrated corporate media offensive Lechleiter, was everywhere yesterday. In the WSJ and in Washington where he delivered a lunchtime speech to the U.S. Chamber of Commerce. Against the backdrop of the unfolding healthcare reform debate in D.C., Lechleiter has managed to suddenly take the lead among big pharma CEOs who've been weighing in on the issue in recent weeks. The other CEO statements I've read have been pretty boilerplate. Sure, Lechleiter is scripted like the rest of 'em, but his remarks appear to be the most candid and direct.
Check out this excerpt from his Chamber speech.
Yet the real problem may be even worse: innovation is not only being ignored, but also undermined. The evidence is mounting that we are facing today nothing short of an innovation crisis in America's life sciences sector. In the large-cap pharmaceutical industry, for example, we're in the midst of a wave of defensive consolidations that will leave the world with a dwindling number of entities capable of taking an idea, a discovery, and turning it into a medicine approved for patients. Large pharmaceutical companies and a select group of large biotech firms are the only entities hat can do this work--period--and I believe that a further reduction in the size of this small community is not a good thing.
Schering-Plough (SGP) CEO Fred Hassan made similar comments in an interview I did with him last year, but he wasn't nearly as forceful. Clearly, industry leaders are turning up the heat now to make sure their drug prices and profit margins don't get squeezed along with their research and development budgets.
On the other hand, critics would say big pharma has little to show for all the money it's been spending on R & D in recent years. And in his speech today, Lechleiter answered them. "This appalling slow-down in productivity and the resulting, per-molecule R&D costs of bringing a new medicine to market are unsustainable, and they are my main obsessions."
And turning his obesessions into products and profits is Lechleiter's main challenge.