Pharmaceutical megamergers’ dependence on existing products : The case for R&D in the Pfizer-Allergan merger

Purpose Recent developments suggest that pharmaceutical companies are acquiring existing products through mergers to improve their business models; however, this paper aims to emphasize R&D as a strategy to boost revenues and counteract the risks of existing products that may be unreliable. In light of Pfizer’s upcoming US$160 billion merger deal with Allergan, the paper’s objective is to illuminate the outcomes of Pfizer’s previous megamergers (>US$10 billion) to indicate what could happen to the company’s economic profits if it only focused on the acquisition of established drugs instead of diversifying and creating new products. Design/methodology/approach The paper uses a combination of industry studies to make an assessment of the economic implications of conducting a megamerger (highlighting the need for further R&D). The assessment included a review of Pfizer’s M&A outcomes in two of its previous megamergers and an evaluation of a McKinsey study conducted on the economic impact of 17 pharmaceutical megamergers. Findings The paper provides insights on the negative profit outcomes in Pfizer’s past megamergers. Furthermore, the positive profit outcomes of pharmaceutical megamergers demonstrate that other M&A motives, such as R&D rationalization and product diversification, may be responsible for bringing up the group’s performance. Investing in R&D would be a good strategy for Pfizer to counteract the risk of relying on existing products as revenue generators. Practical implications The paper provides strategic insights and practical thinking that have influenced some of the world’s leading organizations. Originality/value The paper suggests that Pfizer should place more emphasis on R&D as a revenue generator in face of its upcoming US$160 billion megamerger with Allergan, despite the current industry trends favouring the acquisition of existing products.