(This blog post was written by Gartner Analysts Stephen Meyer and Lisa Callinan)
Although most of the media attention has been focused on the inversion aspects of this proposed US$160B deal, inversion in itself has very little supply chain impact. While the savings resulting from moving Pfizer’s profits to a lower tax rate could conceivably be invested in supply chain, given pharma’s value proposition, the better bet is that it would be invested in drug development.
The impact on the supply chain is likely in another motivation for the deal: US$2 billion in synergy savings in the first 3 years post-closing, according to Pfizer’s press release. Based on combined 2014 SG&A, that represents savings of a little less than 4% annually. Pfizer is a company which has seen its fair share of M&A activity in recent years, having acquired nearly 20 companies in the last 10 years. This has left them with a multitude of processes and systems stemming from different sources. Much of Pfizer’s recent focus has been on managing complexity and this proposed acquisition is potentially another test of Pfizer’s integration abilities. Given that Pfizer has already been aggressive in reducing headcount (over 50,000 jobs since 2005), the Allergan side may be relied on for the majority of these savings. Most likely, some form of manufacturing rationalization and a large scale network review will be inevitable if the deal goes through. On top of this, there will likely be a knock on effect with suppliers, CMO’s, 3PL’s, etc. as the new company looks for the best combination of cost and service.
Another area that the merger will likely have supply chain impact is new product development. The combination of the two companies’ product pipelines and their combined geographic reach places even more importance on successful product launches (not to mention investor and shareholder expectation on delivering the deal value via the revenue growth new products bring.)
A unique aspect to this deal is the fact that Pfizer is already contemplating a separation of the combined entity into two stand-alone operations. The split – along product maturity lines – would require different supply chain approaches. A high growth business would require a supply chain that is agile and responsive, while a business made of mature drugs in a cost competitive environment would require a more cost-conscious operation. So on top of an already challenging merger, supply chain leaders will have to be thinking two steps ahead on how a potential separation would occur.
M&A in the life science industry continues to occur at a rapid pace and increasingly larger scale – make sure you leverage Gartner resources to help you prepare (please note that a subscription may be required to access some content.)
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