The problems with mergers

No nuts for you.

Tim Wu at the New Yorker wrote a piece about the all too predictable outcomes when United merged with Continental back in 2010.  There were sharp increases in fares in newly uncompetitive markets and a gradual decline in overall service.  I think the decline goes back even farther than that when United eliminated or sharply reduced pensions for flight crews and pilots back in the early naughties.  I remember distinctly the beaten down and depressed looks of the flight attendants on one of the flights I took from Philadelphia to Denver when I was on my way to a conference. When asked, the flight attendant made some remark to the effect that she had lost a lot in retirement benefits. It felt like we were hurtling towards Soviet era customer satisfaction with poorly compensated and indifferent flight attendants. Was this really what United wanted its customers to experience: a demoralized employee workforce, fewer services and a plethora of new fees, the profits from which were not going to the employee pension fund?

By the way, Tim, that ritualized abuse that you feel Americans are experiencing after the approved mergers of airlines and cable companies, for example?  I call it “exploitative profit mining”.

Then I saw that the New York Times Magazine was doing a big story on the lack of productivity in drug discovery (which I have been predicting for years now) and maybe it was time to go back to “trial and error”.  Now, I’m not going to say they’re wrong because we have tried proteomics, genomics, combinatorials, target based drug design, RNA interference and a whole lotta other “omics” type technologies and none of them have pulled off the “immaculate reception” to save the game that they promised to deliver.

But the thing that really made me laugh was the idea that any bean counter is going to let the R&D division go back to “trial and error”. My last impressions of the industry just before Pharmageddon was that “trials and errors” were distinctly money wasting activities. First, there was no metric that could be applied that could accurately determine exactly how many trials would be necessary to achieve the desired outcome. Secondly, there was the negative word “error”. Error implies failure, not a measurable objective, like a lead in the pipeline. To MBAs and the finance industry that now direct drug discovery research, it is important to minimize negative outcomes like errors, nevermind that it is the way the scientific method works and that we learn as much from error as success. Errors are the way we eliminate dead ends and turn our attention to more promising avenues. It’s how we work the kinks out of all those “-omics” technologies. Whatever. Executives would much prefer “predict and succeed”, which is theoretically a better use of time and money but rather less like science.

We might also try to eliminate the mergers and acquisitions of the drug companies by bigger drug companies, a trend that has interrupted project after project in the last two decades and caused the elimination of entire therapeutic areas. The increase in mergers occurred at the same time that biology is undergoing a 21st century scientific revolution. The finance industry’s unchecked enthusiasm for trading drug companies like baseball cards has blighted many promising new technologies and the careers of thousands of highly trained scientists, hence, no new blockbuster drugs. We probably do not need to conduct any additional trials and errors in merger experiments before we kill off the field entirely.

Just my non-MBA opinion but the lack of blockbuster drugs in the pipeline was entirely predictable fifteen years ago by those of us who experienced the joys of constant M&As. Maybe the bigger problem is that the MBAs never asked those of us in the trenches about the effect of mergers on productivity. Hmmm, one can only imagine why…

Derek Lowe and his insider commenters weigh in on the New York Times Magazine as well.