In-progress: NME’s .vs mergers

Note: The following focuses on New Medical Entities (NME’s.)  These are defined as the novel, initial member of a chemical family for a drug.  The data is derived from the public FDA database on approved drugs for past years.  From that, the count of simple variations on the initial innovation are subtracted.  These may include dosage forms, salts, and simple modifications to the core structure (e.g., “adding a methyl group” that does not dramaticaly improve efficacy/safety.)  Many other industry analyses focus on the approval of the larger pool of “New Molecular Entities”, which we will call “nme’s” on this site to differentiate from the innovator.  The first to market innovator “should” reap significant benefits from society (price, and market share) over those that follow-on. This is not always true. 

Most of my focus is on how individual firms are applying new tools and techniques to improve returns on their R&D investments and assets.  Part of that is looking also at potential confounders like merger effects (most of the charts and initial comments below on this page.)  A surprising recent insight came from the aggregate of this data here, showing a reversal of innovation (and hopefully productivity and profits) for the overall industry. 

NME’s vs. Mergers:
The images below are part of a study I am reprising from work I did ten years ago.  Results below reflect in-progress work and should not be seen as final.  However recent dialogs on the web resuted in  viewers asking to see these, so take them with a grain of salt.  The formal analysis will come later and address impact of other drivers of R&D performance including six-sigma adoption and other techniques and technologies.   But intial patterns are interesting:  (Please add your comments below!)

Initial observations:  Some mergers appear at the start of a long dropoff of NME productivity, some do NOT.   Reasons are probably unique to each combination and to the reasons for merger.  Note also the overall decline of NME/year for all, and that the best performers seem to be converging on ~ 0.5 NME/year – regardless of size of spend.  For those that like confusing patterns, here is the overal cohort overlaid:

NOTE:  The NME (New Medical Entity) numbers are smoothed, but come from the FDA’s Orange Book database.  I have filtered that, using some of their own metadata but culling for truly novel NME’s is a bit more subjective.   Hopefully by applying uniform rules for that culling, the patterns become useful. 

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3 Responses to In-progress: NME’s .vs mergers

  1. Mike says:

    Terry,

    Very interesting data! This is a very complex issue you’re analyzing, but I think it raises some interesting questions.

    It seems to me that the drivers for these mergers varies. My understanding of the PFE/WL merger was that it was an attempt by PFE to grab all of the Lipitor revenue (rather than its co-marketing share). The PHA merger was also an attempt to grab the COX-2 franchise. So these mergers were more for short(er) term revenue gains than to pump up the pipeline (which would show up as NME approvals). My opinion is that it wasn’t until the WYE merger that PFE was taking a serious look at the near-term pipeline products (Phase III mainly).

    Mike

    • Mike- I agree with the merger causes you mention. I was in fact anticipating the Warner impact in that we had just launched what I saw as a less potent ‘statin in Pravachol when I was head of New Product Planning at BMS.

      But look at the data from a different perspective: Regardless of merger motivation, each firm really had extensive pipelines, each with differing “yields” of what I define as New Medical Entities (vs. “me-toos”, etc.) The chart then reasonably captures the time-sensitive merger impact on that trajectory regardless of merger cause.

      You cite an intent to “pump up the pipeline” vs. buying an in-market franchise. Unless pipeline management was greatly affected by having a blockbuster, we still would have a simple arithmetical sum: 2+2 NME’s per decade for two firms should(?) yield 4/year for the merged firm. Unless they threw out the more novel drugs during postmerger rationalization. Having aided the GSK/SKB (and others’) portfolio integration, I can say that is NOT what select firms tended to do. However, a lesser acceptance of risk could have been a resulting trend for others. My analyses are trying to pose these kinds of questions. More result postings will come when I can cull time from the “day job”.

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