Corporate acquisitions create excitement about cost synergies and cross-selling. Whether conjoined firms make better products gets less attention. In the drug industry, mergers actually inhibit the flow of innovative medicines – or so the former head of research at Pfizer, John LaMattina, has recently argued.

Research productivity at the pharma companies has undoubtedly declined in the past decade. LaMattina thinks that consolidation in the industry has contributed to this in three ways. First, combined companies tend simply to spend less money on research.

The prime example here is Pfizer itself. In 2006 Pfizer and Wyeth (which have since merged) spent a total of $11bn on research, 16 per cent of sales. Pfizer expects to spend about $7bn, or 11 per cent of sales, next year. Even if there was fat to be cut, and efficiency is increasing, $4bn in cuts would remove some muscle. Second, however much is spent, a higher number of smaller research departments is better than a few big ones: it allows for a diversity of approaches to scientific problems, rather than groupthink. Finally, in reshuffling personnel and resources after a merger, products that are almost ready for the market tend to get full attention; early-stage molecules whose commercial contribution is distant and uncertain get neglected.

That Pfizer has been built in large part through big mergers gives LaMattina’s arguments weight, and they appear to have considerable merit. If they are right, it is worth noting that they could apply equally well to any industry where ideas, creativity and innovation are crucial. Technology and media would be another good example. The short-term benefits of acquisitions on corporate profits can be quantified. The long-term impact on sales growth is much harder to measure, but ultimately much more important.

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