The drug formula that didn’t work

Matthew Lynn

Matthew Lynn says the mega-mergers that reshaped the global pharmaceutical industry over the past decade have delivered little of what they promised

To understand why, you need to step back to what the people in charge of the industry were facing at the turn of the decade. The drugs industry had grown vastly rich on the back of the drugs that were developed during the post-war period: from antibiotics to anti-depressants, a huge range of conditions became treatable with pills, racking up big profits for their manufacturers. By 1992, for example, Glaxo was the biggest company in Britain, overtaking BP, and the industry was just as important in Germany, Switzerland and the US.

By 2000, however, the model was starting to look fragile. The rate of innovation was slowing. Most of the easy diseases had been cracked, and the drugs for them had gone off-patent. The industry was trying to treat conditions such as cancer or Alzheimer’s that were far harder to crack. It was spending billions in laboratories – in the UK alone it spends nearly £4 billion annually on research – and not coming up with many winners. At the same time, the length of time it took to get a drug through the regulatory process was getting longer and longer. Since drugs typically remain on-patent for 20 years, if it took you ten years to get it approved, and cost you $1 billion, you only had ten years left to recoup your money. What had seemed for decades like a money machine was suddenly starting to get squeezed.

The men pushing the mega-mergers in the drugs industry had, at least, a very clear idea of the benefits that would flow from them. They would discover more new and innovative medicines. They would bring them to the market faster and more efficiently. All of which meant they would make more money.