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

‘Today, unlike in the past, there is a direct relationship between what you put into research and what you get out in medicines,’ said Sir Richard Sykes during the merger of Glaxo and SmithKline. When Pfizer – the company that gave the world the impotence drug Viagra as well as the heart drug Lipitor – merged with Pharmacia, its chief executive Hank McKinnell boasted that it would be spending more than $7 billion a year on research and development, more than any other company in the industry, or any other industry come to that.

The theory was that as the science got tougher, the solution was to throw more money at it. It is a temptation that many industrial managers succumb to when they are trying to manage a process that relies, at root, on occasional moments of genius. Book publishers like to think if they pay big advances they’ll get more bestsellers. Likewise, drugs industry leaders imagined that if they wrote out enough cheques, they’d get the cure for cancer. All of them turn out to be disappointed; in reality, a great new drug is just as likely to come from a small university or biotech start-up as it is from Glaxo’s state-of-the-art laboratories.

And so it turned out. Take the three biggest merged companies. At GlaxoSmithKline, Andrew Witty has re-vamped the R&D operation, admitting that it had become too big and unwieldy. He broke up the labs into smaller units, making them more like entrepreneurial biotech start-ups, a tacit admission that the ‘bigger is always better’ philosophy behind the merger was a waste of time. At Pfizer, the research department has been broken up into smaller units, and shifted its focus away from ailments such as obesity and heart disease towards cancer and pain-relief.