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

Indeed, many industry leaders now seem to concede that they wasted much of the last ten years. Pfizer’s new chief executive Jeffrey Kindler made the point candidly when discussing his company’s results with analysts in March this year. He ruled out any more mega-deals to fix the company’s declining share price, and conceded that the takeovers of Warner Lambert and Pharmacia had stopped managers from concentrating on the things that would actually improve performance. ‘It took a long time to integrate and they [the mergers] were extremely disruptive,’ said Kindler. ‘You can’t get around the fact that it had an impact on our R&D productivity.’

In reality, the pharmaceuticals industry, like most businesses, remains quite simple. Create a worthwhile new treatment and you’ll do well. If you haven’t got any new drugs in your portfolio, the chances are you are going to suffer. It remains, at heart, a creative industry, and – just as in music, or books, or software – small, nimble companies usually do that better than lumbering giants. The American company Sequenom, for example, has developed a non-invasive test for Down’s syndrome babies during pregnancy: not surprisingly, its stock price has soared. Pharma bosses spent a decade putting together dinosaurs. It is no surprise that they aren’t doing very well. They should have stayed small and lean, and focused on doing what they were meant to be doing. Instead, they spent a decade listening to bankers who told them could wheel and deal their way out of trouble – and ended up wasting billions in the process.