Friday, October 24, 2003

More drug consolidation A recent research study by industry analysts at investment bank Dresdner Kleinwort Wasserstein asserts that the big multinational pharmaceutical companies have serous problems looming, thanks to a business model that is "running out of steam." That's what's reported in an article in the Guardian (" Bitter pill for the world's drug companies", 9/12/03). As the article states: The solution, they argue, is more consolidation. That may sound like more of the same, given that most of the drug corporations - including Britain's GlaxoSmithKline and AstraZeneca - were created by mergers, but it is consolidation with a difference. The difference is, according to the report, specialization. The current big pharma companies do research and sales in almost the full range of health areas, spreading their R & D resources too thin. The report proposes that each company devote itself to a few specialties (cardiology, dermatology, or oncology. for example), and sell off the other patents they own. The result would be a more focused company, one that is not so distracted with the organizational problems that now hamper drug research. The old way of doing business is slipping thanks to price resistance, fueled by ever increasing drug prices. This has become even more important as the development of new drugs has slowed down. [the old approach] worked well, but they relied on half the sales increases coming in the form of increased prices. Globalization seems to have put an end to that. Drugs now cross borders with ease, and it is harder to keep prices artificially high in some territories. Nor are politicians as accommodating: most governments' healthcare budgets are under pressure and in the United States, the Democrats are calling for drug prices, which are among the world's highest, to be linked to a global average price. Another fact is the increasing price of research on new drugs. According to industry experts, each major new drug costs over $1.4 billion per, up form $800 million only a few years ago. Better coordination of research efforts might help to lower that cost. Among the acquisitions the report advises/predicts are Pfizer buying Novartis; Glaxo buying one or more of Johnson & Johnson, Aventis, Schering-Plough, or Novo Nordisk; AstraZeneca might swallow up Wyeth or Novartis. These and other movesare based on the principle of combining specialties. Even within a single industry like pharmaceuticals, oligopolies can easily lose focus. Like unfocused conglomerates, they can lose a sense of purpose and a coherent strategy. The gin rummy game never stops, as the players have to keep refining their hands. 2:23:06 PM

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