Bigger profits, fewer cures

Two more drugs firms merged this week - will patients be the losers?
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Across Europe and America, pharmaceutical companies are being swallowed like pain-killers. The past week has seen the merger of US firm Upjohn with Pharmacia of Sweden and a hostile bid by the French group Rhone-Poulenc Rorer for Fisons. Earlier this year, Glaxo paid pounds 9.1bn for Wellcome. Who feels better for all this - the companies, their customers or the patients?

It makes financial sense, say the City columns. It's necessary for survival, maintain the companies. Dragging a drug to market over the hurdles of research, development and testing by the authorities takes on average 10 years, costs on average $200m. Slap on a patent that lasts 20 years at most and enjoy the profits until the bubble bursts in a flurry of generic competition. In short, unless you have an annual budget for research and development of at least a billion dollars, you can't play in the big league.

This new cold logic in the pharmaceuticals industry comes after the fat times of the Eighties. Drugs were often priced at the highest level the market could bear, with margins reportedly as high as 90 per cent in some cases. Then came reform in the management of health care. Often, this was driven by government, as in this country. In the United States, pressure from health managers and the health insurers anticipated President Clinton's wrestlings with the system. Either way, the pharmaceutical industry found itself on the defensive as the customer began to baulk at the cost. Between the big suppliers and the big purchasers of drugs, systems of discounts sprang up.

Nothing wrong, of course, with keeping costs down. A popular hero of recent weeks was the pharmacist from Gwent who offered prescription patients a chance to buy drugs over the counter, saving them up to three pounds a time. His local Family Health Services Authority reckoned that they alone had the right to haggle and, in any case, his tactics undermined the fundamental principle of the NHS. Not surprisingly, the pharmacist was backed by the National Pharmaceutical Association, eager to deliver a sly kick at its benefactor and tormentor - the health manager.

But in the US, lists of drugs that could be prescribed were themselves circumscribed by cost considerations. Americans with ulcers who might have found that Zantac sat easier on their stomachs than Tagamet were out of luck as Zantac's manufacturer, Glaxo, was not prepared to give the health purchasers the discounts they demanded. Price, not therapeutic effect, frequently became the arbiter. Even in this country, what a manager would purchase for a health authority and what they might want a sick relative to receive are often different.

The US currently makes up 40 per cent of the world drugs market. In Europe, per capita spending on health is lower, but the proportion of that budget spent on drugs is higher - around 16 per cent compared with six per cent in the United States. In Britain, this is seen as the way of the future. Thus, in ER, the American television drama, the patient is no sooner through the doors of the emergency room than the medics are calling down a battery of diagnostic tests, burrowing the patient further into the hospital system. But in Britain's Casualty, the emphasis is on getting the wounded up and walking and out of there, clutching a prescription. Drugs can keep people out of hospital, which is where most of us would prefer to be.

So the market will be strong - if the products are right. But what this parade of bids and mergers demonstrates is that it has not been enough to have a single "blockbuster" product (rough definition: a drug that brings in sales of more than $500m a year). A successful company needs a string of hits and for that, they must aim at the more lucrative areas - the medical obsessions of the late 20th century developed world.

The reasoning behind the merging of pharmaceutical companies is that they can reduce costs by cutting areas of overlap. Inevitably, this surgery goes beyond the sales force and the accounts department and slices into research. The time has long gone when big companies allowed wild-haired men in white coats to play around in the laboratory. The concept of serendipity in scientific research is a luxury they can no longer afford. From now on, research has to be directed at areas known to yield rewards. Employees of drugs companies are seeking out rare plants in remote jungles or wrestling with gene therapy to find a range of drugs to treat the long-term good bets in the market.

So the bulk of research will be directed at chronic disease like asthma or at cancers, Aids, motor neurone disease or Alzheimers. And while combining companies may well have the benefit of increasing the research budget, that research will inevitably be concentrated on a limited number of targets. There will be gaps in the range of therapeutic drugs available.

Those who watch the industry reckon that by the end of the century, there could be as few as five major drug conglomerates who could carve up the lusher acreage of medicine between them. Beneath them would be a middle tier of smaller companies with products to serve more esoteric areas. Spreading the net wider - and providing the most original work - would be the little research "boutiques". In theory, these groups of independent scientists would provide the crucible for innovation.

The fact is, however, that the large conglomerates would always influence what went on further down the chain. Smaller companies need investment to fund their research; more often than not, this search for funds becomes a permanent relationship of patronage with a much larger partner. Those five conglomerates could effectively control most of the world market.

And what, finally of the consumer, since in this case the customer and the ultimate consumer are not one and the same? Britain has vocal and effective patients' pressure groups. In the past, they've seen off proposals for blacklists of NHS drugs. But in the end, patients can only demand drugs that are developed and on the market. Patient choice must inevitably be squeezed between the budget constraints of the health authority or the health insurer and the margins of the drug companies. The bigger and more powerful these two opposing forces become, the tighter the squeeze.

Advice to patients is this - if you are going to get ill in the future and you want a plentiful supply of the best drug available, go for a chronic but not too expensive disease. Opt for something the bright sparks in market research foresaw and do try to avoid anything too exotic and unfashionable.