In the January/February 2002 issue of Lalkar, I published an article on the Consolidation of the Oil Industry under the title ‘Three sisters and a poor cousin’. At the end of that article I promised to deal with consolidation in the pharmaceutical industry in the following (March-April) issue. More pressing work, however, prevented me from so doing. Now, as a belated fulfilment of my promise, I present to the reader a brief summary of the continuing, and accelerating, monopolisation of the pharmaceutical industry.
Mergers & Acquisitions since 1989
During the past 15 years, the pharmaceutical industry, like many others, has experienced unprecedented monopolisation through mergers and acquisitions. Beginning with 1989, the year which saw the merger of Beecham of the UK with SmithKline Beckman of the US, and that of Bristol-Myers with its US rival Squibb, the process of consolidation in the pharmaceutical industry has accelerated, with large mergers and acquisitions almost every year since 1993. In particular the merger of Glaxo Wellcome and SmithKline Beecham and that of Pfizer and Warner-Lambert, and subsequently that of Pfizer and Pharmacia, have created giants with enormous sales and market capitalisation. We are well on the way to the realisation of a situation in which half a dozen companies, each with a 10% share of the global prescription market, dominate the world pharmaceutical industry. Here is a list of important mergers and acquisitions (M&As) from 1989 to the present: [See Table 1]
To get an idea of the size of the companies created through the above M&A’s, and the scale of their business operations, it would be worth our while dwelling on a few salient details concerning GlaxoSmithKline (GSK) and Pfizer. In the case of GSK, which emerged from the takeover of SmithKline Beecham by Glaxo Wellcome, it created a company with a combined workforce of 110,000, a research and development (R&D) budget of nearly $4 billion a year, which makes it the most powerful force in British science after the government. Next to GSK, the biggest UK spender on R&D is AstraZeneca, with an R&D budget of $2.5 billion a year. The combined R&D spending of these two pharmaceutical giants accounts for a third of the entire R&D expenditure by all British companies – a dominance unknown to any other imperialist country. GSK’s market capitalisation, even after taking into account the stock market plunge over the last three years, stands at $110.9 billion (before the plunge it was close to $165 billion), and its market share at 6.9%, with sales of $22.4 billion a year. It employs 15,000 scientists, and its massive sales force is in a position to outgun all rivals in most of the 60 countries in which it operates – with the sole exception of Pfizer, which, having swallowed Warner-Lambert and Pharmacia, is bigger. As far as Britain is concerned, the number of pharmaceutical companies is essentially reduced to two – GSK and Astra Zeneca. When at the end of 1998, Zeneca of Britain and the Swedish Astra agreed a merger via a $70 billion deal, it had the immediate effect of transforming Zeneca from being a second-division player into one of the leaders in the global pharmaceutical industry, with annual sales of $16 billion, pre-tax profits of $3.59 billion and a market share of 4.5%. Thus it can be seen that these two monopolies, GSK and Astra Zeneca, while completely dominating the drug market in the UK, together account for 11.4% of the global drug market of about $400 billion a year. In view of their total dominance of the UK drug market, and their huge combined R&D budget, it may be safely (pardon the pun!) stated that no other imperialist country will be so dependent on just two monopolist combines for the health of its people and its research base alike.
Let it be noted that, as ever, workers are always the first victims of these mergers and acquisitions. With the merger of Glaxo and SmithKline Beecham, an estimated 10% of the workforce at all levels lost their jobs. Earlier, in 1995, when Glaxo took over Wellcome, 1,700 jobs disappeared in the UK alone. And the merger of Zeneca and Astra produced 6,000 redundancies.
When in November 1999, Pfizer made its $85 billion smash-and-grab raid for Warner-Lambert, it represented not only the biggest unsolicited bid up to then in corporate history, but was at the same time an attempt, ultimately successful, to spoil the agreed American Home Products/Warner-Lambert merger only hours after its announcement. By early February 2000, Pfizer had pulled off the merger by raising its original offer 10% and paying AHP the huge sum of $1.8 billion by way of break-up fee – the largest ever paid. At one stroke this merger created a company with sales of $23.15 billion a year and a 7.3% share of the global drug market. With its $50.5 billion merger with Pharmacia (announced on 15 July 2002 and completed in April 2003), Pfizer became the world’s largest drug-maker, representing 11% of the global drugs market, with sales of $40.7 billion. Its research budget has jumped from $5 billion to over $7 billion a year.
Rationale for consolidation
The reasons behind the consolidation in the drug industry, with suitable specific modifications, are the same as operate in the consolidation of all other branches of commerce and industry, namely, concentration and centralisation of capital, spurred on by the desire for gain and the fear of competition, leading to the establishment of a monopoly position, which alone guarantees the extraction of maximum profit. In the era of monopoly capitalism, even the biggest corporations are no longer big enough to go it alone. They need to acquire a critical mass in order to be equipped with the wherewithal of research and development on a broad scale and to develop global distribution networks and marketing facilities. The biggest companies in each area set the benchmark. As no chief executive wants his company to be outmuscled, each round of consolidation sparks another in turn. As no one wants to be in the least comfortable position of being in the middle or on the side, each big merger sends all other big drug companies scrambling for their next move and re-evaluating their merger options.
In order to be able to confront in the market place Pfizer or GSK, with their respective R&D budgets of $7 billion and $4 billion a year, enormous sales, workforces, share of the market, production facilities and financial power, other drug companies have to huddle together for comfort and grow big or face extinction. On reliable estimates, it costs a drug company an average of $500 million to convert a bright idea into a drug on a pharmacy shelf. The explosion of scientific knowledge, especially in the area of genetics, has served to add enormously to the skills and equipment pharmaceutical companies require to undertake research. Even then there is no guarantee that they will come up with a blockbuster – a drug which brings in sales revenues in excess of $1 billion, which only a handful do. In this risky and expensive game, only the biggest can hope to survive.
In addition to the tendency for the rate of profit to decline, a tendency which operates under capitalism in all sectors of the economy, drug companies, especially in Europe, are under pricing pressure, with the consequent effect on their margins. Some are facing imminent patent expiries and the onset of competition from producers of generic drugs – and the consequent reduction in sales and profits. According to the Financial Times of 5 October 2001, “drugs with annual sales of $45 billion will lose their patents by 2005”. Many of the drug manufacturers are highly dependent on a small number of blockbuster drugs for their revenues. For example, Losec, AstraZeneca’s anti-ulcer drug, marketed in the US under the name of Prilosec, notched up sales of $6.2 billion in 2000 and was estimated to have generated $1 billion in profits for the company, accounting for 40% of AstraZeneca’s profits in that year. In these circumstances, mergers offer a way out of such difficulties. Here is a list of the ten leading blockbuster drugs in 2001, along with their respective sales figures and the name of the manufacturer. [See Table 2]
And below is a list of key patent expiries between 2000 and 2005. [See Table 3]
As is clear from the foregoing, it is not merely the weak which are being gobbled up by the big, even the strong are doubling up with the strong, e.g., Glaxo with SmithKline Beecham and Pfizer with Warner-Lambert. One reason, on top of the usual ones, is genomics – the pharmaceutical industry’s equivalent of the landgrab. Back at the beginning of 2000, the Financial Times correctly observed, apropos the then pending merger of Glaxo and SmithKline Beecham:
“As the entire human genome is catalogued over the next five to 10 years, drug companies have a once-in-a-lifetime chance to explore (and possibly patent) a finite number of biological targets, forming the basis for a wealth of new medicines. The more targets a company can seize and develop the better. And for that, it needs vast resources” (18 January, 2000).
In the aftermath of this merger, consummated in December 2000, GSK rightly claimed that with its new resources – a large R&D budget and a huge sales force – it would be a powerhouse in marketing and research. Little did it then realise that Pfizer was lurking just round the corner to spoil GSK’s fun with yet another merger – this time with Pharmacia – a deal which has added to the pressure on GSK to go for further mergers as a means of boosting earnings and cutting costs, for ” … if the destiny of the industry is to consolidate, what better than to pluck up the courage to find a willing [even an unwilling – HB] partner, rather than risk being a wallflower at the pharmaceutical industry’s ball?” (Financial Times, 2 February 1998).
It is only a question of time before another furious round of consolidation seizes the industry.
At the moment, consequent upon concentration achieved during the last 15 years, the line-up of the top drug manufacturers has changed dramatically.
Here is a list of the top ten pharmaceutical companies ranked by sales and market capitalisation respectively. [See Tables 4 and 5]
Predominance of US drug companies
Tables 4 and 5 clearly reveal the predominance of the US pharmaceuticals among the top ten, whether ranked by sales or market capitalisation. 20 years ago, European companies dominated the top end of the drug manufacturers’ league. The table for the year 1981, showing the top ten drug companies ranked by sales, clearly reveals, when compared to the latest figures, the extent to which European pharmaceuticals have given ground to their US rivals. [See Table 6].
Top global pharmaceutical companies ranked by sales and market share
to form Novartis
It is noteworthy that, while in 1981 the top ten pharmaceutical companies accounted for 23.4% of the global drugs market, in 2000 they had doubled their share to 45.7% as a result of the increasing monopolisation of the industry. During the same period, while the market share of the US companies among the top 10 increased nearly two and a half times, from 10.7% to 26.8%, that of the European companies increased by merely 50%, from 12.7% to 18.9%. Here is a table depicting these changes, see Table 7.
Europe, which gave birth to the pharmaceutical business at the end of the 19th century when German and Swiss dye-making companies applied their chemical expertise to the discovery of drugs, is fast slipping behind the US. It was in 1897 that Felix Hoffman, who worked for the German dye-maker, Bayer, created a new industry. By adding a cluster of two extra carbon and five extra hydrogen atoms to a substance extracted from willow bark, he created acetyl salicylic acid, known to ordinary mortals as aspirin. At one stroke, Hoffman’s discovery turned Bayer into the world’s first modern pharmaceutical company. From then on, European companies dominated the industry up until the closing decade of the 20th century when they made way for its domination by the US pharmaceutical giants.
The reasons for this are that, with a few exceptions, European companies are under-represented in the US, which accounts for 40% of global sales and 60% of the profits of the pharmaceutical industry. The US spends a huge 14% of its GDP – more than any other country – on health (see chart 1). Its healthcare bill amounts to over $1,000 billion a year. Drug prices in the US are about double those in Europe, which gives the US drug companies, which on average generate two-thirds of their income at home, a tremendous advantage. In addition, US sales are increasing at between 12% and 14% a year, more than double the rate of growth in Europe. During the last 10 years, high domestic growth in sales and higher drug prices, have served to boost the revenues of US companies and thus enabled them to re-invest in the increasingly expensive business of coming up with new drugs.
Let no one assume from the above that the US has got some fantastic healthcare system for its citizens – rich and poor. Far from it. The whole system benefits the pharmaceutical companies and the rest of the medical mafia. While it looks after the well-off sections of society, 40 million Americans find themselves without any healthcare cover. Not surprisingly, out of the ten “lifestyle drugs” in 1998, the majority were made by the US companies. These drugs, which supposedly improve the quality of life and alleviate the symptoms of old age, include Prozac for depression and Viagra for the treatment of erectile dysfunction.
The pharmaceutical mafia
The drug industry is one of the most lucrative in the world, composed as it is of a few dozen giant corporations with patent-protected monopolies on substances that people all over the world are literally dying for. According to the Economist of 21 February, 1998, the average profit margin of the top 10 pharmaceutical companies in 1996 was 30%, which explains why drug making continues to survive as one of the largest manufacturing industries. Monopoly of patents and monopoly position in the market is the key to the drug industry’s extraordinary profitability and its annual revenue growth of 10%. It is precisely in the interests of these monopoly profits and revenue growth that further monopolisation of the drug industry continues unabated.
“Finance capital”, observed Lenin, “has created the epoch of monopolies, and monopolies introduce everywhere monopolist principles: the utilisation of ‘connections’ for profitable transactions takes the place of competition on the open market” (Imperialism, the Highest Stage of Capitalism).
And: “A monopoly, once it is formed and controls thousands of millions, inevitably penetrates into every sphere of public life, regardless of the form of government and all other ‘details'” (ibid., p.56).
The drug industry furnishes a particularly vivid illustration of the above-cited observations of Lenin, constituting as it does a nexus of the pharmaceutical industry, government, insurance companies, lawyers, the media, the state and the bureaucracy, the medical profession and the scientific establishment with its plethora of scientific conventions and publications, ‘charitable’ foundations of all kinds (Carnegie and Rockefeller foundations, for instance) and financial institutions. Totally oblivious to even the concept of a conflict of interest, characterised by a total absence of scruples, it uses control, power play, propaganda, misinformation, bribery, intimidation and even murder without a moment’s hesitation.
Just as there exists the military-industrial complex, so does the medical-industrial complex, aptly denominated the ‘medical mafia’ by the Canadian doctor Guylaine Lanctôt in her book bearing the same title. It is not an industry whose concern is the good health of people, for universal good would spell death to its enormous profits. For it, more patients, who are sick more often, and stay sick longer, are the only sure route to profits. Instead of health for all, its motto (obviously not openly pronounced) is sickness for all, for sickness alone enables it to sell lucrative drugs and rake in huge profits and improve its stock market ratings. In the pursuit of this goal, it stoops to every lie and fraud, to kickbacks and concealment of information. Precisely for this reason, its emphasis is on symptoms rather than causes, on alleviation not cure, on treatment rather than prevention, on retarding the flow rather than reversing the direction – in sum: profits rather than service to the people.
In order to preserve its monopoly profits, it uses its monopoly of patents and the laws relating to intellectual property rights to block affordable generic drugs. The obscenity of the drug industry’s greed and inhumanity was revealed in its lurid light when it attempted to sue the South African government over the latter’s use of generic drugs for helping AIDS victims. Amid universal opprobrium, the drug companies were obliged to withdraw their suit.
In addition, the drug industry does everything within its power to discredit natural remedies and secure the banning of the practice of alterative medicine or its emasculation through legislation and control. It maligns environmentalists and those who bring ethics and such other ‘irrational’ considerations into the equation. In the words of Guylaine Lanctôt, the pharmaceutical industry “…scatters the seeds of sickness and reaps the rewards” under the guise of public concern and scientific research, pulling all the strings of the system with “extraordinary tact and diplomacy” and working “in the shadows through go-betweens”. All doors are open to it and authorities at every level, both government and medical, “are subject to its immense power”, and it rules over them through benign corruption or by instilling fear and threatening punishment. “Government and its agencies,” she says, “are on the payroll of the industry.” Elected politicians and higher echelons of the civil service must bow to the dictates of the industry, for at “the least sign of defiance or waver in their loyalty, they will fall from grace and be cast out” (The Medical Mafia, pp. 88-89).
Terrorising the oppressed nations
If this is the power exercised by the powerful drug industry over the governments, politicians, civil servants and the medical profession in the centres of imperialism, one can imagine the terror it is able to practise on the governments, politicians, etc., of the oppressed and super-exploited nations of the vast continents of Asia, Africa and Latin America. As public awareness in Europe, America and Japan on occasion forces drug companies to abandon altogether the sale of some drugs or to advertise their harmful side effects, such a calamity (for the drug companies) merely becomes an occasion for a concentrated effort by the industry to push these harmful substances in the so-called third world, which has become a promising hunting ground for dumping drugs considered dangerous in the centres of imperialism. Commanding armies of trained sales personnel, it conquers the market through a combination of bribery and misleading information. If these methods do not work, it resorts to blackmail and political violence. Hans Ruesch, in his book Naked Empress, mentions the case of Chile in this regard. In 1972, a Chilean medical commission appointed by the late president Salvador Allende concluded that no more than a couple of dozen drugs had any demonstrable therapeutic value and that, therefore, the import of drugs should be reduced in line with this. Within one week following the CIA-instigated bloody coup, which toppled the Allende government on 11 September, 1973 (a September 11 which is conveniently not part of the American memory), and replaced it with a ruthless, but market-friendly, military dictatorship, most of the minority of Chilean doctors who wanted to give effect to the commission’s findings were murdered by the army. Ruesch observes:
“Of course, nobody ever published conclusive evidence that the American CIA had a hand in the murder of those Chilean doctors who opposed the flood of American drugs. On the other hand, nobody has explained why in a political revolution so many medical doctors were murdered, and precisely those. Let us add that murder is believed to be well within the realm of CIA activities, whose initials have jestingly been interpreted as standing for ‘Center of International Assassination'” (p.94).
Confirmation of the immortal truths of Marxism-Leninism
The finding of honest bourgeois writers such as Dr Lanctôt and Hans Ruesch confirm the following conclusion of V I Lenin: “Imperialism is the epoch of finance capital and of monopolies, which introduce everywhere the striving for domination, not for freedom. Whatever the political system, the result of these tendencies is everywhere reaction and an extreme intensification of antagonism in this field.”; that “Finance capital does not want liberty, it wants domination”; and that “Domination, and violence that is associated with it, such are the relationships that are typical of the ‘latest phase of capitalist development'” (Imperialism, the Highest Stage of Capitalism, pp. 113-114, and page 80).
And yet we would be told by the bourgeoisie and its ideologues, including perhaps by Dr Lanctôt and Mr Ruesch, that Marxism-Leninism is dead. No, dear Sirs, far from it. Marxism-Leninism is the ideology of the modern proletariat. It can no more be dead than the proletariat.
In a decent society, in which production takes place to satisfy the needs of the people rather than to cater for the profits of the few as is the case in present-day society, the pharmaceutical industry would be placed at the service of the population. Such a society, in place of the massive use of drugs, would place the emphasis on the control and improvement of the quality of life. Such a society would pursue “a health policy that is not contaminated by the interests of pharmaceutical multinationals” (the words quoted were spoken by the American doctor, Edward Kasse, in 1983 at the convention in Vienna on Infectious Diseases in his role as president and was cited in G Lanctôt’s book referred to above).
Such a society can only be a socialist society. Those who are genuinely concerned about the health – physical and mental – of the people must fight hard to establish such a society by getting rid of imperialism.