Pharma mergers and government

Last week saw two huge mergers in the global pharmaceutical industry. The first was the Merck-Schering-Plough merger that amounted to $41 billion take-over of Schering-Plough. The second was the Roche-Genentech merger where the former bought the latter for nearly $47 billion. These 2 mergers happened within 2 months after the Pfizer-Wyeth merger (see my discussion on this last January 28, 2009).

Such large mergers in a short period of time did not seem to happen in any other industry. So one may wonder, what triggered such moves, aside perhaps from the on-going global financial crisis?

There are two important development that seem to stand out. One is internal to the industry, the other is external. The industry-related development is the growing competition by generic manufacturers as the patents and IPRs of key blockbuster medicines by innovator pharmaceutical companies are nearing expiration. Almost all industries in the world face this kind of competition from various players within the industry. So this factor is understandable.

The second development, external to the industry, is the growing or creeping take-over by governments of health care, particularly of medicines, through more rigid regulations. For instance, many countries have medicines price control, intellectual property rights (IPR) busting like compulsory licensing of effective but "expensive" medicines, and parallel importation. In the US in particular, the current administration is very vocal on more government role and intervention in public health, and it can include more regulations of innovator pharmaceutical companies who produce more effective, more revolutionary, but "more expensive" medicines.

An Editorial by the WSJ last week, "Mergers and Inquisitions", pointed this out (http://online.wsj.com/article/SB123664413584778083.html?mod=djemEditorialPage). The Editor wrote,

"Deal-making is fast reshaping the pharmaceutical industry, and we wish we could say it was a sign of creative destruction. More likely it is the industry's way of anticipating, and building insurance against, the coming era of government-run health care."

The number of "block-buster" medicines that come on stream globally seem to be dwindling, whereas the number of generics manufacturers seem to be expanding. The current trend of governments -- and supported by huge inter-governmental bodies like the WHO -- is favoring generics production and patent busting of innovator companies, all in the name of "access for all to effective medicines". But this can lead to a danger of "absence for all of future revolutionary medicines". Like more revolutionary medicines against evolving strands of AIDS, cancer, TB, etc.

If I were an innovator pharmaceutical company and the trend of IPR-busting will continue, I will shift to innovating more revolutionary medicnes for skin whiteners, dandruff removers, fat burners, height enhancers, pimple removers, breast and penis enlargers, and so on. There are no IPR-busting laws or regulations for these medicines, so that innovators can be assured of huge profit.