The NYTimes reports that “introductions of new drugs plummeted last year to 17 from a high of 53 in 1996, despite a near doubling in annual research spending, to $32 billion.” The Times blames lost lab productivity from mergers. Based on close second-hand experience – my wife is a microbiologist who worked at a pharmaceutical firm as it underwent a merger – I can attest to the fact that mergers create havoc. Reaping the potential economies of scale and scope that drive the merger requires that product lines be discontinued and new lines of hierarchy established. But the power struggles involved in the transition are dissipative and disheartening. It’s not uncommon for some research programs to be canceled and then started again as new coalitons form. The uncertainty alone is draining. The best of the researchers have no stomach for this ordeal and jump ship.
The Times gets a number of things wrong, however. It can take a dozen or more years to research, develop and get a new drug approved so it makes no sense to compare this year’s research spending with this year’s output. The fact that research spending is up even though current output is down is a positive signal of potentially better things to come.
The Times also misses the fact the FDA was approving drugs faster in the late 1990’s than for many decades previously. The FDA got burned, however, as Pulitzer prize-winning critics accused it of endangering the public. Sadly, the FDA learned its lesson and slowed down. (See here for more on FDA incentives and why the Pulitzer prize committee did us all a disservice.)
Finally, the Times says nothing about why the mergers are taking place. One reason is the rising cost of pharmaceutical research. It now costs $900 million dollars to bring the average new drug to market. Firms are merging in order to better control these costs and diversify their risks. FDA reform could lower these costs.