35th Anniversary Special: Decades of Change for the Top Pharmaceutical Companies

The top pharmaceutical companies of 2012 that focus on human prescription drugs, with some diversification, depending on the company, in consumer-healthcare and animal-health products, are different from leading companies of the 1990s (see Tables I–III). In 1990, several top players were not stand-alone drug companies but instead were the pharmaceutical units of multinational chemical companies, reflecting the historical marriage between the chemical and pharmaceutical industries. As the strategic value of pharmaceuticals as a business grew, so did merger and acquisition (M&A) activity, and with it, divestments of chemical and agrochemical concerns and M&A of pharmaceutical businesses that would eventually create the pharmaceutical powerhouses of today. Today, the industry is again at another crossroad as it contends with generic-drug incursion and reduced R&D productivity, thereby facing challenges by which the top companies have responded by increasing biologic-based drug development, targeting growth in emerging markets, and beginning to apply diagnostics in drug development.

The 1990s and early 2000s

More than two decades ago in 1990, Merck & Co. was ranked as the number one company in prescription drug sales, followed by Bristol-Myers Squibb, which had moved into the number two spot with the 1989 merger of Bristol-Myers and Squibb (see Table I). Glaxo was ranked third and SmithKline Beecham fourth, following the merger in 1989 of Philadelphia-based SmithKline Beckman with the UK-based Beecham Group. In 1995, Glaxo and Burroughs Wellcome merged to form GlaxoWellcome, and in 2000, GlaxoSmithKline was established through the merger of GlaxoWellcome and SmithKline Beecham (see Tables I, II).

Table I: Top global pharmaceutical companies, 1990

Other leading pharmaceutical companies in 1990 were not stand-alone entities, but instead were the pharmaceutical businesses of multinational chemical companies: Ciba-Geigy (Swiss), Hoechst (German), Sandoz (German), and Rhône Poulenc (French). The spinoffs of the pharmaceutical units from these chemcal companies and subsequent M&A resulted in the creation of larger, pharmaceutical-based companies.

In 1995, the German chemical conglomerate Hoechst acquired Marion Merrell Dow of Kansas City, Missouri , a pharmaceutical concern created from the 1989 merger of Marion Laboratories and Merrell Dow Pharmaceuticals. In 1989, Dow Chemical had acquired a controlling interest in Marion Laboratories, which was renamed Marion Merrell Dow. In 1999, the pharmaceutical unit of Hoechst, Hoechst Marion Roussel, merged with Rhône-Poulenc (which had spun off its chemicals division in 1997 into a separate company, Rhodia) to create a separate pharmaceutical company, Aventis, which was later acquired by Sanofi–Synthélabo in 2004 to create Sanofi-Aventis. Sanofi–Synthélabo had been formed in 1999 by the merger on Sanofi and Synthélabo.

In 1996, Novartis was established from the merger of the pharmaceutical businesses of Ciba-Geigy and Sandoz following the respective spinoffs of the specialty chemical businesses of Ciba-Geigy to form Ciba-Geigy Specialty Chemicals and of Sandoz to form Clariant, which later acquired the specialty chemical business of Hoechst in 1997. In 2000, Novartis divested its agrochemical business and combined it with the divested agrochemical business of AstraZeneca to form Syngenta, thereby focusing Novartis and AstraZeneca in pharmaceuticals. AstraZeneca was created from the 1999 merger of Astra AB of Sweden and the Zeneca Group of the UK. Zeneca was formed from the demerger of three businesses (pharmaceuticals, agrochemicals, and specialty chemicals) of the UK chemical company ICI beginning in 1993.

American Home Products, which included its pharmaceutical business, then called Wyeth-Ayerst, merged in 1994 with the conglomerate American Cyanamid, which was diversified in consumer and industrial products, pharmaceuticals, agrochemicals, and industrial chemicals. Seeking to build its life-science activities, American Home Products was subsequently involved in three unsuccessful deals in the late 1990s: a merger with SmithKlineBeecham in 1998; a merger with Monsanto in 1999; and perhaps its most notable, a failed 2000 bid for Warner-Lambert, which was later acquired by Pfizer. In 2002, American Home Products changed its name to Wyeth, after spinning off unrelated businesses to focus on its pharmaceutical and consumer-healthcare businesses.

Building critical mass in the 2000s

Pfizer's ascent from the 14^th ranked pharmaceutical company in 1990 to the number one company in 2000 was achieved by acquisition, most notably the acquisition of Warner-Lambert in 2000, for which Pfizer had outbid American Home Products (see Tables I, II). In 1996, Pfizer had formed a comarketing agreement with Warner-Lambert on Lipitor and with its acquisition of Warner-Lambert in 2000, Pfizer secured its top prize in Lipitor, which was to become the top-selling prescription drug for Pfizer and the industry during the 2000s. With the acquisition of Warner-Lambert, Lipitor became one of eight blockbuster drugs (defined as drugs with sales of $1 billion or more) for Pfizer in 2000. The others were: Norvasc, Zoloft, Neurontin, Celebrex, Zithromax, Viagra, and Diflucan.

Table II: Top global pharmaceutical companies, 2000

In 2003, Pfizer acquired Pharmacia. In 1995, Pharmacia & Upjohn was formed through the merger of Pharmacia AB and the Upjohn Company. In 2000, Pharmacia acquired Monsanto, which included G.D. Searle, the pharmaceutical unit of Monsanto, and in 2002, Pharmacia spun off Monsanto as a separate agrochemical/agricultural company.

In 2009, Pfizer acquired Wyeth for $68 billion, cementing its position as the number one global pharmaceutical company (see Table III). The Pfizer–Wyeth merger was one of three megamergers in the late 2000s. In 2009, Merck & Co. acquired Schering-Plough for $41 billion, and Roche acquired the remaining shares that it did not already own of the biopharmaceutical company, Genentech, for $47 billion. In April 2011, Sanofi-Aventis completed its acquisition of the biopharmaceutical company Genzyme and simplified its name to Sanofi in May 2011.

Table III: Top global pharmaceutical companies, 2011

In 2011, Abbott Laboratories announced plans to separate into two companies: one in medical products, which will keep the Abbott name, and a second company focused on research-based pharmaceuticals, which will be called AbbVie. The separation is expected to be completed later this year in 2012.

The decade of the 2010s

What will the next decade bring? In looking at the list of the top 15 global pharmaceutical companies in 2011, we see two key trends already represented: the rising role of generic drugs in the prescription drug market through the positioning of the generic-drug compay Teva Pharmaceutical among the top 10 global pharmaceutical companies and the growing importance of biologic-based drugs through the rise in the rankings of the biopharmaceutical company Amgen as well Roche and Sanofi following their respective acquisitions of the biopharmaceutical companies Genentech and Genzyme (see Table III).

What then will be the pharmaceutical company of 2020 be (see sidebar)? Will the next decade bring more bolt-on acquisitions as pharmaceutical companies focus on specialty-based products as the blockbuster-drug model erodes? Will there be acquisitions in diagnostics for building positions in personalized therapeutics or other healthcare-related businesses? What role will emerging markets play? Are there other megamergers in the offing? Although we don't know the answers to these questions yet, one thing is certain: as in previous decades, the decade of the 2010s portends to be another period of change for the global pharmaceutical industry.

A look into the future: the pharmaceutical company of 2020