In the graph below, you can see that 39 drugs were approved in 2012, which is fairly large compared to previous years. It is important to note that 14 of those were new biologics. In 1990, 23 drugs and 30 the following year, 1991 were approved. If you look at the graph at the bottom of the page, one obvious factor is that the cost of developing a new drug (chemical) has risen to $800 million in 2000 from $300 million in 1990. The best estimate for last year was $ 1.8 billion for 2012. So where are all those savings that were supposed to come from the consolidation of the industry? Well, they obviously don't exist.
One huge problem is that a company the size of Pfizer needs multi-billion dollar earning drugs and those are hard to come by. They weren't a particularly innovative company so in the 1990s they went on a merger and acquisition binge that destroyed Warner-Lambert, Pharmacia-Upjohn, Wyeth. All were much more innovative companies than Pfizer. Pfizer dismantled the research infrastructure of these companies, turning out the chemists responsible for producing the blockbuster drugs, that they acquired the companies for. Now what? We have several Brontosauruses that can't find enough food to survive. As we have learned from the housing crisis, that "too big to fail" translates into "too big not to fail". The cost savings of mergers are paper economies. Mirages of accountants ledger books. The industry was in much better health in the late '80s and early '90s that it is now. What are the big guys doing? Looking for innovation in the small company arena, buying the small companies, so they can get innovative products and destroy the culture of innovation that brought the new drugs in the first place.
"Well, what is to be done?" you ask? I'm glad you did. Fortunately, I am arrogant enough to believe I have the solution. Tune in tomorrow for part three, in which I solve all the world's problems.