[Congressional Record Volume 146, Number 72 (Monday, June 12, 2000)]
[Extensions of Remarks]
[Page E973]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

[[Page E973]]



                      BIGGER IS NOT ALWAYS BETTER

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                       HON. JANICE D. SCHAKOWSKY

                              of illinois

                    in the house of representatives

                         Monday, June 12, 2000

  Ms. SCHAKOWSKY. Mr. Speaker, recently, I asked the Congressional 
Research Service to provide information on the number and cost of 
mergers and acquisitions involving pharmaceutical companies over the 
last 5 years. The total: $375 billion. In the last 6 months alone, 
Monsanto announced it would pay $23.3 billion to buy Pharmacia and 
Upjohn, Glaxo Wellcome has pledged $76 billion to buy SmithKline 
Beecham, and Pfizer said it would spend $90.27 billion to buy Warner-
Lambert.
  I have been concerned about the effect of these mega-mergers on 
competition and prices. And I have been skeptical about claims that the 
increasing trend of drug companies buying other drug companies boosts 
research activities. A recent report by CenterWatch, a research entity 
focused on the pharmaceutical industry, confirms those fears.
  According to its analysis of 22 mergers completed between 1988 and 
1999, the number of drugs under development actually dropped by 34 
percent during the first 3 years after the mergers. The median number 
of projects in development--from preclinical to late-stage testing--
fell from 85 to 56 potential drugs. And, after a slight rise, the 
number of clinical trials also fell to 9 percent below pre-merger 
levels. In a Newark Star Ledger article, Ken Gatz, head of CenterWatch, 
stated that ``mergers are not meeting certain strategic R&D objectives 
and may even harm the industry's larger term ability to innovate.''
  Drug companies argue that they cannot afford to lower prices to 
senior citizens and other consumers because it will hurt their R&D 
efforts. Yet, these same drug companies spent $375 billion to buy each 
other in mergers that have reduced R&D efforts. It is time that we 
reject these false claims. Congress must act now to expand Medicare to 
provide prescription drug coverage to all senior citizens and persons 
with disabilities. And it must use the power of Medicare to negotiate 
affordable prices. The pharmaceutical industry can certainly afford it, 
but our senior citizens cannot afford to wait.

                  [From the Star-Ledger, June 8, 2000]

 Drug-Industry Mergers Fail To Boost Research, Development, Study Finds

                        (By Edward R. Silverman)

       Despite claims by drug makers that mergers can boost their 
     output, a new study has found that the number of medicines 
     under development actually declined by 34 percent during the 
     first three years following completed deals.
       The findings suggest that, rather than creating much larger 
     companies capable of developing many more medicines, newly 
     merged drug makers are instead trimming their product 
     pipelines and, consequently, failing to become as productive 
     as planned.
       ``A number of professionals believe that, in the long run, 
     mergers create better companies,'' said Annick de Bruin, 
     research manager at CenterWatch, a Boston-based research 
     group that tracks the development of new pharmaceuticals and 
     the clinical trials conducted to test these products.
       ``But in the short term, these mega-mergers cause 
     disruptions in internal operations, and project cancellations 
     with contract research organizations and with investigative 
     sites'' that are chosen to test new medicines on patients, 
     she said.
       CenterWatch analyzed 22 mergers completed between 1988 and 
     1999 and found that, three years after deals were completed, 
     the median number of development projects--from pre-clinical 
     through late-stage testing--dropped to 56 potential medicines 
     from 85.
       Among the mergers examined were last year's combination of 
     Astra and Zeneca; the Ciba-Geigy and Sandoz union, which 
     formed Novartis in 1996; the Pharmacia and Upjohn merger the 
     year before, and the Glaxo Holdings and Wellcome deal the 
     same year.
       The key areas looked at by the firm included drug-
     development spending; the number of original new drug 
     applications filed with regulators; the number of new 
     development projects generated, and therapeutic areas focused 
     on by the newly merged companies.
       In discussing the issue, CenterWatch noted that companies 
     tout the benefits of mergers, such as cost cutting, that can 
     make it easier to devote resources to generating higher 
     revenue and profits--and higher stock prices.
       However, the study also cited comments from drug company 
     managers who explained that cost-cutting often extends into 
     drug development, but usually isn't evident right away 
     because of commitments made to Wall Street about upcoming 
     products.
       In fact, CenterWatch found that the number of clinical 
     projects declines after a merger. Before a deal, companies 
     carried an average of 43 projects. A year later, that rose by 
     10 percent, but then fell 9 percent below pre-merger levels 
     two years on.
       This drop represented a shortfall of $15 million to $20 
     million in funding, which would have been provided in the 
     form of grants to academic investigators and contracts 
     awarded to contract-research organizations, which conduct 
     trials for drug makers.
       ``In my experience,'' one manager told CenterWatch, 
     ``companies have gaps in their pipelines that they're trying 
     to mask. These gaps won't be seen early in the merger. They 
     sort of bubble up several years out.''
       As for overall spending on research and development, 
     CenterWatch found that annual growth in spending before 
     mergers was 7.7 percent, it dipped to 3 percent a year later 
     and returned to nearly 8 percent three years after deals were 
     done.
       ``In the short term, mergers are not meeting certain 
     strategic R&D objectives and may even harm the industry's 
     longer-term ability to innovate,'' said Ken Getz, who heads 
     CenterWatch.

     

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