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From Newton to Heisenberg--The New Physics of the Drug Industry

While the current wave of high profile drug industry deals recalls the heady days of 1980s consolidation, the motivations are quite different. Managed care is forcing companies to prize the efficient leveraging of assets, not critical mass. In today's drug industry, companies will manage for strategic diversity, juggling a number of different platforms at one time. Successful companies will by no means all have been successful using the same set of tools.

Only a year and a half ago, all the major drug companies had quickly set up planning teams to analyze the meaning for their companies of Merck & Co. Inc. ’s acquisition of Medco Containment Services Inc. Over the next year, the answers seemed to come in, as SmithKline Beecham PLC, Pfizer Inc. , and Eli Lilly & Co. all made their moves with PBMs. Only Roche Holdings Ltd.’s acquisition of Syntex Corp., an apparent throwback to old-style consolidation thinking, disturbed the smooth flow of the new industry logic.

Then the tone of the activity changed, and Roche-Syntex no longer seemed like an outlier. American Home Products Corp. attacked American Cyanamid Co. in the first successful hostile takeover...

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