Industry consolidation is going down.

Robert Atkinson and Stephen Ezell, May 20 2021, “Five Fatal Flaws in Rep. Katie Porter’s Indictment of the U.S. Drug Industry,” Information Technology and Innovation Foundation, https://itif.org/publications/2021/05/20/five-fatal-flaws-rep-katie-porters-indictment-us-drug-industry

False Claim #1: The Industry Has Gotten Extremely Concentrated

The report claims that the industry has gotten extremely concentrated through mergers and acquisitions and that this has reduced drug innovation and boosted prices. The report argues that firms have engaged in mergers and acquisitions, largely to limit competition and prop up profits.

For example, the report asserts, “In just 10 years, the number of large, international pharmaceutical companies decreased sixfold, from 60 to only 10.”2 In the same paragraph, it then lists 14 “major” drug companies. Even worse, the article cited actually states, “Between 1995 and 2015, 60 pharmaceutical companies merged into just 10.”3 This is very different from the number of large pharmaceutical companies shrinking sixfold. Moreover, in 2006, the top 10 drug producers accounted for 56 percent of global industry sales, while the top 60 accounted for 92 percent. But by 2019, the top 10 accounted for 43 percent, and the top 60 86 percent.4

In 2006, the top 10 drug producers accounted for 56 percent of global industry sales, a number that fell to 43 percent by 2019.

Moreover, looking at combined output for firms in the United States (not imports), the sales for the top four in each industry (C4 ratio) in the Pharmaceutical Preparation Manufacturing and Biological Product Manufacturing industries (NAICS codes 325412 and 325414) increased only modestly from 2002 to 2017, from 36 percent to 43 percent, while the C8 ratio increased from 54 to 58 percent, and the C20 ratio fell slightly from 77 percent to 76 percent.5

Given that drugs are sold internationally, a more accurate measure of market concentration takes into account all drug firms. In 2019, the top 4 firms globally had just 21 percent of the market, with the top 8 having 37 percent, and the top 20 64 percent. While the C4 and C8 ratios were up slightly from 2006, when they were 18 percent and 31 percent, respectively, the C20 ratio actually fell to 64 percent.6