The Business of Medicine: The Extraordinary History of Glaxo, a Baby Food Producer, Which Became One of the World's Most Successful Pharmaceutical Companies (review)

Edgar Jones. The Business of Medicine: The Extraordinary History of Glaxo, a Baby Food Producer, Which Became One of the World's Most Successful Pharmaceutical Companies. London: Profile Books, 2001. xxiii + 520 pp. Ill. $49.95, £25.00 (1-861297-340-3).

This book is the second commissioned history of Glaxo published in recent years. The first—Richard Davenport-Hines and Judy Slinn, Glaxo: A History to 1962 (1992)—told Glaxo's story from its beginnings in the 1840s as a general store in New Zealand to the retirement of Harry Jephcott as chairman and managing director in 1963. It was the story of how Joseph Nathan & Co., the producer of a dried milk powder called Glaxo, became a major pharmaceutical company within Britain and the Commonwealth. Exported to Britain as an infant food, Glaxo the milk powder was the mainstay of the company's business before the Second World War. In the 1920s, however, Nathan's diversified into vitamin supplements, and in 1935 established Glaxo Laboratories, under Jephcott, which in 1947 swallowed the parent company. Davenport-Hines and Slinn traced Glaxo/Nathan's growing interest in pharmaceuticals from its initial focus on vitamins to its later work with penicillin, the corticosteroids, vaccines, and the antibiotic griseofulvin. They also detailed the company's management and marketing strategies across the world. One might have expected Edgar Jones to take up the story from 1962—but in fact the first 144 pages cover much the same ground as the earlier book, though Jones has gone back to the original sources and gives a slightly different twist to the tale. It is only in chapter 7 that the book begins to cover the post-Jephcott era. Presumably, GlaxoSmithKline (as it is now known) wanted its history packaged in one volume.

According to Jones, two major innovations helped to transform the company after 1962. Its development of the new asthma treatments salbutamol (Ventolin, launched in 1969) and beclomethasone dipropionate (Becotide, launched in 1972) facilitated Glaxo's conversion into a research-led organization, albeit one still focused on its traditional markets in the United Kingdom and the British Commonwealth. But it was the development of an ulcer medicine, ranitidine (Zantac, launched in 1981), that made a middling-sized company into a global player. When Zantac was launched, a rival drug called Tagamet had been on the market for five years; both were selective inhibitors of gastric acid secretion, but Zantac was more potent, was dispensed as two tablets a day instead of four, and had fewer side effects. The question for Glaxo was what sort of pricing strategy it should adopt to tackle this competition: should it price Zantac at a discount, or should it charge a premium? According to Jones, the answer came from Italy where a marketing specialist, Mario Fertonani, headed the company. Against convention, Fertonani priced Zantac at a huge 30 percent premium above the price of Tagamet, mainly because Italian inflation meant that any new medicine sold at discount was doomed to make marginal profits at best. Fertonani's scheme was so successful in Italy that the pricing strategy was adopted across the world, and Zantac emerged as the best-selling prescription drug of all time. By 1987 it accounted for a third of Glaxo's sales, and had elevated the company, previously a minnow in the U.S. market, to ninth place in American prescription sales. Zantac's rapid displacement of Tagamet and its impressive commercial success gave Glaxo the resources that underpinned the company's expansion, acquisitions, and restructuring in the 1990s.

As this account suggests, the strength of this book is its discussion of marketing, manufacture, and management. We learn much about Glaxo's ability to profit from a...