For most of the twentieth century, ICI was Britain’s leading industrial company. It was  formed in 1926 through the merger of four chemical companies – Brunner Mond, Nobel Explosives, United Alkali and British Dyestuffs. The company declared its vision to be ‘the responsible application of chemistry and related sciences’ to business. The chemical markets of the world were shared, more cooperatively than competitively, between ICI and its global rivals, du Pont and IG Farben.

After the Second World War the ICI board shrewdly perceived that the new frontier of ‘the responsible application of chemistry and related sciences’ was pharmaceuticals.  In these days, ICI was one of the few British manufacturing companies active in recruiting graduates, and the pharmaceutical division hired a team of able young scientists. Among them was  James Black,  a physiologist from the University of Glasgow.  Despite the quality of its research chemists, ICI’s pharmaceutical division lost money for almost two decades. It is hard to imagine a listed company, or its shareholders, tolerating a similar financial performance today.

In the 1960’s Black discovered beta-blockers, the first effective anti-hypertensive drug.   Other commercial products followed, and soon the pharmaceutical group was the main driver of growth in ICI’s profits.  Black himself was feted (if not specially well paid) by the company.  But his interest was in drug research, not rising in management or attending roadshows to promote beta-blockers to clinicians. Believing that the pharmacological principles underlying beta-blockers had other therapeutic uses, he left ICI for the greater freedom offered by  Smith Kline. 

        Black’s hopes were realised, to the substantial profit of his new employer:  His team found a drug, Tagamet, which relieved many people from the misery of stomach ulcers. Announcement of  the discovery prompted another British company, Glaxo, to focus research in the same area The product of that research was Zantac,  for a time the world’s best selling drug.  ICI’s visionary long term investment in pharmaceuticals did not just pay off for the company itself. It laid the foundations of what is today one of Britain’s most successful industries.

By the late 1980s, business fashions had changed. The purpose of business was the promotion of shareholder value rather than the responsible application of science.  The chemical business that was ICI had  shifted its  emphasis over the years from its origins in dyestuffs and explosives to petrochemicals and fertilizers and then to pharmaceuticals. But conglomerates of  businesses related by the specialist scientific knowledge they employed were no longer in vogue. Conglomerates like  Hanson, with management skills which could supposedly bring efficiencies to any business, were thought to be the companies of the future.

In 1991, Hanson was thought to be preparing a hostile bid, and the threat galvanised ICI. Two year later, the pharmaceutical business was spun off as Zeneca. After all, the rating attached to drug companies was far higher than the PE ratio applied to the cyclical chemical businesses which ICI still retained.  Zeneca subsequently merged with the Swedish company Astra (whose proton pump inhibitor had proved the successor therapy to Zantac) The rump business of ICI began a fifteen year journey to oblivion.

And the pharmaceutical industry itself was changing.  When business guru Jim Collins wrote Built to Last in 1995, he compared the continuing success of Merck – America’s most admired company in repeated Fortune surveys – with the inferior financial performance of its competitor Pfizer.  Collins contrasted the philosophy of George Merck ‘we never forget that medicine is for the people…… and if  we have remembered that, (the profits) have failed to appear with the words of his contemporary John McKeen at Pfizer; ‘so far as is humanly possible, we aim to get profit out of everything we do’.

       But by the time Collins’ book appeared, Pfizer’s  strategy of aggressively cutting costs, promoting its suite of existing drugs, and filling gaps in its pipeline of new drugs through acquisitions better fitted the changed times.  Merck, attempting to keep pace, fell from grace.  When Collins came to write When Giants Fall fifteen years later,  Merck was again among his featured businesses.

Business built to last is about people and products, not corporate activity and tax advantages. James Black almost certainly created more shareholder value than any financier or CEO in the history of British business.  That lesson should be relevant to how we view Pfizer’s proposed acquisition of Astra Zeneca.