A history of the pharmaceutical industry
Robin Walsh
October 1, 2010
The 21st century pharmaceutical and biotech sector has come a long way from its roots in 19th century pharmacy – Robin Walsh looks at its evolution over the centuries
The roots of the pharmaceutical industry lie back with the apothecaries and pharmacies that offered traditional remedies as far back as the middle ages, offering a hit-and-miss range of treatments based on centuries of folk knowledge.
But the industry as we understand it today really has its origins in the second half of the 19th century. Whilst the scientific revolution of the 17th century had spread ideas of rationalism and experimentation, and the industrial revolution had transformed the production of goods in the late 18th century, the marrying of the two concepts for the benefit of human health was a comparatively late development.
Merck in Germany was possibly the earliest company to move in this direction. Originating as a pharmacy founded in Darmstadt in 1668, it was in 1827 that Heinrich Emanuel Merck began the transition towards an industrial and scientific concern, by manufacturing and selling alkaloids.
Similarly, whilst GlaxoSmithKline’s origins can be traced back as far as 1715, it was only in the middle of the 19th century that Beecham became involved in the industrial production of medicine, producing patented medicine from 1842, and the world’s first factory for producing only medicines in 1859.
America’s pharmaceutical founding fathers
Meanwhile in the USA, Pfizer was founded in 1849 by two German immigrants, initially as a fine chemicals business. Their business expanded rapidly during the American civil war as demand for painkillers and antiseptics rocketed³.
Whilst Pfizer was providing the medicines needed for the Union war effort, a young cavalry commander named Colonel Eli Lilly was serving in their army. A trained pharmaceutical chemist, Lilly was an archetype of the dynamic and multi-talented 19th century American industrialist, who after his military career, and trying his hand at farming, set up a pharmaceutical business in 1876. He was a pioneer of new methods in the industry, being one of the first to focus on R&D as well as manufacturing.
Another military man in the drugs business was Edward Robinson Squibb, who as a naval doctor during the Mexican-American war of 1846–1848 threw the drugs he was supplied with overboard due to their low quality. He set up a laboratory in 1858, like Pfizer supplying Union armies in the civil war, and laying the basis for today’s BMS.
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“Whilst Pfizer was providing the medicines needed for the Union war effort, a young cavalry commander named Colonel Eli Lilly was serving in their army.”
Switzerland also rapidly developed a home-grown pharmaceutical industry in the second half of the 19th century. Previously a centre of the trade in textiles and dyes, Swiss manufacturers gradually began to realise their dyestuffs had antiseptic and other properties and began to market them as pharmaceuticals, in contrast to the origin in pharmacies of other enterprises. Switzerland’s total lack of patent laws led to it being accused of being a “pirate state” in the German Reichstag. Sandoz, CIBA-Geigy, Roche and the Basel hub of the pharmaceutical industry all have their roots in this boom.
S – Aspirin arrives
It wasn’t just Swiss companies had their roots in the dye trade. Bayer was founded in 1863 as a dye maker in Wuppertal, the hometown of Karl Marx’s collaborator Friedrich Engels. It later moved into medicines, commercialising aspirin around the turn of the 20th century, one of the most successful pharmaceuticals ever at that point.
The unregulated nature of the trade in medicines during this period ensured there was a far less strict delineation between “pharmaceutical” and “chemical” industries than we have nowadays. These companies focused as much on cod liver oil, toothpaste, citric acid for soft drinks, and hair gel as on prescription medicines, as well as selling products like heroin on the over-the-counter market.
The national rivalries and conflicts that characterised this period also had their impact on the developing industry.
An advert for Bayer’s Aspirin from the early 20th century
Bayer had the aspirin trademark and its US assets seized during World War One, whilst “American” Merck (now Merck & Co. in the US or Merck Sharp & Dohme [MSD] elsewhere) was compulsorily split off from its Germany parent company (Merck KGaA) at the same time.¹ Bayer also had its Russian subsidiary seized during the Russian revolution. This disruption to Germany’s position as the leader in pharmaceuticals in the early 20th century by the war meant that others, particularly in the US, could take relative advantage. The beginnings of the globalisation of the industry were seen both before and after the war – in the UK, import duties incentivised many foreign companies such as Wyeth, Sandoz, CIBA, Eli Lilly and MSD to set up subsidiaries in Britain in the post-war years.
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The interwar years
The period between 1918 and 1939 was marked by two breakthroughs that presaged the arrival of the pharma industry as we know it today. The first was insulin, Frederick Banting and colleagues managed to isolate insulin that could treat diabetes, up until that point a fatal condition. But it was only in collaboration with the scientists at Eli Lilly that they were able to sufficiently purify the extract and industrially produce and distribute it as an effective medicine.
The second was penicillin, a discovery of an impact possibly unparalleled by any other in medicine. After Alexander Fleming’s initial discovery of the penicillium mould’s antibiotic properties in 1928, and Howard Florey and Ernst Chain’s further experimentation, a government-supported international collaboration including Merck, Pfizer and Squibb worked on mass producing the drug during World War Two, saving thousands of soldiers’ lives. The immense scale and sophistication of the penicillin development effort marked a new era for the way the pharmaceutical industry developed drugs. The war had also encouraged research into everything from new analgesics to drugs against typhus, with a great deal of collaboration between the companies and government.
Post-war period
After the war, the arrival of social healthcare systems such as the UK’s National Health Service (NHS) in Europe created a much more structured system, both for prescription of drugs and their reimbursement. In 1957, the NHS brought in what was essentially a price fixing scheme to allow reasonable return on investment for drug manufacturers, solidifying the incentive to invest in new medicines.
The US pharmaceutical industry was booming, thanks to being part of the world’s biggest and most dynamic economy. Its growth was also helped by generous funding from government, with the National Institutes of Health seeing its federal funding rise to nearly $100 million by 1956. This investment fuelled the development of drugs to come over the coming decades.
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Meanwhile, as the industry grew wealthy thanks to its growing portfolio of products, the potential ethical conflicts of making money from selling healthcare products became increasingly apparent.
George Merck addressed this question directly in 1950, proclaiming that: “We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we remember it, the larger they have been.”
This public-spirited industry still required greater oversight, however, and government regulations on medicines increased on both sides of the Atlantic. 
George Merck on the cover of Time magazine
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