How to make money without trying

A large part of the success of pharma giant GlaxoSmithKline comes down to the tireless work of Nobel Prize-winning chemist and Zantac creator James Black.

It is particularly sad for me that James Black, the Nobel Prize-winning chemist, should have died in the same week that my latest book, Obliquity, is published. I am indebted to Black for helping to frame the idea – and for proposing the term "obliquity” to describe it.

A young lecturer at the University of Glasgow, Black was recruited just after the second world war to be one of the first of ICI’s pharmaceutical researchers. Britain’s leading chemical company had shifted from dyes and explosives into fertilisers and petrochemicals. After the war, the company’s executives recognised the contribution drugs – notably penicillin – had made to the allied war effort. They conjectured that the most exciting new business applications of chemistry would be in pharmacology.

ICI’s decision was prescient, but slow to pay off: the pharmaceutical division lost money for 20 years. Markets today would not tolerate unrewarding and risky investment on this scale. But Black and his group eventually discovered beta blockers, the first effective treatment for high blood pressure, and a therapy still used every day by millions of people around the world. The pharmaceutical division quickly moved into profit, and when it was floated off from the parent company as Zeneca, it came to command a higher market capitalisation than the company that gave birth to it.

But that would be far in the future. In the 1960s, when beta blockers went through clinical trials, the modern pharmaceutical industry was still in its infancy. Black believed the company’s first priority was to recover its investment: he was required to spend time on the promotion of beta blockers which he preferred to devote to fresh research.

So he left ICI for rival Smith Kline. Black believed that the science behind beta blockers – interference with the receptors through which the body reacts to chemical stimuli – had many other applications. He was right, and his next discovery used this principle to treat stomach ulcers. Smith Kline’s anti-ulcerant, Tagamet, was another blockbuster. When its discovery was announced, another British drug company refocused its research programme to concentrate on similar therapies. Glaxo’s version, Zantac, would become the best-selling drug in history and transform the company from a struggling also-ran into a world leader.

Black’s work was central to the development of not just one, but three British pharmaceutical companies, and he can properly be identified as the father of Britain’s most successful postwar manufacturing industry. He created more shareholder value than any other individual in Europe over the period. But this was no part of his intention. He joined ICI because it offered a stimulating and well-funded research environment, and he pursued pharmacology because he was interested in the science.

More than 10 years ago I interviewed him on his reasons for leaving ICI. He described how in the 1960s the environment of ICI was, as he saw it, beginning to change: it was not just the profits from drugs that were making the company more financially oriented. The brilliant chronicler of British society in that era, Anthony Sampson, wrote in 1965 that under Paul Chambers, ICI’s first non-scientist chairman, "a company known to the public primarily for its care for workers and research, associated with profit-sharing and university fellowships, suddenly emerged as one of the most relentless of all big businesses”.

Yet it was not Chambers’ acquisition strategies, but Black’s research, that made money for shareholders. The consequence of the changed culture was that he made money for a different company (although not much for himself). Black went on to say: "I used to tell my colleagues that if they wanted to make money, there were many easier ways to do it than drug research. How wrong could I have been! In business, as in science, it seems that you are often most successful in achieving something when you are trying to do something else. I think of it as the principle of ‘obliquity’.” Thus the idea of my book was born.

Copyright The Financial Times Limited 2010

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles