Supporters of the present wave of merger mania argue that the world has greatly changed since then. For a start, both companies are now global in their reach and organisation, as is the market for pharmaceuticals. Furthermore, the cost of new drug discovery and development is now so vast that only the biggest can hope to do it successfully across of range of different products. In other words, the case for the defence goes, this merger would be positively good for Britain, even though it will mean job losses among scientists and one R&D facility instead of two, because it would create a national champion in a pretty much unassailable position compared to competitors in terms of drug discovery.
Arguments like this are much better accepted by regulators, both in London and Brussels, than they were. Even so, policy-makers should be careful not to become too beholden to the process of globalisation. Before the merger of Glaxo and Wellcome, Britain had no less than four pharmaceutical companies up there among the world leaders. After this latest merger, we will be down to just one behemoth, an also-ran in the shape of Zeneca (which Sir Richard Sykes would also acquire, given the chance), and a smattering of biotechs.
The effect of this will be to concentrate a very large proportion of Britain's private sector R&D expenditure in the hands of just one company. Regardless of the supposed need for scale in successful modern-day pharmaceuticals research, this cannot be an entirely healthy development. To believe otherwise requires the usual rules of innovation to be suspended, for the greatest chance of new product development normally lies in diversity and competition, not hegemony.
Who knows, perhaps pharmaceuticals are different, but don't count on it. Pressure for consolidation, not just in pharmaceuticals but in other industries too, comes primarily from investors keen to see margins protected and enhanced in an ever more competitive world. Any management that resists this pressure or falls behind in the race to consolidate, will rapidly find itself out the door.
Plainly the process of consolidation is in the interests of shareholders, for it enables management to counter the persistent downward pressure on prices with growing scale and market clout. Whether it is in the public interest is another matter. Unfortunately, the flood may now be too strong for politicians and regulators to turn, even if they thought there was a case for doing so.Reuse content