Outlook: Why Super Drug is good for everyone's health - Business - News - The Independent

Outlook: Why Super Drug is good for everyone's health

outlook ON the glaxo-Smithkline merger, interest rate prospects and airbus launch aid

Perish the thought that the Glaxo-SmithKline merger could be motivated by something as base as share option bonanzas rather than boring old economies of scale. The first rumblings can already be heard from Greenburarially- correct institutions. Judging, however, by the shot in the arm the proposed creation of Super Drug gave the market yesterday there is more than enough in this deal to keep shareholders happy even if the SmithKline board fills its boots.

That said, giant drugs companies which put even the likes of Coca-Cola in the shade make consumers and regulators twitchy. So it is too early to view this as a done deal, even though Sir Richard Sykes and Jan Leschley have agreed who gets the key to the executive washroom (they both do) and what the respective shareholder split will be.

The reasons behind the merger are the familiar ones of scale and consolidation. In an industry where size matters, Glaxo-SmithKline will be the mother of all businesses. It will have a valuation of more than pounds 100bn, sales of pounds 16bn and an annual research and development budget approaching pounds 2bn.

Supposing the merger is classed as a "control event" then the corporate gravy train will start rolling with spectacular results for executives from both companies.

But the scope for economies of scale it will offer promises to be even more impressive. Glaxo-SmithKline ought to be able to shave pounds 1bn off its cost base without blinking. This will cause some shrinkage in the 106,000- strong workforce but it will be nothing compared to the pain Glaxo-SmithKline could inflict on the opposition. Sir Richard's strategy of developing three new drugs a year by the millenium against the current industry average of one per company, will cease to look like the product of a mind-enhancing substance.

And yet such is the fragmented nature of the pharmaceutical industry that Glaxo-SmithKline will still account for only 8 per cent of the world market for prescription drugs with Merck in second place on 4.6 per cent. True, it would dominate the market for anti-viral drugs, like the herpes treatment Zovirax, and anti-emetic drugs used to combat the side-effects of chemotherapy. True, also, its combined sales in some local markets would be a good deal higher than 8 per cent.

But the Glaxo-Wellcome merger three years ago provides an example of how competing products can be sold off to satisfy regulatory concerns.

Unless Margaret Blockit can find a pretext for claiming jurisdiction over the deal, the appropriate investigating authority on this side of the Atlantic will be Brussels where Karel Van Miert, the Competition Commissioner, is already on record as supporting consolidation in the pharmaceuticals sector.

Provided Glaxo-SmithKline can demonstrate that a merger would bring new drugs to the market more quickly and cost effectively, then the industrial rationale will be as compelling as the financial logic.

And, best of all, this will be British powerhouse in a sector where size will become increasingly critical to success. Unless Glaxo and SmithKline tie the knot now and leapfrog to number one slot, how long before they are left further behind by Merck-Pfizer or Novartis-Roche?

Don't count on a rates standstill

The Bank of England's decision on whether or not to raise interest rates this week is finely balanced, according to almost every City pundit, but most are confident the balance is going to tip in favour of leaving them unchanged. Why? Because the economy has already started to slow, export growth has halted and manufacturers are gloomy. Besides, neither America's Federal Reserve Board tomorrow nor Germany's Bundesbank on Thursday is expected to increase borrowing costs.

The analysts are right to say it's a close call, but their confidence about which way the Bank will go reflects a selective reading of the mixed economic signals. While growth has been weaker than expected, inflation has been much higher, earnings growth is picking up and the service sector - more than two thirds of the economy - is still booming.

In truth, it will not make much difference what the Monetary Policy Committee decides on Thursday, for it is impossible to fine-tune the economy by quarter-point interest rate changes. The Bank's job is like steering a supertanker in thick fog.

In that case, why should it bother to raise rates again in the face of great uncertainty? For three reasons. First, as a matter of tactics, it might help bring the painfully high pound down if the markets were persuaded that rates had reached their peak.

Secondly, the Bank of England does not yet have the record or credibility of its counterparts in the US and Germany. If it fails to act and the next few weeks bring bad news on wages and prices, sentiment in the fickle financial markets would flip-flop. After all, inflation is higher here than in any other western industrial country apart from Greece.

Thirdly, the Bank has to live up to its own very optimistic inflation forecast. Its last Inflation Report in November was pretty confident that target inflation would be far lower than it is now. If in next week's quarterly Report the Bank's boffins want to show inflation getting back on track, they either need a rate rise now or they must use some other excuse, like the Asian crisis, to justify remaining so optimistic.

None of these are knock-out arguments. But they do suggest that it would be unwise to count on interest rate inaction on Thursday.

A new line on launch aid

Industrial launch aid is generally only given to projects that would otherwise not go ahead. Yesterday the Government stood that convention on its head by handing over pounds 123m to British Aerospace six weeks after the company had agreed to take part in the development of a new generation of long-range Airbus commercial jets.

The explanation for the time-lag is an unseemly squabble between the Treasury, which wanted to refuse BAe the money because it was already quite profitable enough, and the Department of Trade and Industry, which bought BAe's argument that the Airbus work along with 2,000 jobs would go abroad if its application was turned down.

The Prime Minister, no less, was called on to arbitrate and decided to come down on the side of jobs and a quiet life. Nor, given the pan-European nature of Airbus, did it do his wider ambitions any harm. Why fork out pounds 1.2bn on a rail link to the Continent when you can establish your European credentials for a tenth of that?

The wings for the new Airbus A340-500 and 600 family of jets will now be built in Chester not Taiwan. All of which made it a good day for the North West yesterday on top of Merseyside's pounds 43m subsidy from the taxpayer to build the baby Jag at Halewood.

But in succumbing to BAe's exaggerated threats to take jobs abroad the DTI has set an unfortunate precedent. The commercial prospects for the new Airbus alone ought to make the case for launch aid. Let's hope the taxpayer makes a real return of at least 8 per cent.

News
Paper trail: the wedding photograph found in the rubble after 9/11 – it took Elizabeth Keefe 13 years to find the people in it
newsWho are the people in this photo? It took Elizabeth Stringer Keefe 13 years to find out
Arts and Entertainment
Evil eye: Douglas Adams in 'mad genius' pose
booksNew biography sheds light on comic genius of Douglas Adams
Sport
FootballFull debuts don't come much more stylish than those on show here
News
i100
PROMOTED VIDEO
Life and Style
Kim Kardashian drawn backlash over her sexy swimsuit selfie, called 'disgusting' and 'nasty'
fashionCritics say magazine only pays attention to fashion trends among rich, white women
Arts and Entertainment
TVShows like Agents of S.H.I.E.L.D are little more than marketing tools
Arts and Entertainment
Hit the roof: hot-tub cinema east London
architectureFrom pools to football pitches, rooftop living is looking up
Travel
travel
News
The ecological reconstruction of Ikrandraco avatar is shown in this illustration courtesy of Chuang Zhao. Scientists on September 11, 2014 announced the discovery of fossils in China of a type of flying reptile called a pterosaur that lived 120 millions years ago and so closely resembled those creatures from the 2009 film, Avatar that they named it after them.
SCIENCE
Life and Style
tech
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Matisse: The Cut-Outs exhibition attracted 562,000 visitors to the Tate Modern from April to September
art
Life and Style
Models walk the runway at the Tom Ford show during London Fashion Week Spring Summer 2015
fashionLondon Fashion Week 2014
News
Kenny G
news
News
peopleThe black actress has claimed police mistook her for a prostitute when she kissed her white husband
Life and Style
techIndian model comes with cricket scores baked in
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Senior BA - Insurance **URGENT**

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Training Coordinator / Resource Planner - City, London

£35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...

Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

£400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week