GlaxoSmithKline: Will it be Britain's biggest company by 2003?

Less than a month into the year, and the betting is already fierce over which company will be Britain's biggest by 2003. BP and Vodafone are narrow favourites, but last week the odds on GlaxoSmithKline (GSK) were slashed to 7/2.

The reason was the suggestion that the sprawling pharmaceutical giant, third in the Footsie's market value table, could leapfrog its rivals by buying itself to an even more monstrous size. Although only a year has passed since the mega-merger that welded together Glaxo Wellcome and SmithKline Beech- am, the group's chief executive, Jean-Pierre Garnier, acknowledged on Wednesday that another big merger was a possibility.

But on the following day, an interview with GSK's head of research and development, Tachi Yamada, offered a different possibility. Mr Yamada suggested that GSK might sell a significant chunk of its research operations so these did not feel smothered by being part of a huge organisation.

The two-pronged vision of GSK's future raises a major question over what direction the company – and big drugs groups in general – should take. The problem is that there are plenty of industries where being massive seems to work well. Wal-Mart, Unilever and McDonald's have all thrived on their size, using their economies of scale to conquer ever-widening markets. For a long time it looked as though the formula would serve the drugs industry equally well, and the GSK merger has already delivered vast savings on marketing and distribution.

But it's turned out to be less of a success story when it comes to actually churning out new products. Although GSK has not suffered as badly as some of its rivals, big drug-makers are finding the patents on the blockbuster drugs that got them there are rapidly running out. Unfortunately, the pipeline of new potential blockbusters is nowhere near as healthy as the companies – or the investors – would like.

This leaves Mr Garnier with a dilemma. His inclination as a captain of industry may be to continue the growth of his company, but his head of research makes a worrying point. Biotechnology companies, and other nimble research outfits, seem to be making all the advances, so perhaps being big makes creating a decent pipeline an impossible task.

But last week's message clash clearly showed the business model needs a facelift. Still, with mobile phones in the doldrums and the oil price in torment, odds of 7/2 don't sound too bad.