That’s a competitive advantage that GSK’s Jean Pierre Garnier can ill afford to ignore.JP, as he is known at GSK, was roundly criticised in the City after it emerged that he might be considering a bid for Bristol Myers Squibb. The City would still have a big problem with this particular company, which has recently become embroiled in one of America’s accounting scandals, but after the Pharmacia deal, it would be hard pressed to resist the view that GSK has to line up another giant slug of cost-cutting potential to keep up with the Jones’s.In most industries, the competition authorities would have called a halt to the relentless round of ever larger mergers years ago, but huge though some of these companies now are, pharmaceuticals is still a relatively fragmented business. Bigger by a country mile than its nearest rival, the Pfizer/Pharmacia combination would still have only 11 per cent of the global market for prescribed, proprietary drugs Factor in generics, and the share is a good deal smaller. What makes Pfizer more confident still that its latest merger will sail through the competition authorities is that there is also relatively little overlap in treatments.The commercial logic of these deals is impossible to argue with.

Crunch one product portfolio, testing facility and distribution network together with another and you end up with two product portfolios to feed a single test and distribution set-up. The cost savings can be astronomic.The benefits for research and development are less easy to identify. When Glaxo merged with SmithKline, a lot was made of the argument that the two companies had complementary research and development strengths. Complementary or not, in practice there has been no noticeable improvement in results Rather the reverse in fact. Few environments are less conducive to creativity and innovation than a giant bureaucracy and more and more the pharmaceutical giants are forced to buy in promising developments from elsewhere. So seriously does GSK regard the problem that it has considered spinning off the R&D function, or splitting it up in an attempt to produce some creative tension and competition.Pfizer was regarded as the drugs company that had managed to buck the trend. In Lipitor, the anti-cholesterol drug, and Viagra, the impotence treatment, it combines the world’s best selling prescribed drug with the world’s most famous one.

Of late, however, Pfizer too seems to have run into the sand. There’s nothing outstanding in the product pipeline and like everyone else, it is being forced to ring the wagons against increasingly vicious generic attack.Pharmaceuticals has traditionally been thought of as a defensive investment in difficult economic conditions, because whatever else people cut back on, they don’t skimp on healthcare That view is being challenged. In the US, the big health insurance plans now routinely insist on generic prescription wherever possible and the courts are less and less sympathetic to patent extension. The big drug companies are being squeezed as never before.All this adds to the pressure to cut costs to keep earnings growing. The simplest way to cut cost is to throw similar companies together, where it can be done under cover of reducing duplication.

It must be easy enough to do, but it cannot be much fun and in the process, the big pharma companies are in danger of losing sight of their underlying purpose. Working in pharmaceuticals is more than just another job to most of those who do it. Like a doctor, your purpose is the noble one of helping to improve both the quality and length of life. There’s not much of that in Pfizer’s merger with Pharmacia, nor would there be any of it in, say, a GSK takeover of Astra Zeneca.From an operational and shareholder value perspective, this would be the easiest merger for GSK to make, but would Glaxo really be allowed to gobble up the last remaining UK rival of any size, having already acquired the other two? So they all rolled over and one fell out, there was one in the bed, and Pfizer said…Stock markets crashAll the big life companies and pension funds were vehemently denying yesterday that they are forced sellers of equities as the stock market crashed another 5.4 per cent, but whether forced or not, there’s no doubt that this is where the selling pressure is coming from.