Providers would not benefit from a merger of drug giants American Home Products Corp. and SmithKline Beecham because economic efficiencies generated by a merger wouldn't be passed along in the form of lower prices, analysts say.
American Home and SmithKline confirmed last week they have been discussing a possible merger that would form the world's largest drug company, with annual U.S. sales exceeding $27 billion.
Madison, N.J.-based American Home and London-based SmithKline said further discussions might be held. Both companies said, however, there is no guarantee a deal will be struck or consummated.
If they do make it to the altar, the new company would be the undisputed champion in prescription-drug sales. Even if discussions falter, the mere fact they have taken place is spurring speculation that other major drug companies will combine.
On its face, a merger of No. 5 American Home and No. 4 SmithKline would create a prescription-drug monster. With $9.4 billion in annual prescription revenues, the new firm would bounce Bristol-Myers Squibb, at $5.7 billion in annual sales, from the top spot on the U.S. prescription-drug charts, according to IMS America, a market research firm in Plymouth Meeting, Pa.
Hospitals would be unlikely to see any dip in drug prices, although some analysts estimate the drugmakers could shave 30% of their expenses by consolidating. Any savings, however, would more likely accrue to investors than customers, said Alex Zisson, a drug company analyst with Hambrecht & Quist in New York.
"Drugs aren't priced off their costs, but their values," he said.
Both companies make a broad range of consumer products, over-the-counter medicines and prescription drugs.
Most important for American Home is Premarin, the most prescribed drug in the U.S. An estrogen therapy derived from the urine of pregnant mares, Premarin was prescribed nearly 45 million times last year to treat menopause and osteoporosis, according to IMS America. A pair of hot-selling diet drugs that were withdrawn after reports of serious side effects have cast a shadow on American Home, however. Uncertainty over the financial liability from lawsuits over Redux and Pondimin, one half of the popular "fen-phen" diet cocktail, could complicate American Home's merger plans.
Prominent among SmithKline's drug roster are Paxil, a leading antidepressant, and Augmentin, an antibiotic.