If negotiations produce a merger of SmithKline Beecham and Glaxo Wellcome, providers won't see any early benefits from the deal, but it ultimately could pay off in new products and lower prices.
A week after SmithKline and American Home Products Corp. disclosed their merger talks, that deal was called off and SmithKline announced its merger talks with Glaxo (Feb. 2, p. 4).
The expected union of British drug giants Glaxo and SmithKline -- a $65 billion deal -- would mark the largest corporate merger in history. The new colossus would have worldwide annual drug sales of $19 billion -- $7.6 billion more than runner-up Merck & Co., according to IMS America, a Plymouth Meeting, Pa-based market research firm.
In the U.S. the combined companies would claim more than 10% of all prescription drugs sold, solidly ahead of Bristol-Myers Squibb, the current leader with 6%.
For providers, a SmithKline-Glaxo deal is likely to bring some confusion in the short term. As merging companies turn inward during consolidation, customers often can feel left out.
But in the long run, the effects of these kinds of drug company marriages are generally positive, said Larry McComber, vice president of pharmacy at VHA, an Irving, Texas-based hospital alliance.
"The larger corporations aggregate research and development dollars to develop more new products," he said.
Efficiencies mean pricing can actually improve for commodity products, McComber said.
And the high costs of the latest proprietary drugs usually remain unchanged regardless of a merger, falling only after expiring patents yield to generic competition.
Glaxo and SmithKline said a pooling of their scientific horsepower would be "a major and significant benefit" from a merger. The combination would form the largest drug research and development team in the world.
In a reversal from its failed deal with American Home, SmithKline would be the junior partner in a deal with Glaxo. Among the few details released about the proposed merger, Glaxo shareholders would hold a 59.5% and SmithKline Beecham shareholders 40.5% of the combined companies' stock.
In an important signal that this deal is far along, the companies appear to have solved the usually thorny game of who will sit where in the executive suite. Glaxo Chairman Richard Sykes would become executive chairman of the new company. SmithKline Chief Executive Officer Jan Leschly would become CEO and chairman of the new company's executive management committee.