Glaxo’s Bid for SmithKline Raises Consumer Worries

Glaxo Wellcome’s proposed acquisition of rival drug maker SmithKline Beecham would do more than create the world’s largest pharmaceutical company. The deal, announced Monday and worth about $76 billion in stock, is a clear sign that the merger trend now reshaping other industries is accelerating in the still-fragmented drug business.

But as drug companies rush to merge, worries are surfacing that a shrinking number of industry titans will dominate the treatment of major health problems, leading to higher prices for consumers.

“As competition goes down, there is a concern from a pricing perspective,” said Dr. Sidney Wolfe, president of the Public Health Research Group, a Washington-based consumer advocacy organization.

Just last week, Pfizer Inc. emerged as the likely winner in a battle with American Home Products Corp. for U.S. drug maker Warner-Lambert Co., while Monsanto is in the process of merging with Pharmacia & Upjohn. Industry analysts predict that other blue-chip names, including Eli Lilly & Co., Schering Plough Inc., Novartis, Bristol-Myers Squibb and even merger-averse Merck, won’t be far behind.

“I think that eventually about six to 10 companies will own the pharmaceutical market,” said Hemant Shah, an independent industry analyst based in Warren, N.J.

Drug companies say that mergers are good for consumers because they boost the surviving companies’ ability to do research, which can increase the odds of developing new and improved medicines.

The industry also argues that competition is keen because even the largest companies hold a relatively small share of the total market for drugs. A combined Glaxo SmithKline, for instance, would hold less than 8% of the world market.

Glaxo SmithKline, as the new company is to be called, would dominate the market for drugs for asthma, AIDS, migraines and vaccines. It would also have a huge lead in sales of antiviral pills used to treat herpes viruses.

“To succeed in this industry, you must be top-tier, and preferably you must have market leadership,” Glaxo Wellcome Chairman Richard Sykes told a news conference in London on Monday.

Industry observers note that as companies get bigger, they will have the clout to push out smaller competitors that do not have the money to effectively market their medicines.

Glaxo SmithKline would have worldwide pharmaceutical sales of an estimated $25 billion. A combined Pfizer-Warner-Lambert would be close behind, with a 6.7% global market share.

American Home Products--apparently the loser in the fight for Warner-Lambert--has failed three times to combine with other drug companies and itself looks like an increasingly attractive takeover target for a European company such as Bayer that might be aiming to expand its U.S. pharmaceuticals business, said Andy Penman, an analyst at London brokerage Greig Middleton.

Even Merck, which has publicly sworn off mergers in the past, might have its hand forced if it wants to keep up with more financially powerful rivals.

” . . . It’s going to be very difficult to compete when there are companies with R&D; budgets that are twice that of Merck,” said Shah, the New Jersey-based analyst.