Eye witness

A rash of mergers has broken out on the face of Europe's pharmaceutical industry, with London again the likely home base of two of the three largest companies in the world.

The likely merger of the Swedish company Astra and the British firm Zeneca to create the world's third-largest pharmaceutical company is only the latest in a series of mergers of European companies since the collapse of the Glaxo-Wellcome/SmithKline Beecham deal in February.

Luis Cabral, professor of economics at the London Business School and an expert on mergers who has worked closely with the pharmaceutical industry, said: "In a global industry like pharmaceuticals, firms that merge will be better placed to compete with other major players. The nature of the industry, which is increasingly R&D intensive, is making size an important factor for competitiveness and survival."

Professor Cabral anticipates that consolidation of the industry will not necessarily mean a better deal for consumers and could lead to higher prices.

"The argument might be made that, in the long run, it's better to have better products even at the cost of higher prices. However, the criticism might be levelled that the same economies at the R&D level might be achieved with arrangements other than outright merger, such as cooperative agreements between firms. Consumers could get better deals that way than by industry consolidation."

But Aya Chacar, assistant professor of strategic and international management at the LBS, who is also a specialist in the pharmaceutical industry, said the string of intra-European mergers will prepare companies for future potential mergers with other more R&D-intensive companies, improving the product pipelines and research capabilities, and helping to break into the United States market.

He said: "Historically, American pharmaceutical companies have lobbied the US government to assist against the 'invasion' of European companies. As these same companies are acquired by European companies or merge with them, they will be less likely to do so."