The Drug Mergers' Harsh Side Effects

The future of a pharmaceutical company rides on its pipeline—the roster of drugs it hopes to get out of labs and into pharmacies before its previous round of medicines loses earning power. But the recent wave of pharma mergers doesn't bode well for that replacement process. The one part of a drugmaker's operation that never seems to do well in a megamerger is research and development.

It's true that Merck's (MRK) acquisition of Schering- Plough (SGP) for $41 billion, announced on Mar. 9, will improve the bottom line for the next two to three years, as will Pfizer (PFE)'s planned purchase of Wyeth, announced six weeks earlier, (WYE) for $64 billion. Both buyers said the deals will allow them to cut some 15% of staff—a total of more than 30,000 jobs—and streamline operating costs.