Decision time for UK drug companies: Gail Counsell says the big three must act soon to counter the threat from US healthcare changes

'CONSIDERING a range of options' is the stock response of the likes of Glaxo, Wellcome and Zeneca when the subject of US healthcare reform is raised.

None of the UK's big three drug groups will say how it plans to deal with the threat posed to 30 per cent- plus profit margins by the arrival of pharmaceutical benefit managers (PBMs). These US companies cut the drug bills of private healthcare schemes by buying in bulk or by substituting cheaper drugs for more expensive products.

But the big three will have to act soon; their options are narrowing fast as competitors either snap up the juciest PBMs or link up in grand - possibly exclusive - alliances. The first drug company to respond to the arrival of the PBM was Merck, the world's largest. It decided that if it could not beat PBMs it would join them, and bought Medco, a healthcare management company which also owned one of the largest PBMs. And this week SmithKline Beecham bought Diversified Pharmaceuticals, another big PBM.

That looks less and less likely to be a serious option for Glaxo, Zeneca and Wellcome. Although there are perhaps 100 or more PBM's, most are small, regional outfits. Following Merck's and SmithKline's purchases, only one large PBM is left, PCS, a subsidiary of one of the biggest US drug distributors.

In any case Glaxo has dropped heavy hints that it does not want to buy a PBM but would prefer to an alliance with other drug companies to negotiate better prices.

The idea would be to offer (possibly selected) PBM's a package of products to treat a range of illness types. The ideal would be for drug groups with non-competing products to link for this purpose. For instance, Glaxo, with its dominance in anti-ulcer drugs, and Wellcome with its strength in anti-viral products, would together be able to offer treatments for two important categories of illness.

Alliances might also include drug promoters - PBMs, drug distributors, or wholesalers. For instance, Caremark International, a big US drug distributor/PBM recently linked up with Bristol Myers Squibb and Pfizer of the US and France's Rhone Poulenc Rorer to market their products.

In what could prove a trend-setting deal, Pfizer has just established what might become an embryonic specialist PBM. It has set up a dollars 100m joint venture with the US health data manager, Value Health. This will work on health care delivery and management businesses for particular diseases or certain high-cost procedures, and will also develop programmes designed to improve the use made of Pfizer prescription and medical products.