Andrew Witty, the chief executive of GlaxoSmithKline (GSK), sees no need to do big deals, but that stance did not stop the stock market sending shares in Britain’s biggest drug company nearly 4 per cent lower – and those in AstraZeneca, its rival, up nearly 4 per cent – when Merck, of the United States, launched a $41 billion (£29 billion) takeover of Schering-Plough this week.

The logic is simple. This latest American mega-merger, coming only six weeks after Pfizer’s $68 billion tie-up with Wyeth and in the same week as Roche revived its $47 billion bid for Genentech, might force Mr Witty’s hand. Not least because AstraZeneca, valued at £33 billion, represents GSK’s sole chance to buy a compatriot that would offer substantial savings from stripping out head office costs.

Yet if GSK’s recent history is any guide, Mr Witty’s aversion to large-cap M&A is well-founded. Not only are his company’s shares stuck near their 12-year low, but they are trading at half their level when GlaxoWellcome (GW), the company from which he came, merged with SmithKline Beecham (SB) in 2000.

Nor has the rationale under which all such deals are typically struck – the pooling of R&D expertise, the creation of a broader pipeline of new drugs – been shown to stack up: particularly from a GW perspective. The big three drugs that underpinned SB’s appeal all failed to fulfil their promise: Augmentin, the antibiotic, quickly lost its patent after legal challenges; fears over the side-effects of Seroxat, the antidepressant, turned it into a public relations disaster; and the lifespan of Avandia was cut short by a scientific study that linked the diabetes drug to a raised risk of heart attacks. Advair, the asthma remedy that is GSK’s top-seller, came from the GW side of the company. Nine years on, that suggests that the merits of the deal must rest on cost-cutting alone.

But GSK is not alone in this bind. As a recent PricewaterhouseCoopers (PwC) study points out, the business model behind “big pharma” looks badly broken. In 2006, only five large-cap drugs companies booked more than 10 per cent of their sales from products launched in the previous five years.

A year later, only nine of the twenty-seven new drugs launched worldwide were the first of their kind. In perhaps the biggest indictment of big pharma’s dwindling productivity, PwC finds that the amount spent on R&D and the number of new products approved by the US Food and Drug Administration have steadily moved in opposite directions. Even allowing for inflation, the drugs industry is investing twice as much on R&D as it was a decade ago to develop two-fifths of the medicines it then produced.

That record helps to explain the sector’s recent poor returns to shareholders. Its market value rose 85-fold between 1985 and 2000. But in the six years to 2007, the FTSE global pharmaceuticals index delivered weighted average returns of minus 2.4 per cent a year.

But will the US sector’s rush to consolidate have any clear British side-effects? Savvas Neophytou, pharmaceuticals analyst at Panmure Gordon, suggests that with Pfizer, Roche and Novartis – which last year bought Alcon, of America, for $39 billion – otherwise engaged, the prospects of a bid for AstraZeneca appear to have receded from the short to medium term.

Unless Johnson & Johnson (J&J) launches a counter-bid for Schering-Plough, in which it has a vested interest through its Remicade immunology treatment. If J&J intervenes and succeeds, Merck could conceivably turn to AstraZeneca for consolation. An enlarged J&J would also rile rival Abbott – another potential bidder for the British company, given that it already has a relationship with AstraZeneca through Crestor, the cholesterol remedy.

If that scenario were not already sufficiently complex, shares in AstraZeneca face countervailing pressure from concerns that it might in turn pursue the so-far-unattached Bristol-Myers Squibb – the speculation pegged on the fact that it is working with the US company to develop BMS’s Onglyza diabetes drug. There is an irony, however, in that the stock market seems to accord little value to Onglyza at the moment – especially in the wake of recent difficulties by Takeda, of Japan, in developing a similar drug.

All of which suggests that there is little to distract Mr Witty from pursuing the strategy for GSK that he set out last year: an emphasis on growth through bolt-on acquisitions (he has already forged four since his appointment last June); increased geographic diversification through a push into emerging markets where it is underrepresented – especially those of Asia Pacific; and an expanded presence in consumer healthcare.

Indeed, it is that latter franchise – GSK’s brands include Lucozade, Aquafresh and Panadol – that seems to present the greatest opportunity for bigger deals. Given that Pfizer has already sold its consumer business – for $17 billion to J&J three years ago – it is a fair assumption that it will seek to dispose of Wyeth’s, too: and GSK would be a logical buyer.

A switch out of defensive stocks would hurt GSK, alongside the pharma sector as a whole. But at £10.33½, or nine times 2009 earnings, and yielding 6 per cent, the shares should be tucked away.

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