While the reported $400 billion merger discussions between AstraZeneca and Bristol Myers Squibb never advanced, the fact that a combination of this scale was even rumored sent shock waves through the industry. That the deal may have been considered at all reflects the extraordinary strategic pressure now facing large pharmaceutical companies.

Patent expirations, pricing pressure, policy changes and increasingly sophisticated competition are forcing pharma companies to reconsider how they allocate capital, develop products and commercialize them. Cost reduction alone—through mergers or any other method—will not be enough.