Glaxo Wellcome's planned acquisition of rival
drugmaker SmithKline Beecham would do more than create the world's largest pharmaceutical company.
|Sir Richard Sykes is the chairman of Glaxo
The deal, announced Monday and worth about $76 billion in stock,
is a clear sign that the merger trend now reshaping other
industries is accelerating in the still-fragmented drug business.
Just last week, Pfizer emerged as the likely winner in a battle
with American Home Products for U.S. drugmaker Warner-Lambert,
while Monsanto is in the process of merging with Pharmacia and
Upjohn. Industry analysts predict other blue-chip names, including
Eli Lilly, Schering Plough, Novartis, Bristol-Myers Squibb and even
merger-averse Merck won't be far behind.
"I think that eventually about six to 10 companies will own the
pharmaceutical market," said Hemant Shah, an independent industry
analyst based in Warren, N.J.
That's a far cry from the mosaic of firms currently vying for a
few cents of each dollar consumers spend on medicines.
Compared to other industries, the pharmaceutical business still
has many competitors. The combined Glaxo and SmithKline would
control just 7.3 percent of global sales, although individual
companies dominate treatments for several specific conditions such
as allergies and high cholesterol.
Analysts say consolidations are gathering momentum because
drugmakers are pinched between the ballooning costs of developing
new drugs and the demands of investors and shareholders that they
deliver double-digit growth in profits.
"To succeed in this industry, you must be top-tier, and
preferably, you must have market leadership," Glaxo Wellcome
chairman Sir Richard Sykes told a news conference.
Glaxo Wellcome and SmithKline Beecham said their union would
yield $1.6 billion in annual savings after three years. They said
job cuts were expected, but they were still deciding where to make them.
Shares of both companies fell on the London Stock Exchange
Monday as some investors took profits following a runup Friday,
when the companies announced they were in talks. In addition, some
analysts said they were disappointed in the cost savings predicted
by the companies. Glaxo fell nearly 5 percent and SmithKline fell 6
The two British-based companies plan to keep their corporate
headquarters in London, but open a new operational headquarters in or near New York.
SmithKline currently has a research and development unit in
Philadelphia and a nonprescription drug business in Pittsburgh.
Glaxo's American operations are headquartered in Research Triangle Park, N.C.
Their union comes two years after previous merger talks
collapsed in a fight over which executives would run the company.
The apparent success of Pfizer's hostile bid for Warner-Lambert
gave new impetus to the idea, said Kevin Wilson, an industry
analyst at Salomon Smith Barney in London.
"Pfizer-Warner-Lambert has acted as a catalyst," he said.
Glaxo SmithKline would have worldwide pharmaceutical sales of an
estimated $24.9 billion, based on 1998 annual figures. But a
combined Pfizer-Warner-Lambert would be close behind with a 6.7
percent market share, and it would be gaining fast, Wilson said.
Glaxo's strength lies in its top anti-migraine drug, Imitrex,
and in treatments for asthma and viral infections, including HIV.
SmithKline's top products include the antibiotic Augmentin, the
antidepressant Paxil and a new diabetes drug, Avandia. It also has
a strong business in vaccines.
But both firms are feeling pressure because their top drugs are
facing expiration of their patents, allowing cheaper generics into
the market. Glaxo's leading ulcer drug Zantac lost its patent
protection in 1997, and SmithKline's lucrative Augmentin will lose
its patent in 2002.