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Mega Drug Merger
Glaxo Wellcome, Smith Kline Beecham plan merger to create world's largest drug manufacturer
 
 Recent Stories
   Web Surfers Snap Up Smithkline, Glaxo Addresses 10
 
Glaxo Wellcome Buyout of SmithKline
Beecham Speeds Rush to Merge

By Bruce Stanley   Associated Press
LONDON — Glaxo Wellcome's planned acquisition of rival drugmaker SmithKline Beecham would do more than create the world's largest pharmaceutical company.


Fiona Hanson/AP
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 percent.

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.

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