Drug Makers Zeneca, Astra To Merge
.c The Associated Press
By ED McCULLOUGH
STOCKHOLM, Sweden (AP) -- Sweden's Astra and Britain's Zeneca confirmed today they will merge in a $37 billion deal that will create one of the world's biggest drug manufacturers.
Astra is best known for Prilosec, an ulcer and heartburn medication that's the world's top selling prescription drug. Zeneca is the second biggest maker in the world of cancer drugs behind U.S.-based Bristol-Myers Squibb.
The companies expect annual cost savings of $1.1 billion from the new company, which will be called AstraZeneca. However, they expect to incur about $1.2 billion in restructuring costs and about 6,000 jobs, or 11 percent of its global workforce, are expected to be lost in the next three years as a result of the merger.
The merger had been rumored for months and was expected given the wave of deals in the pharmaceutical industry. Last week, Germany's Hoechst and France's Rhone-Poulenc agreed to merge their drug and agrichemical businesses as the first step toward a total merger. In France, Sanofi and Synthelabo recently announced their $10 billion merger.
Behind all these mergers in Europe and the United States is the need to increase research spending to compete with giants such as Pfizer, Glaxo Wellcome and Merck, and the desire to pool resources to boost marketing.
''If we are going to be competitive among world pharmaceutical companies, we need this merger,'' said Hakan Mogren, chief executive of Astra, who will be deputy chairman of the new company.
Sweden's Wallenberg family owns 12 percent of Astra, established in 1913. The company is also the maker of lidocaine, one of the leading local anesthesia drugs first developed in the 1940s.
While its best known for Prilosec, the drug is scheduled to lose its patent protection in 2001. That will open the door for generic firms to make a less expensive copy and slow the company's overall sales growth.
Besides its cancer drugs, Zeneca also has a large agrichemical business and owns Salick Health Care, a U.S. operator of cancer treatment and dialysis centers. Last year, the company marketed its the migraine drug Zomig, which it bought from Glaxo Wellcome in 1995 while the drug was still being tested in humans.
But like Astra, Zeneca also has several drugs that are expected to soon lose their patent protection. Analysts speculated that was a leading factor influencing the merger.
''This is a winning combination,'' said Sergio Traversa, an analyst with Mehta Partners, a drug industry investment firm. ''Both are strong in limited areas.''
The AstraZeneca corporate headquarters would be in London, the research and development headquarters in Sweden.
The chairman of the new company will be Percy Barnevik, who heads Investor AB, the investment of arm of the Wallenberg family. Zeneca's top executive, Tom McKillop, will be CEO.
The deal, which is considered a merger of equals, has already be approved by the board of directors of both companies.
Zeneca had $8.57 billion in sales in 1997 and has a current market value of $38.62 billion. Astra posted $5.68 billion in sales in 1997 and has a current market value of $24.48 billion.
Both companies had earnings of $1.2 billion in 1997.
AP-NY-12-09-98 0905EST
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