Here's what the NY Times had to say this morning:
February 2, 1998
Huge Drug-Merger Proposal Sends
Industry Into Shock
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By DAVID J. MORROW
he proposed merger of SmithKline PLC and Glaxo Wellcome PLC
is beginning to send a shock through the pharmaceutical industry.
The combined company, which would be formed in the largest corporate
merger ever, would have a stock-market capitalization of $166 billion
and would dwarf its competitors in worldwide pharmaceutical sales.
In virtually every category, the combination is huge. SmithKline and
Glaxo, which are already two of the world's largest drug companies,
would have $19 billion in worldwide pharmaceutical sales, according to
IMS America Ltd., which tracks industry statistics, some 40 percent
more than the No. 2 Merck & Co.'s $11.4 billion.
In an industry heavily dependent on research and development, Glaxo
and SmithKline would have a $3 billion annual budget, roughly $1 billion
more than Pfizer.
The proposed deal, which was announced on Friday night, has already
drawn opposition. A British labor union urged the British government on
Sunday to block the deal.
The Manufacturing, Science and Finance Union, which represents more
than 20,000 people employed by both companies, complained that the
merger could result in the loss of 10,000 jobs in Britain and severely
diminish the country's pool of skilled scientists.
A spokeswoman for SmithKline said the merger and its impact on
employment would be examined by regulators, but refused to say
anything more. Neither company would disclose how many employees
might lose their jobs in a merger. Analysts have predicted that 10 percent
of the companies' combined work force could lose their jobs.
Analysts also expect that regulators may question the market dominance
that SmithKline combined with Glaxo would have in some product
categories -- pain killers and ulcer medications, for example -- but they
otherwise expect the deal to pass.
One problem with SmithKline's proposed merger discussions with
American Home Products Corp., which the British company announced
had ended on Friday, were British regulators' concerns that one of their
largest companies might move to the United States. That was especially
alarming to some British institutional investors, some of whom are allowed
to invest only in companies headquartered in Britain.
While Britain's unions may have concerns over the merger, two of
Europe's top investment banks may reap record fees from the deal.
Analysts estimate that Lazard Brothers & Co., which is advising Glaxo
Wellcome, and Morgan Stanley, Dean Witter, Discover & Co.,
SmithKline's handler, could split some 100 million pounds, or $164
million, if the merger was successful.
If the merger does go through, a combined SmithKline-Glaxo may be
able to successfully challenge Merck at the United States' doctors' offices
and pharmacies. The envy of the industry, Merck can deploy its national
sales force and have a drug in virtually all of the nation's outlets within
days of receiving approval from the Food and Drug Administration.
"Glaxo Wellcome has been heavily sales-focused," said Myron Holubiak,
general manager of Plymouth Group, the consulting arm of IMS America.
"Some 29 percent of their U.S. employees are in the sales force,
compared to around 15 percent at Lilly. Glaxo and SmithKline will have
more sales people than Merck."
In an era of blockbuster drugs, marked by annual sales of $1 billion or
more, a SmithKline merger with Glaxo would enable the combined
company to dominate several product categories and reverse slides in
others. Glaxo's top drug, the anti-ulcerant Zantac, lost its patent in August
and its $1.7 billion peak sales in the United States have shrunk to some
$1.1 billion, according to IMS America.
Zantac remains one of Glaxo's best sellers, but other drugs are also
strong players. Imitrex, Glaxo's anti-migraine drug, had $710 million in
sales through November, according to IMS America. The company also
has several popular antiviral medications, including AZT for HIV, the
virus that causes AIDS, and Valtrex for herpes. The anti-viral drug
segment is projected to grow some $500 million in the United States
annually.
SmithKline's two biggest drugs are Paxil, an anti-depressant with $851
million in sales through November, and the antibiotic Augmentin, with
$707 million in sales, according to IMS America. The two drugs make up
43 percent of SmithKline's U.S. pharmaceutical sales for last year.
"Glaxo's merging with SmithKline will simply redefine the playing field
among the big pharmaceutical companies," said Mark Becker, a
European pharmaceuticals analyst with J.P. Morgan Securities Ltd. in
Boston. "To create another company this size, Merck would have to
merge with Pfizer."
The merger talks between Glaxo Wellcome and SmithKline Beecham
represent an abrupt turn of events. Historically, there has been little love
lost between the two companies since Beecham, as it was known at the
time, made a hostile bid for Glaxo in 1971.
The deal was eventually blocked by the British government on the
grounds that it would create a monopoly, but that was some 15 years
before the industry embarked on a series of megadeals.
A merger of Glaxo and SmithKline would also reunite the two top
executives of those companies. Sir Richard Sykes, the chairman of Glaxo
Wellcome, was the vice president of infectious and metabolic diseases at
Squibb at the same time that Jan Leschly, SmithKline's chief executive,
headed the company's commercial development division.
Sykes eventually left Squibb to head research at Glaxo, while Leschly
stayed through the company's merger with Bristol-Myers in 1989. Once
it was clear that Bristol-Myers executives had the inside track to the top
jobs at the merged company, Leschly quit to study philosophy at
Princeton.
Some analysts and drug-industry executives are curious about how well
Leschly and Sykes will get along if the merger is successful. The
proposed merger would make Leschly the chief executive and Sykes the
executive chairman.
While there was speculation that the two men did not like each other from
their Squibb days, executives within Bristol-Myers said that if there was
any animosity between the two, it was strictly personal, not professional.
"That's one thing executives from all drug companies should keep in
mind," said Becker, the Morgan analyst. "If one company is going to
court another, you never know who you might be working with, or for."
Executives who know both Sykes and Leschly are quick to point out
their differences. Sykes, 55, is a research zealot who is most comfortable
in a research lab. Sykes frequently oversees a drug's entry to the market
through all its stages. He usually arrives at his office before 7 a.m. and
works so hard that he has often been at the point of collapse.
Leschly, 57, is Danish and notoriously intense. A former world-class
tennis player, Leschly is fiercely competitive, especially with possible
corporate rivals. One troubling point in SmithKline's merger talks with
American Home Products was that Leschly was not willing to give up the
chief executive's title. |
