It can call on a host of technologies Glaxo is strong in combinatorial chemistry and functional
Posted in General on 27. Jul, 2010
It can call on a host of technologies; Glaxo is strong in combinatorial chemistry and functional genomics, while SmithKline’s capabilities in genomics enable it to better identify targets for drug discovery.Glaxo SmithKline’s star products include Relenza, the flu treatment that failed to be recommended for NHS prescription. We may well see products emerging from the new technologies, in which both companies are pioneers.”The company will be the world’s leading investor in research and development. Both companies’ scientific departments have been talking for years, and there’s a complimentary philosophy between Glaxo scientists and SmithKline scientists.”Dr Garnier said Glaxo SmithKline would be in a position to bring to the market new treatments in the cardiovascular, central nervous system and diabetes fields much faster.Kevin Wilson, analyst at Salomon Smith Barney, said: “I generally do believe in this vision, but you need to provide investors with evidence of earnings growth. Two years have gone by and we were less uncomfortable about executing that vision. There’s no doubting the relationship between the money you put into research and the money you get out in terms of sales. If you can get at the underlying mechanisms of disease, then you can put real power into the research process,” he said.Jean-Pierre Garnier, Smith-Kline’s chief operating officer who is to become chief executive of the new group, said: “One of the most important areas in the future is bioinformatics, and we’re extremely well positioned here.
It will be the world leader by market share, with 7.3 per cent of the pharmaceuticals market, ahead of the proposed Pfizer/Warner Lambert merger’s 6.7 per cent.Glaxo SmithKline will have leading market shares in infective drugs, respiratory drugs and vaccines, and a number two presence in central nervous system and metabolic medicines.Sir Richard Sykes, Glaxo Wellcome chairman, who becomes non-executive chairman of the new company, said advances in genomics had brought the companies together after earlier talks collapsed in 1998.”This is about a vision, not a cost-cutting exercise. The merger, to be completed by June, is structured as an offer by Glaxo for SmithKline, with 0.4552 new shares exchanged for each SmithKline share, valuing SmithKline at £44.3bn and the overall group value of the group at £107bn.The merged company had pro-forma sales of £15bn in 1998, with net income of £2.8bn. There was disappointment the companies failed to give details of the deal’s planned £1bn in cost savings.Shares in SmithKline Beecham fell by 7 per cent, while Glaxo Wellcome shares shed nearly 5 per cent.Glaxo shareholders will own 58.75 per cent and SmithKline investors 41.25 per cent of the new group. However, the two groups maintained that their £107bn merger would produce a world leader in scientific research, capitalising on advances in genetics.
Most analysts applauded the rationale, but they said the deal did not transform the earnings prospects of the merged company, to be called Glaxo SmithKline, in the near term. Shares in Glaxo Wellcome and SmithKline Beecham retreated yesterday as the markets gave a muted response to the creation of the world’s biggest drugs company. Lynne Jones, a member of the influential parliamentary Science and Technology Committee, agreed that the deal was likely to be backed by Britain.”The last time they looked at merging, the Government wasn’t making noises which were unsupportive.
So it is unlikely to change now,” she said.Peter Cotgreave, director of the science research pressure group Save British Science, said: “From the British point of view it’s rather better for these two to merge than for either or both of them to be taken over by a big American company in which case it would be even more likely that the science would go to the States.”. Shares in Glaxo Wellcome and SmithKline Beecham retreated yesterday as the markets gave a muted response to the creation of the world’s biggest drugs company. However, the two groups maintained that their £107bn merger would produce a world leader in scientific research, capitalising on advances in genetics. “We need to know how a company whose chief executive is going to live in the United States is going to have the same commitment to a company which has traditionally been the jewel in the British pharmaceutical crown,” the head of the Manufacturing Science Finance union, Roger Lyons, said.However, there was a guarded welcome in other quarters. But the Government has had two years to formulate its position on a Glaxo SmithKline merger and yesterday there were few signs of anyone’s blood pressure rising in Westminster or Whitehall.Although Glaxo SmithKline’s commitment to retain the two companies’ respective research and development capabilities is a little fuzzy, Sir Richard has pledged that no “major” R&D facility will be cut.This has not stopped the trade unions leading the opposition to the deal, fearful of the threat to jobs and the UK’s science base. Not only has there been a massive amount of rationalisation in the global drugs industry, but this deal will secure, rather than weaken, Britain’s position as a base for pharmaceutical research.
“I am very optimistic that any regulatory hurdles will be overcome, we expect an uneventful close to the deal in June or July,” said Jean Pierre Garnier, chief executive-elect.On competition grounds, the case for blocking the merger looks thin. The two companies will control just 7.3 per cent of the world market for drugs and even in specific sectors, such as treatments for respiratory disease and depression, their market share is well below the 25 per cent that generally puts anti-trust authorities on alert.As for concerns such as jobs and the location of Glaxo SmithKline’s headquarters, these are not the sort of tests which are likely to determine whether the merger is blocked by regulators in either Brussels or Washington.Sir Richard may not be the Government’s favourite businessman, having given ministers a very hard time over their refusal to allow Relenza, an anti-flu drug, to be prescribed on the Natioanl Health Service. Beecham, as it was then, bid for Glaxo which promply turned to Boots as a white knight. Both bids were packed off to the Monopolies and Mergers Commission, which ruled against them because of the threat they posed to the British science base.Glaxo SmithKline argues that the world has moved on since then. The sheer size of the merger means that it will automatically fall to the US Federal Trade Commission and the European Commission to be vetted unless the UK Government can think of a pretext for demanding authority back from Brussels.The last time a merger between two UK pharmaceutical companies was blocked was by the Heath government in 1971. “We have not heard directly yet but I am sure we will get good wishes from Downing Street.” So said Sir Richard Sykes, chairman of Glaxo SmithKline, when asked yesterday what sort of political reaction he expected to the two companies’ proposed £107bn merger.
Strictly speaking, the deal probably does not need the Prime Minister’s personal imprimatur.