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Monday, March 29, 1999 Published at 08:29 GMT

Business: The Company File

Glaxo back on merger trail?

A tight pharmaceutical industry is consolidating

Speculation is increasing that UK drug giant Glaxo Wellcome is on the verge of striking another major merger deal in the pharmaceutical industry.

Jo Walton, Lehman Brothers: Glaxo must do a deal or fall in the industry rankings
Already one of the biggest British companies courtesy of Glaxo's buyout of Wellcome in the mid-90s, weekend newspaper reports heightened speculation that it was looking for another partner in a quest for growth.

US firm Bristol-Myers Squibb is said to have been approached. Swiss company Roche and domestic rival SmithKline Beecham are also in the frame.

World leader

A merger between Glaxo and Bristol-Myers would create the world's biggest drug maker by far, with 8.1% of the £150bn ($250bn) world market for prescription pharmaceuticals.

[ image: Sir Richard Sykes: High growth targets]
Sir Richard Sykes: High growth targets
Glaxo declined to comment on the reports, one of which suggests that merger talks between the two have stalled.

Investors have reacted quickly to the speculation. At 0940 GMT on Monday, shares in Glaxo Wellcome had risen 61 pence to 1957p, a rise of 3.2%. SmithKline Beecham shares were 19p ahead at 842p.

Jo Walton, a pharmaceutical analyst with Lehman Brothers told BBC Radio 4's Today programme that a merger was on the cards.

She said Glaxo Chairman Sir Richard Sykes was known to be trying to bolster the company's share price and had set himself a hard task of achieving double-digit sales and earnings growth.

However, two disappointing drug launches mean it has become very difficult to deliver both promises without short-term cut backs in research and development. But Ms Walton said a partner would help achieve long-term growth.

Rivals threaten

As things stand, Glaxo Wellcome stands to be matched in size after the mergers of Zeneca with Sweden's Astra and Germany's Hoechst with the French firm Rhone-Poulenc. Each conglomerate will have about 4.3% of the international market.

The consolidation in the industry is being spurred by the cost of developing new drugs and aggressively marketing them in a tighter market where better prevention and disease management practices are limiting growth in the demand for drugs.

Glaxo is believed to have come very close to linking up with SmithKline Beecham and some believe the UK rival remains Glaxo's preferred target.

Such a deal offers immediate cost savings, a good match of assets, and would benefit from the large amount of preparatory work that's already been done at different levels, Ms Walton said.

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