Pharmaceutical giant Glaxo SmithKline, which will become the world's biggest drugs group after the planned $188 billion merger of Britain's two largest pharmaceuticals companies, said yesterday it will use its enhanced financial muscle to mount takeovers and become increasingly dominant on the global stage.
Sir Richard Sykes, who will become chairman of the enlarged group, said: "We will have unbelievable financial firepower, and if there are opportunities to drive on the business, we will be in a very strong position to take them."
The group will have debts of only $4.5 billion and will generate some $3.2 billion a year in cash, enabling it to contemplate some huge acquisitions.
The prospect that takeovers will be lined up before the ink is dry on its merger underlines the pace of consolidation in the market. Other deals, such as Pfizer's hostile assault on Warner-Lambert, gave impetus to the deal when attempts to secure a partnership two years ago foundered due to personality and culture clashes.
The retirement this coming April of Mr Jan Leschly, the head of SmithKline, is seen as opening the way for merger by easing boardroom tensions. Describing past failures to cement a deal as "irrelevant", Mr Leschly said he will remain a long-term shareholder in the enlarged group rather than cashing in the $147 million of shares and options to which he is entitled.
The new group, which will have sales of $24.6 billion a year and account for 7.3 per cent of the global pharmaceuticals market, will be headed by Mr Jean-Pierre Garner, Mr Leschly's number two at SmithKline Beecham, who said the deal was a merger of "the strong with the strong".
A joint research and development budget of $4 billion would place the group head and shoulders above its nearest rival, he said, and the 40,000-strong sales force would create an unrivalled ability to get drugs into the market.
In the United States alone, the group will be able to target 250,000 physicians a week.
Under the merger, SmithKline investors will own 41.25 per cent of the group, with Glaxo investors being given one new share for every existing share.
A wave of mergers and acquisitions worth over $328 billion has swept the pharmaceutical sector in little over a year, as leading drug companies fight to maintain sales and revenue growth while research and development soaks up cash.
Product prices are under pressure as governments try to stem a rise in national healthcare costs, while product introductions have slowed at a time when patents on some of the decade's best sellers are expiring.
New methods such as genomics, plus innovative screening systems, are revolutionising the drug discovery process. Industry leaders are convinced that bigger is better, and this applies as much to R&D budgets as it does to getting the drug to market via ever-larger sales forces.
This view has triggered an unprecedented period of consolidation, with up to half of the top 25 industry leaders involved in some kind of corporate tie-up over the past 24 months. Accountant PricewaterhouseCoopers estimates that $133 billion worth of M&A deals were concluded in 1999.
