GSK's mission is to improve the quality of human life by enabling people to do more, feel better, and live longer.
GlaxoSmithKline plc (GSK) was formed from the December 2000 merger of Glaxo Wellcome plc and SmithKline Beecham plc. The $70 billion deal created the world's largest drug manufacturer and research-based pharmaceutical concern. The combined entity controlled leading market share in four of the five largest therapeutic markets--anti-infectives, central nervous system, respiratory, and gastro-intestinal/metabolic. Overall, the firm controlled nearly seven percent of the global pharmaceuticals market. Its product line includes antibiotic, antidepressant, gastrointestinal, dermatological, respiratory, cancer, and cardiovascular medications. GSK claims that every minute of every day, more than 1,100 prescriptions are written for one of its products. The company has one of the largest research and development divisions in the drug industry and spends over $450,000 every hour to research new medicine.
History of Glaxo
Glaxo began as a merchant trader. After a New Zealand partnership between Joseph Nathan and his brother-in-law was dissolved in 1873, the English-born entrepreneur started an independent company under the name Joseph Nathan & Company. Importing and exporting goods ranging from whalebone to patent medicines, Joseph Nathan prospered. He eventually returned to London in order to supervise his growing business there, while his sons remained in Wellington to manage the company activities in New Zealand.
While on a purchasing trip in London, one of the Nathan sons discovered an American process to dry milk. After securing the rights to this process, the company began production of dried milk at Bunnythorpe factory in New Zealand in 1904 and registered the product under the name Glaxo in 1906. Research on the sanitary quality of the milk soon caught the attention of the medical establishment; sales of the product, however, proved disappointing. The most promising market emerged in infant food. Thus, production of Glaxo baby food products began.
Alec, the youngest Nathan son, moved from New Zealand to London to supervise an expansion of the baby food business there. Much of the sales momentum Alec thereafter achieved is attributed to his Glaxo Baby Book, a practical guide to child care published in 1908, when the company established its Glaxo division in London. In it could be found the Glaxo slogan, "Builds Bonnie Babies," which would soon become famous. Only a year after the product registered its first impressive sales figures, Joseph Nathan died and the chair passed to his son Louis. Sales continued to grow, and within a relatively short period of time Glaxo Baby Foods had become an important UK-based manufacturer.
By the outbreak of World War I production demands compelled the company to build a more modern facility and to hire new staff. Ernest Rose joined the company to supervise manufacturing processes, and Harry Jephcott was placed in charge of Glaxo's rudimentary laboratory. With the completion of Glaxo House, the company's new headquarters, Jephcott's laboratory grew and employed a staff of eight scientists, including two women.
In the years that followed, Harry Jephcott moved up the ranks from chemist to company chair. Born in 1891, the son of a train driver, Jephcott received his education in pharmacy. When first hired by the Nathan family he was regarded as "Alec's folly," but he quickly proved his worth and became indispensable to Glaxo's success. As a top executive he was known for his firm leadership and business acumen--a perfect complement to Alec Nathan, who tended to focus on worker welfare. Jephcott's accomplishments eventually were rewarded with a knighthood.
Glaxo Baby Foods sales continued to grow in the years following World War I, and the company expanded into such markets as India and South America. Jephcott's 1923 visit to the International Dairy Congress in Washington, D.C., soon changed the course of Glaxo's history. There he observed Professor Elmer V. McCollum's and Dr. Theodore Zucker's original work in identifying and extracting vitamin D. Recognizing the huge market potential in fortifying Glaxo products with this anti-rachitic, Jephcott persuaded the company's directors to secure a process license. After achieving an immediate success with vitamin D fortified products, Glaxo moved on to produce a pharmaceutical item, Ostelin Liquid, Britain's first commercial vitamin concentrate developed in 1924. Ostelin products eventually included a comprehensive line of vitamin preparations.
In the 1930s, Glaxo's major advancements included the production of Adexolin (vitamins A and D) and Oster-milk, a retail version of Glaxo's vitamin fortified milk that soon surpassed the pharmaceutical version in sales. Because of increased business overseas, the company built a factory in India, established a company in Italy, and secured distributorships in Greece, Malaya, and China. In an effort to strengthen the company's increasing activity, Glaxo's pharmaceutical department was organized into a separate subsidiary called Glaxo Laboratories Ltd. in 1935.
During World War II, the company concentrated on producing pharmaceuticals for the war effort, including anesthetics, penicillin, and a variety of vitamin supplements. After the war, Glaxo began the mass production of penicillin in earnest, using the American process of deep fermentation. During this time, several long-time Glaxo employees retired. Harry Jephcott became chairperson of the company upon Alec Nathan's retirement. Ida Townsend, Glaxo's successful export manager, joined the board in 1947, the company's first woman director. Changes also occurred in the company's structure: Glaxo's parent company, Joseph Nathan & Company, was dissolved, and Glaxo became an independent public company in 1947. All Joseph Nathan's diversified interests, from butter importing to fencing exporting, were sold to finance Glaxo's growth.
By far the most important of Glaxo's postwar achievements was the isolation of vitamin B12 in 1948. Along with their American counterparts at Merck, who had achieved the same feat virtually simultaneously, Glaxo had made a major advance in the treatment of pernicious anemia. Of similar magnitude was Glaxo's synthesis of the hormone necessary for the treatment of hypothyroidism.
In the 1950s, Glaxo grew through acquisition and consolidation. The company acquired both a chemical and a medical supply subsidiary and established an independent veterinary department to meet the increasing demand for animal pharmaceuticals. Through a 1958 merger Glaxo joined forces with Allen & Hanbury's Ltd., one of Britain's oldest pharmaceutical manufacturers. Britain's first commercial cortisone product emerged from Glaxo's laboratories during this time. The discovery of sisal as an abundant source of an important steroid led to the commercial synthesis of a series of corticosteroids.
Glaxo's growth continued into the 1960s. To monitor this growth, the directors formed a new parent company, Glaxo Group Limited. Jephcott assumed the title of chairperson for the holding company. In 1963, he retired from this position, becoming Glaxo's first honorary president, and the physicist Sir Alan Wilson assumed the chair. Glaxo's scientists worked to develop Betnovate, a new corticosteroid. Through a licensing agreement with Schering U.S.A., a pharmaceutical company engaged in original research in corticosteroids, Glaxo developed a production process essential to the manufacture of the drug.
During the next decade, Beecham, an industry competitor, attempted the largest takeover in British history by making an unfriendly bid for Glaxo. To protect its independence, Glaxo management sought to increase its holdings through a merger with a company of similar interests. Thus Glaxo and Boots, another competitor, planned to combine their company resources. Yet neither the takeover nor the merger ever happened. The Monopolies Commissioners ruled against the proceedings on the grounds that innovation declines as companies grow above a certain size. In the wake of the aborted takeover attempt, the company was renamed Glaxo Holdings.
In 1973, Sir Alan Wilson retired and Austin Bide, a long time Glaxo employee, assumed the titles of chairperson and chief executive officer. Other changes during the 1970s included the establishment of a U.S. subsidiary through the purchase of Meyer Laboratories Inc. in 1978. Domestic consolidation brought all Glaxo's UK operations under one holding company. In pharmaceuticals Glaxo's innovative research in cephalosporins resulted in the development of Zinacef.
Near the end of the 1970s, Glaxo suffered from the effects of inflation. Citing Glaxo's continuing dependence on export trade, its failure to expand significantly beyond the British and Commonwealth markets, and its persistent reputation for poor marketing decisions, city analysts projected slower growth in the company's future. What industry observers did not foresee was the release of a drug destined to become highly successful throughout the world. Zantac, Glaxo's trade name for its anti-ulcer drug ranatidine, was still in testing during this time. However, based on the emerging results of these tests, Glaxo knew that Zantac was ready to present a competitive challenge to SmithKline's Tagamet, then the preeminent anti-ulcer medication and best-selling drug in the world.
Soon after Austin retired as chief executive officer, Zantac was launched in several European markets with a high degree of success. Paul Girolami, a long time Glaxo employee who had formerly served as Group Financial Director, assumed Sir Austin's position. Over the next several years, Girolami established himself as the architect of Zantac's marketing policy in the United States and Japan. In a joint venture with Hoffmann-La Roche, the Swiss pharmaceutical concern responsible for developing the world's two best-selling tranquilizers, Glaxo introduced Zantac to the U.S. market in 1981.
By 1984, Zantac had captured 25 percent of the new prescription market. Glaxo announced plans to build a $40 million plant in North Carolina to manufacture the drug in the United States. Joseph J. Ruvane, Jr., president of Glaxo's U.S. company, claimed Glaxo would become one of America's top ten pharmaceutical firms. The company's actively traded shares increased in price from £2.40 a share in 1980 to £10.25 after a two-for-one split. By the end of the decade, Zantac captured more than half of the world market in its class and became the largest-selling prescription drug in the world. The company employed a unique marketing strategy in 1981: it developed strategic partnerships with drug companies around the world to get an edge in each market. From 1980 to 1988, Glaxo's sales nearly tripled, and in 1989 profits soared 13 percent over the previous year to £1.14 billion, ensuring the company's role as the second-largest pharmaceutical company worldwide.
Over the next few years, however, Glaxo's status declined somewhat. A wave of drug company mergers in 1989 left the company fourth in worldwide sales. The company was reorganized that year, and CEO Bernard D. Taylor was replaced by Ernest Mario, formerly head of U.S. operations. Zantac sales plateaued by the start of the 1990s, when newly formulated anti-ulcer drugs threatened its commanding share, and some industry analysts doubted the company's ability to maintain its lead in new drug introductions.
In 1990, Glaxo announced worldwide regulatory trials for its new anti-migraine drug, Imigran (or sumatriptan, generically). Moreover, Zofran Injection, an important new treatment for the prevention of nausea and vomiting in cancer patients receiving chemotherapy, was approved by the United States Food and Drug Administration early in 1991. Within just over a year, the drug was available in most of the world's markets and registered sales of £259 million in Glaxo's 1991-92 fiscal year.
Glaxo tried to capture some of the entrepreneurial energy of smaller companies through joint ventures. In 1991, Glaxo entered into an agreement with Gilead Sciences Inc. In exchange for about $20 million, Glaxo purchased an equity stake in the company and its potential for creating anti-cancer drugs. The company also sold its interests outside of prescription drugs and increased its research and development allocations. One such development, Ceftazidime, an injectable antibiotic, received a strong market reception in Japan.
Zantac's arrival in Japan had involved major competition in the form of an anti-ulcer drug discovered by the Japanese Yamanouchi Company. The company's difficulties in Japan continued in the early 1990s. Corporate executives cited frequent price reductions and registration delays as impediments to greater success in this, the second-largest market in the world. Glaxo did penetrate the Chinese, Eastern European, and Russian markets in the early 1990s, opening a factory in China and establishing branches and companies in many former Communist bloc countries.
By 1992, Glaxo had captured 3.7 percent of the world's pharmaceutical market, and marked its twelfth year of continuous growth. Profits, however, did not maintain the same pace, having been eroded by research, marketing, and infrastructure costs. At the same time, Glaxo was threatened by competition from Wellcome PLC, a rival that was able to launch more than a dozen drugs during the 1980s and early 1990s, including Zovirax, a herpes treatment, and Retovir, a drug to combat AIDS. Glaxo was able to retaliate with the introduction of new asthma and hypertension treatments, in limited markets, but had yet to launch a product that could duplicate Zantac's success.
Continued industry consolidation, falling profits, and high research costs eventually led Glaxo to seek out a merger partner. Eying Wellcome's growing arsenal of prescription drugs, Glaxo made a $14.9 billion bid for its competitor in 1995. Glaxo Wellcome plc was formed later that year upon completion of the deal. The merged company began to see immediate reductions in its research and development expenditures. Valtrex was introduced to replace Zovirax and the California-based combinatorial chemistry firm, Affymax, was acquired. In 1996, the company sold off its consumer business ventures to focus on prescription medicine development. The firm worked feverishly to launch a new product that could match the success of Zantac. While sales of the drug reached $1.6 billion in 1996, its patent expired the following year leaving the market wide open for cheaper, generic versions of the product. While the company expected its sales of Zantac to fall by as much as 90 percent, its pairing with Wellcome left it well positioned to diversify its product line.
In 1998, the firm launched the antidepressant Zyban, the first prescription anti-smoking drug that did not contain nicotine. It was during this time period that merger talks began with SmithKline Beecham. The $70 million deal fell through however, when both companies could not reach suitable terms. Robert Ingram was named CEO of Glaxo that year and pledged to focus on research and development. As he set a strategic and lofty goal of launching three new products a year, Glaxo soon realized that a merger would solidify its position in the industry and increase its new product potential.
History of Beecham
One of the first British companies to undertake intensive advertising, Beecham grew from a small regional pill-peddling operation to a multinational patent medicine company at a time when very few companies branched beyond their own communities. In 1847, Thomas Beecham began hawking his own brand of pills throughout the town of Wigan and the surrounding countryside. He soon set up shop as an herbalist and grocer in Wigan. Beecham, born the son of a farm worker in 1820, had spent his youth as a shepherd boy, and in that job he had learned a good deal about herbal remedies. Beecham was said to have had a special knack for healing sick animals and, on occasion, even humans. For several years Beecham sold his laxatives at local markets with a sales pitch that included showing off a jar of intestinal worms.
In 1859, after mixed results in Wigan, Beecham moved his operation to nearby St. Helens, where he focused on two products: a cough tablet and the famous laxative Beecham's Pills, advertised in the local newspaper as "worth a guinea a box." Both products were available through mail order and Beecham increased spending on advertising to take advantage of a rapidly growing demand for health products.
In 1881, when Thomas Beecham's son Joseph took effective control of the company, Beecham's sales were at £34,000, demonstrating average annual growth of about 18 percent, a rate it had sustained since 1865. The elder Beecham remained active in the operations of the company until his official retirement in 1895.
Joseph Beecham increased the company's advertising expenditures considerably. By 1891, annual advertising expenditures had increased to £120,000, up from £22,000 in 1884, and Beecham introduced more creative ads. Advertising gimmicks included free distribution of sails printed with Beecham slogans to boat owners and inexpensive general information booklets bearing Beecham's messages.
During the 1880s, Joseph Beecham spearheaded the company's expansion overseas. First, Beecham's Pills were exported to countries throughout the British Empire. In 1888, they were distributed in the United States and Canada, and two years later a manufacturing facility was set up in New York.
Extensive advertising had made Beecham's Pills practically a household word on several continents by the end of the nineteenth century. This success was not at first duplicated after the turn of the century, however. Although Beecham remained profitable, its rate of growth slowed considerably. Joseph Beecham spent more of his time on projects unrelated to the business, including numerous philanthropic endeavors and patronage of his music-minded son, Thomas, later to become a renowned conductor. In 1913, sales remained static at £290,000, although the firm's profitability had improved.
In 1916, Joseph Beecham died, leaving a complicated estate. Beecham had never incorporated the pill business, and it remained entwined with his other affairs. Henry Beecham, Joseph's younger son, ran the business with three other executors until 1921, but had no active role after that time. Three years later, the pill business was acquired by financier Philip Hill. Hill incorporated the company as Beecham's Pills in 1928 and launched a new period of growth.
For the next ten years Hill made acquisitions broadening the product line of the company. He purchased patent medicines such as Yeast Vite, Iron Jelloids, Phosferine, and Phyllosan. In the later 1930s, the company entered the toiletries business with the acquisition of Prichard and Constance, a shampoo manufacturer that distributed the brand name Amami. In 1938, Beecham acquired Macleans Ltd., well-known for toothpaste; County Perfumery, manufacturers of Brylcreem; and Eno Proprietaries, makers of a popular antacid. In 1938, Beecham acquired Lucozade, a popular glucose drink, from its inventor W.W. Hunter, to enter the health-drink field. The company changed its name to Beecham Group Ltd. in 1945 to reflect its diversified nature.
When Beecham acquired Maclean's in 1938 it unknowingly changed its direction. With the purchase came company secretary and director H.G. Leslie Lazell. Lazell became corporate secretary of Beecham's Pills, and during the war took over as managing director of the Maclean's unit. Leslie Lazell had always been a firm believer in research, and he developed a research department at the company, which soon entered the medicines field.
Formed in 1943, Beecham Research Laboratories Ltd. employed 115 people, 34 of them graduate-level scientists. In 1947, a 27-acre facility was opened at Surrey, with Alexander Fleming, the discoverer of penicillin, presiding over the opening ceremonies. Beecham Research Laboratories started out researching both pharmaceuticals and food products but before long concentrated solely on pharmaceutical research. In 1949, Beecham's acquisition of the C.L. Bencard company, a manufacturer of allergy vaccines, paved the way for entry into the prescription drug field.
During the 1950s Beecham expanded its consumer products line and pumped the profits into drug research. It purchased new health drinks: Ribena blackcurrant juice, Shloer apple and grape drinks, and Horlicks beverages were acquired in 1969. The toiletries division also expanded, adding Vosene shampoo among others. A real breakthrough came in 1957 when company researchers isolated the penicillin nucleus 6-aminopenicillanic acid (6-APA). This discovery opened the door to the manufacture of a multitude of new antibiotics.
In 1959, Beecham marketed Broxil (phenethicillin), followed shortly by Celbenin (methicillin). The introduction of these products represented a medical breakthrough, as many bacterial strains had built up a resistance to the original penicillins--Penicillin G and Penicillin V. In 1961, Penbritin (ampicillin) hit the market, and soon Beecham's facilities were inadequate for the worldwide demand. A 35-acre complex at Worthing came on line in the early 1960s to produce 6-APA, the base for semisynthetic penicillins. Beecham's lead in antibiotics brought tremendous growth in the 1960s and 1970s.
Lazell's emphasis on marketing was also key to Beecham's growth. By 1960. the company was the second largest advertiser in the United Kingdom. Beecham was one of the first British firms to put the CEO directly in charge of the marketing team, long a standard practice in the United States.
In the mid-1960s, Beecham products penetrated the European continent. Within 20 years, this region comprised Beecham's largest single market. In the later 1960s, Beecham Pharmaceutical marketers turned their attention to the United States, where an expanding business had been built on foundations provided by Brylcreem hair dressing. In 1967, the company opened an antibiotics factory in Piscataway, New Jersey. In 1971, Beecham bought the U.S. feminine hygiene company S.E. Massengill.
In 1972, the company planned to increase the size of its prescription drug business by merging with one of its chief British competitors, the Glaxo Group. The British government blocked the merger, citing the possibility of reduced spending on research and development within the industry. Glaxo was particularly attractive because it had a large network overseas.
Also in 1972, Beecham launched Amoxil, which went on to become one of the most widely prescribed antibiotics, often used to treat bacterial infections, including those involving the ear and throat. Amoxil was the brand name for amoxycillin, which had been discovered by Beecham scientists. The company's growing antibiotic line also included Floxapen (flucloxacillin) and Ticar (ticarcillin). In the mid-1970s, new non-antibiotic drugs were introduced, such as the allergy vaccine Pollinex and the antidepressant Norval.
Acquisitions of American drug and consumer products companies accelerated toward the end of the decade and into the 1980s. In 1977 Beecham bought Sucrets throat lozenges for $76 million and acquired the floundering Calgon bath products line. Beecham turned the businesses around, revamping old products and packaging, and using aggressive marketing strategies. In 1979, Beecham purchased Jovan, the U.S. perfume manufacturer, for $85 million. Other fragrance lines were later acquired, including Diane Von Furstenberg in 1983 and the cosmetics and fragrances of BAT Industries plc in 1985. Other big acquisitions in the early 1980s included the J.B. Williams company, makers of Geritol, Sominex, Aqua Velva, and Lectric Shave among others for $100 million in 1982; DAP, Inc., manufacturer of caulk and other home improvement products for $68 million in 1983; and Norcliff Thayer, a major manufacturer of OTC drugs including the well-known antacid Tums, in the United States for $369 million in 1985. Beecham also acquired a number of European pharmaceutical companies in France, West Germany, and Italy. On the drug development front, Beecham in 1981 introduced Augmentin, an antibiotic used to treat an array of bacterial infections.
In 1984, Beecham's profits began to level off, due in part to decreased popularity of ampicillin, caused by increased antibiotic competition, and pressure from the British government to cap profits on drugs. Following Lazell's formula, Beecham's new chairman, Sir Ronald Halstead, hoped to pay for rising research and development costs through profits on consumer goods. A number of acquisitions of consumer products companies in 1984 and 1985 seemed to the company's directors too costly and out of line with Beecham's overall thrust. Halstead was let go in 1985. In 1986, Robert P. Bauman became chairman of Beecham. The company's first U.S. chairman, Bauman knew the North American market well, having worked at General Foods, Avco, and Textron. Bauman sold off some of Beecham's consumer products lines, primarily soft drinks lines, although he retained the successful Ribena, Horlicks, and Lucozade brands, and implemented cost-cutting measures worldwide. Between 1986 and mid-1989, Bauman disposed of £400 million of non-core businesses.
By the mid-1980s, Beecham had made significant headway into the U.S. marketplace and continued to hold its place as the largest over-the-counter drug producer in its home market. Beecham's pharmaceutical research focused on three general areas: cardiovascular therapy, diseases affecting the central nervous system, and anti-infectives. Demand for healthcare products increased substantially as the wealthy U.S. market grew older. Relifex, a nonsteroidal anti-inflammatory used by arthritis patients, began limited marketing in 1985 and by the late 1980s showed promise for the company. An anticlotting agent, Eminase, introduced in Europe in 1987, also appeared to be a significant breakthrough for cardiac patients. Two new antibiotics, Augmentin and Timentin, earned the Queen's Award for technological achievement in 1986. Both drugs received widespread acceptance throughout the medical community.
In July 1989, Beecham merged with an equally well established business, Philadelphia-based SmithKline Beckman Corporation. SmithKline Beckman's roots extended back to 1830, when John K. Smith opened his first drugstore in Philadelphia through a company called John K. Smith & Company. The firm soon became a leader in drug wholesaling. It was renamed Smith, Kline & Company in 1875, ten years after Mahlon Kline joined the company, first serving as bookkeeper, then moving into sales and management. In 1891, Smith, Kline acquired French, Richards & Company and changed its name to Smith, Kline & French (SK&F). At this time, SK&F produced and sold fine perfumes, liniments, tonics, hair oil, cough medicine, and various home remedies.
In 1910, SK&F expanded its product offerings through the addition of the "Blue Line," which included such standard drugs as poison ivy lotion, iron tablets, and lozenges. Around the same time as the establishment of Beecham Research Laboratories, SK&F established its own research arm called Smith Kline & French Laboratories. In the 1950s SK&F scientists developed the anti-psychotic Thorazine, which started a revolution in the treatment of mental illness. In 1952 came the launch of Dexedrine, the first time-released capsule. This was followed in 1960 by another time-release product, Contac, the first all-day cold remedy.
During the 1970s, SK&F shortened its name to SmithKline Corporation. The revolutionary peptic ulcer medication Tagamet was introduced in the United Kingdom in November 1976 and in the United States in August 1977. Tagamet went on to become, in 1989, the first drug in the world to have annual sales in excess of $1 billion. Also in 1989 SmithKline's James Black was awarded the Nobel prize in medicine for his research involving Tagamet and other beta-blockers and H2 blockers. In 1982, SmithKline acquired Allergan, a maker of eye and skin care products, and Beckman Instruments, a leading manufacturer of diagnostic and measurement instruments and supplies. On completion of the latter purchase, the company changed its name to SmithKline Beckman Corporation. By this time, SmithKline had also diversified into the clinical laboratories business. It entered that sector in the 1960s through the acquisition of seven labs in the United States and one in Canada. SmithKline Clinical Labs then merged with American BioScience Laboratories in 1985 to form SmithKline BioScience Laboratories, which became the industry leader in 1988 with the purchase of one of its biggest competitors, International Clinical Laboratories, Inc.
The merger of Beecham and SmithKline Beckman formed what was at the time one of the top five pharmaceutical companies in the world. The new SmithKline Beecham plc, based in London, tallied $6.9 billion in sales annually. Beecham was widely considered the healthier half of the new company. With Eminase and Relifex about to hit the U.S. market, Beecham looked solid enough to shore up its ailing American partner for at least a short time. SmithKline had failed to come up with a blockbuster product since it introduced the ulcer remedy Tagamet in the mid-1970s, despite substantial research and development expenditures. New competition from Glaxo's Zantac had eroded some of Tagamet's expected market share, and SmithKline was accused by stock analysts of lacking direction. A headline in the Wall Street Journal, July 7, 1989, called the merger "just what the doctor ordered" for SmithKline.
SmithKline's chairman Henry Wendt became chairman of the merged company while Robert Bauman, who became the new company CEO, faced combining two distinct corporate cultures and had little time to spare: just one week after the Beecham SmithKline merger was finalized, two U.S. giants, Squibb and Bristol-Myers, announced their own merger plans (forming Bristol-Myers Squibb Company). Beecham, with its new prescription drugs and strong presence in the over-the-counter (OTC) drug market, looked like a good partner for SmithKline, with its strong U.S. sales staff. The SmithKline Beecham merger permitted both companies to compete on a global level neither could manage alone. In addition, the companies' R&D programs were complementary. Beecham had several new products ready for market while SmithKline was at the opposite end of the R&D cycle, promising results down the road. Geographically, Beecham's strength in Europe fit well with SmithKline's coverage in the United States and Japan. Bauman expressed his intentions to cut costs by eliminating administrative and production personnel, rather than by paring sales or research staffs.
SmithKline Expands Its OTC Business: 1990s
In the early 1990s, SmithKline Beecham concentrated on reducing the debt it had taken on to complete the merger. The company made a number of disposals, mainly in the consumer products area, including its cosmetics businesses, its adhesives unit, Brylcreem and other hair care brands, and other non-healthcare products. In early 1994, its consumer side was reorganized as the consumer healthcare division, focusing solely on OTC drugs, toothpaste and toothbrushes, and nutritional drinks. The company's OTC drug offerings were later expanded through the introduction of nonprescription versions of prescription drugs, including the launch of Tagamet HB. On the pharmaceutical side, SmithKline announced in late 1992 that it would withdraw from long-term research into gastrointestinal drugs to concentrate its R&D efforts on five areas: the central nervous system, the heart and lungs, anti-infectives, inflammation and tissue repair, and vaccines. Among the pharmaceuticals introduced by SmithKline in the early and mid-1990s were Relafen, an anti-inflammatory drug for the treatment of arthritis; Engerix B, a hepatitis B vaccine; Havrix, a hepatitis A vaccine; Kytril, an antinausea product used in treating cancer patients; and Seroxat/Paxil, an antidepressant. These introductions helped counter the plummeting sales of the prescription version of Tagamet, which went off patent in 1994.
In 1993, SmithKline spent $125 million to enter into a research collaboration agreement with and take a seven percent stake in Human Genome Sciences Inc., a newly formed enterprise actively identifying and describing the functions of human genes. The agreement gave SmithKline rights to develop drugs based on the gene sequencing information discovered by Human Genome Sciences. This collaboration was slow to pay off in terms of new medicines.
Jan Leschly, a native of Denmark who as a young man was a professional tennis player ranked as high as number ten in the world, was named CEO of SmithKline in 1994. In May of that year, the company acquired Diversified Pharmaceutical Services, Inc.--a leading U.S. pharmaceutical benefit manager (PBM)--for $2.3 billion (£1.6 billion). PBM's, which acted as drug wholesalers for managed care organizations, were growing rapidly in the United States, in tandem with the growth of health maintenance organizations and other managed care enterprises. SmithKline continued its acquisitive ways in 1994 with the August purchase of Sterling Health, a specialist in branded OTC medicines, for $2.9 billion. A few weeks later SmithKline sold Sterling's North American operations to Bayer AG for $1 billion. The net result of these moves was that SmithKline expanded its OTC presence in Western Europe significantly and even more dramatically in Eastern Europe and Asia; the company became the third largest seller of OTC products in the world, and the largest in Europe. It gained several key brands, including the analgesic Panadol and the gastrointestinal remedy Phillips Milk of Magnesia. Rounding out a year filled with large transactions, SmithKline in late 1994 sold its animal health business to Pfizer Inc. for $1.45 billion (£920 million), a move enabling SmithKline to focus further on the human healthcare market.
During the mid to late 1990s, SmithKline Beecham began marketing a number of new products. On the OTC side, the company moved into the smoking cessation sector with the launch of Nicorette gum. In 1996, the FDA approved NicoDerm CQ, a smoking cessation patch. These products held 90 percent of the OTC smoking cessation market in the United States through the late 1990s. Also in 1996 came the launch of the pharmaceutical Hycamtin, which was designed to treat ovarian cancer and small cell lung cancer. In the vaccine arena, SmithKline introduced Twinrix, the first combined hepatitis A and B vaccine; the Infanrix line of combination vaccines, which included protection against diphtheria, tetanus, and pertussis (or whooping cough) in its basic formulation, with additional protection against other diseases provided through other formulations; and LYMErix, which was introduced in 1998 as the first vaccine in the world for the prevention of Lyme disease.
SmithKline's collaboration with Human Genome Sciences had yet to pay off in terms of new medicines, but was uncovering numerous leads for potential development. SmithKline simply did not have the resources, however, to follow up on every lead. Therefore, in 1996, the company began licensing the Human Genome Sciences data to other pharmaceutical companies, including Schering-Plough Corporation, Takeda Chemical Industries Ltd., and Merck. The following year, SmithKline joined with Incyte Pharmaceuticals to create another biotechnology venture called diaDexus. This venture was focused on developing new diagnostic tests based on gene discoveries. One of its first undertakings was the development and commercializing of a new cervical cancer screening technology which had been originally conceived by Cancer Research Campaign Technology Limited.
The need for greater resources to investigate the many opportunities being uncovered by the biotechnology revolution led SmithKline to enter merger discussions, first with American Home Products Corporation, which began in 1997 and ended in early 1998, and then with U.K. rival Glaxo Wellcome. In late January 1998, Glaxo and SmithKline announced that they were on the verge of announcing a merger valued at between $65 billion and $70 billion. This would have been the largest corporate merger ever, but the deal fell apart in late February following disagreements between the two companies' CEOs over leadership of the combined company.
In the aftermath of this botched union, SmithKline refocused its operations on two core areas: pharmaceuticals and consumer healthcare. To this end, in April 1999, it sold Diversified Pharmaceutical Services to Express Scripts Inc. for £422 million ($700 million) in cash, resulting in an after-tax loss of £446 million ($740 million), which was recorded in 1998. Around this same time, the company announced a four-year restructuring plan in which it would close down excess manufacturing plants and lay off about 3,000 people, resulting in annual savings of £200 million ($332 million) by 2002. SmithKline planned to take pretax charges of up to £750 million ($1.25 billion) over the four-year period. In August, SmithKline completed the sale of its clinical laboratory unit--SmithKline Beecham Clinical Laboratories--to Quest Diagnostics, Incorporated for £618 million ($1.03 billion) and a 29.2 percent equity interest in Quest.
In mid-1999, SmithKline received FDA regulatory approval of Avandia, a diabetes drug which it began co-marketing with Bristol-Myers Squibb, and for a new use for Paxil, that of treating people suffering from severe "social phobia"--extreme bouts of shyness that could be severely debilitating and traumatic. In December 1999, Leschly announced that he would retire as chief executive in April 2000 and be replaced by COO Jean-Pierre Garnier. Rumors instantly began to surface suggesting that the leadership change would lead to renewed merger talks with Glaxo; however, there was no immediate suggestion that SmithKline Beecham was certain to change direction with Leschly's departure. The company appeared capable of continuing on a path of organic growth, with several pharmaceuticals in advanced stages of development, including Ariflo, for chronic obstructive pulmonary disease and for asthma; Idoxifene, for osteoporosis and breast cancer; Factive, an antibiotic for the treatment of respiratory tract and urinary tract infections; Bexxar, for non-Hodgkin's lymphoma, a cancer of the immune system; and Locilex, a topical antibiotic for the treatment of infected diabetic foot ulcers.
The Formation of GlaxoSmithKline: 2000
Both Glaxo and SmithKline soon realized, however, that in order to compete in a leadership position in the fiercely competitive pharmaceuticals industry, a merger was necessary. As such, it soon became apparent that both companies wished to combine forces. Putting their differences from the 1998 proposal aside, talks resumed in early 2000, and the $70 billion deal was finalized in December of that year. Ingram was named COO and President of Pharmaceutical Operations while Garnier was named CEO of the newly merged company--GlaxoSmithKline plc. According to a July 2001 Business Week article, Garnier claimed that the partners would be "the kings of science."
Indeed, the merger created the largest drug company in the world with sales of $22.5 billion. While the company was forced to divest certain assets-including Kytril, Famvir, and Vectavir--its product line was greatly enhanced by the merger. The deal also created one of the largest sales and marketing forces in the drug industry, with over 40,000 global employees focused in that area (total employee count reached 100,000). GSK's staff of over 16,500 researchers and its R&D budget of nearly $4 billion also left the firm in a favorable position against competitors.
Under the leadership of Garnier, GSK quickly set out to capture market share in Europe's maturing drug sector. By July 2001, it had signed over 100 joint ventures with biotech firms and eyed both cancer and cardiovascular drugs as crucial to its product development strategy. This strategy included launching 15 new drugs by 2005. The company already had 23 new vaccines in the development pipeline, including an AIDS vaccine. In April, the GSK launched the asthma drug Advair in the U.S. The drug was expected to secure global sales of $2.4 billion by 2005. The firm also acquired Block Drug Company Inc., an oral health care and consumer products manufacturer.
During its first year of operation, GSK saw pharmaceutical sales increase by 12 percent. It secured savings of over $1.08 billion as a result of the merger and anticipated saving $2.59 billion by 2003 in manufacturing costs. While management felt that GSK was in an excellent position for continued growth--it claimed it was one of the fastest growing pharmaceutical companies in the U.S. market--industry analysts felt that the firm could possibly fall short of expectations if it failed to launch new products that could generate large revenues. The firm however, had nearly $6 billion in cash assets--a fact that had many in the industry wondering whether or not GSK would look to yet another deal to bolster its holdings.
Principal Subsidiaries: Glaxo Wellcome plc; Glaxo Group Ltd.; Glaxo Wellcome Export Ltd.; Glaxo Research and Development Ltd.; Glaxo Investments (UK) Ltd.; Glaxo Wellcome Vehicle Finance Ltd.; The Wellcome Foundation Ltd.; Wellcome Limited; Glaxo Operations UK Ltd.; Glaxo Wellcome UK Ltd.; Glaxo Wellcome Pharma GmbH (Austria); Glaxo Wellcome Belgium SA; Glaxo Wellcome sro (Czech Republic); Glaxo Wellcome a/s (Denmark); Glaxo Wellcome Oy (Finland); Groupe Glaxo Wellcome (France); Glaxo Wellcome GmbH & Co. (Germany); Glaxo Wellcome AEBE (Greece); Glaxo Wellcome International (Ireland); Glaxo Wellcome SpA (Italy); Glaxo Wellcome SA (Poland; 96%); Glaxo Wellcome AG (Switzerland); Glaxo Wellcome Inc. (United States); Affymax Research Institute (United States); Glaxo Wellcome Americas Inc. (United States); Glaxo Wellcome China Ltd.; Glaxo India Ltd. (51%); Glaxo Wellcome Philippines Inc.; Glaxo Wellcome (Thailand) Ltd.; GlaxoSmithKline KK (Japan; 80%); Glaxo Wellcome Mexico, SA de CV; Glaxo Wellcome Egypt SAE (89%).
Principal Competitors: Merck & Co. Inc.; Novartis AG; Pfizer Inc; Bristol-Myers Squibb Company.