D | The Scientist Magazine®

On Wednesday, July 26, Henry Wendt, chairman and chief executive officer of the SmithKline Beckman Co., appeared before the firm’s shareholders at an 8:30 A.M. meeting in the chandeliered ballroom of the Hotel Atop the Bellevue in Philadelphia. Standing before a huge transparency displaying two hands clasping one another, Wendt urged the shareholders to approve a merger with the giant British drug firm Beechain Group PLC. Minutes later, 99% of the voting shareholders created SmithKline Beecham, the second largest pharmaceutical company in the world. The ranking lasted exactly one day. On Thursday, Squibb Corp. and Bristol-Myers Co. announced that they would be forming the second largest pharmaceutical company in the world, its combined $4.2 billion in pharmaceutical sales in 1988 trailing Merck & Co. Inc.’s $5.9 billion. The combined pharmaceutical sales of SmithKline Beckman and Beecham in 1987 were about $4 billion. These mergers open up worldwide markets for drugs that have been restricted by the geographically limited operations of the four firms that developed them, according to Wall Street analysts. At the same time, the mergers create mammoth research and development efforts that will heighten the race for new drugs. The stakes are high: Analysts say it was the failure of SmithKline Beckman’s R&D staff to develop profitable new drugs that reduced the firm’s value in recent years, making it vulnerable to takeover attempts and forcing it to seek the friendly merger with Beecham. Indeed, the entire pharmaceutical industry has fallen into a merger frenzy. In the week following the SmithKline Beecham and Bristol Myers-Squibb deals, Marion Laboratories and Dow Chemical’s subsidiary Merrell Dow Pharmaceuticals announced that they too would merge, forming a company with annual sales of nearly $2.3 billion. Also among the recent consolidations is Eastman Kodak Co.’s acquisition of Sterling Drug Inc. Industry observers are closely watching how the mergers, especially SmithKline Beecham and Bristol-Myers Squibb, are going to affect science done at these companies. For the most part, no one expects the mergers to cause reductions in R&D staffs; if anything, with the development of the average drug now requiring about 10 years and $125 million, according to one official at SmithKline Beecham, the new companies will need to bolster their R&D staffs. Karl Habermas of the investment firm Sanford C. Bernstein predicts that the mood among researchers at Smith, Kline & French Laboratories, the Upper Merion, Pa.-based pharmaceuticals division that SmithKline Beecham inherited from SmithKline Beckman, will be “less discouraging” now that the merger is completed. He says the merger “could invigorate” the staff, which has fallen on lean times since it introduced the anti-ulcer drug Tagamet in 1976. Tagament went on to become the best selling drug in the history of the pharmaceutical industry, but SmithKline’s scientists have been unable to follow up on its success. There might be consolidation and the end of duplication in their efforts, especially in the two firms’ smaller facilities scattered around Europe. Habermas predicts growth world-wide in the research staff, especially in those facilities dedicated to product development, as the new firm tests its already-proven drugs for new markets and their regulatory agencies in the U.S. and overseas. For example, the next step for SmithKline Beecham’s development of Tagamet could be to try to win for the prescription-only drug an over-the-counter designation in the U.S. At the same time, Beecham’s laboratories could make an effort to get Tagamet approved for a European Community category that would allow the drug to be sold without a prescription, but only in pharmacies, a designation that does not exist in the U.S. ‘There is also an expectation of complementary R&D programs. For example, both firms are working on drugs to relieve hypertension, and they will be able to share data on SmithKline’s carvedilol as well as Beecham’s cromakalim. Other promising drugs in the pipeline are Beecham’s denbufylline, to treat diseases of the central nervous system, and SmithKline’s recently announced AIDS inhibitor. The merger could mean that some projects that were once abandoned by either firm might be resurrected. For example, Habermas says, if Smith, Kline & French once did research on an anti-infective drug that didn’t pan out, it might go back to it now that it has the Beecham expertise in that area. Or the new company could use SmithKline’s experience selling drugs in Asia to tailor drugs developed by Beecham to the Japanese market. Regulatory Expertise Indeed, analysts say that the drug mergers, because they mean combining markets, largely affect the clinical scientists, who must run new tests to make drugs pass new regulatory agencies. Sharyn Arnold, a SmithKline Beecham spokes-woman, differs with this assessment, saying that because each partner company in the merger already had labs in each other’s market area, there was already regulatory expertise. Arnold declined to make the firm’s scientists available for interviews. SmithKline Beecham’s current pharmaceutical R&D budget runs at about $500 million. George Poste, who formerly headed R&D at Smith, Kline & French Laboratories and now has been named president of research at the new company, says that this figure is likely to grow explosively. Before the merger won approval, Poste predicted that the combined research units would be spending a billion dollars a year by 1993. In a talk given to the Conference on Global Interdependence at St. Joseph’s University in Philadelphia earlier this year, he said that as drugs get more expensive to develop, research will require cooperation between drug companies. Poste envisions pharmaceutical “research consortia,” similar to those in other high-tech industries, that would collaborate on developing drugs. He added that current U.S. anti-trust legislation would have to take this need into account. Samuel D. Isaly, senior vice president and drug analyst for S.G. War- burg, discounts Poste’s prediction of a billion-dollar budget (“He’s dreaming,” Isaly says) and expects growth at “a gentle, single-digit rate.” He doesn’t think SmithKline Beecham’s research budget will overtake Merck’s current $775 million in the foreseeable future, though the British-based Glaxo Holdings PLC might, with a current $700 million budget. The aggressive Glaxo, whose development of the antiulcer drug Zantac soured the sales of SmithKline’s Tagamet, recently opened a $1 billion research facility in Stevenage, England. Whatever SmithKline Beecham decides to give its R&D staff, Poste will have to share it. Indeed, he’ll be working for Keith Mansford, formerly Beecham’s research chief. Mansford, who’s been with Beecham since 1954, comes to the job of chairman of R&D with a good reputation. Erling Refsum, an analyst for the Nomura Research Institute in London, says that Mansford, as opposed to Poste, has “actually presided over finding something.” Mansford’s team developed Eminase, a thrombolytic drug that reduces the chance of a heart attack and, after being launched in May, is waiting for approval in the U.S. Several observers downplay the Smith, Kline & French research contribution to the new company. Says Refsum: “What have they got to show for 11 years of work? They poured a lot of money into the R&D hole, and what did it get them?” Rita Freedman, a drug analyst at Provident Bank in Philadelphia is more optimistic about what Smith, Kline, & French is bringing to the merger. Among the products that she lists in the pipeline from SmithKline are leukotriena for asthma, a proton pump inhibitor, and another product that would relieve stress on kidneys. She says that good science has been done recently at Smith, Kline & French Laboratories, but “they weren’t focused enough, they didn’t give the director of research [George Crooke, who left In August t9881 enough parameters... there wasn’t enough direction, they were working on too many projects.” She adds that although Mansford will be based in London, the merger could bring more scientists to the Upper Merion facility, which is more modern than Beecham’s R&D plants. She also adds that Poste’s $1 billion projection is not infeasible. Meanwhile, in New Jersey, scientists at Squibb are wondering what the merger of their company with Bristol-Myers will mean for them. Peggy Ballman, a spokesman for Squibb, says that her company’s research labs will remain independent. The Squibb Institute for Medical Research, for example, will remain intact, and plans for its expansion from a staff of 1,200 to a staff of 2,100 by 1994 continue a pace. Again, the merger provides an opportunity to combine strengths. For example, Bristol-Myers’ strengths in oncology and neuroscience dovetail nicely with Squibb’s recent efforts to branch out in those areas (The Scientist, Aug. 7, 1989, page 5). And while Bristol-Myers is strong in anticancer drugs, Squibb brings its expertise in cardiovascular drugs to the merger. Given the time it takes to develop a drug, no one will know how the marriages of these R&D staffs will pay off for another decade. Size and money do not guarantee success. A former Smith, Kline & French scientist notes that Tagamet was developed with a research unit spending $1.5 million. He adds, “Serendipity is an important element. Either you have it or you don’t. But the shareholders won’t take not having it as an excuse.”

D

Interested in reading more?

Become a Member of