British Drug Takeover Is Expected To Have Worldwide Repercussions

Repercussions Author: Peter Gwynne London-based pharmaceutical giant Glaxo plc's $14.1 billion acquisition in March of the Wellcome Foundation, another London drug power, is expected to have long-term repercussions--some good and some bad--for many scientists around the world. Researchers at the newly formed pharmaceutical firm--named Glaxo Wellcome plc, with facilities in Europe and the United States--face the prospect of layoffs in coming months, according to analysts. Some R&D personnel cu

Peter Gwynne
Jul 9, 1995

Repercussions Author: Peter Gwynne

London-based pharmaceutical giant Glaxo plc's $14.1 billion acquisition in March of the Wellcome Foundation, another London drug power, is expected to have long-term repercussions--some good and some bad--for many scientists around the world.

Researchers at the newly formed pharmaceutical firm--named Glaxo Wellcome plc, with facilities in Europe and the United States--face the prospect of layoffs in coming months, according to analysts. Some R&D personnel cuts have already been announced by the company.

At the same time, members of the international life sciences community can anticipate the promise of new funding, owing to a windfall that the acquisition has brought to the Wellcome Trust, a British research foundation started nearly 60 years ago with equity from the original Burroughs Wellcome company. The buyout of the charity's remaining shares in the Wellcome Foundation will add some $3 billion to its $8 billion endowment.

Scientists in the U.S., however, face only the downside of the acquisition. Company researchers stand to suffer layoffs at one or both of Glaxo Wellcome's North Carolina branches as the new company consolidates its research efforts, analysts anticipate. But other scientists will not share in the disposition of the philanthropy's newfound riches, as trust officials have already announced that Wellcome support will not be making its way across the Atlantic.

pic of Enriqueta Bond Family Harmony: Enriqueta Bond, who heads the U.S. base Burroughs Wellcome Fund, calls the windfall for the Welcome Trust "wonderful." Company officials, while remaining mum about the prospects for scientists currently employed at the two firms, say that the match is a logical one. "Both companies are well-known for contributing good science, both are research-based, and both have had good success in the prescription market," declares Ramona Jones, a Glaxo spokeswoman based in Raleigh.

Some of the bad news has started to dribble out. Glaxo Wellcome announced in late June that it will close the former Wellcome R&D site at Beckenham, Kent, just southeast of London, over the next three years. Glaxo Wellcome will carry out all its United Kingdom research at the current Glaxo facility in Stevenage, Hertfordshire, north of London, an $11 million center for research into new medications. Development, meanwhile, will take place principally at two Glaxo R&D facilities--in Ware, Hertfordshire, and Greenford, Middlesex, just west of London. The headquarters of Glaxo Wellcome Research and Development, as well the group's worldwide headquarters, will be located at Greenford.

The firm has not yet decided the fate of its American R&D facilities. At present, the U.S. branch of Glaxo and Burroughs Wellcome Co., the American arm of the Wellcome Foundation, are still operating as separate companies, although their main American R&D facilities are located less than a mile apart in Raleigh, N.C. Analysts expect that Glaxo Wellcome will close at least one of those sites.

The firm has not made any specific announcements about layoffs of scientific staff. It has conceded that some of its British R&D scientists will receive pink slips as the Beckenham site closes down. But Glaxo Wellcome management has said nothing about employment prospects for scientists in its U.S. institutions. Nevertheless, according to an executive at a rival pharmaceutical company, speaking on condition of anonymity, "everyone expects there to be layoffs." Analysts agree, asserting that several thousand R&D staffers from the two pre-acquisition companies could lose their jobs.

The Wellcome Trust has already delivered some of its good news. It has announced the broad outlines of how it will spend the extra income. According to its director, Bridget Ogilvie, population research and international health problems will form the major thrusts of new efforts.

Details of the new projects remain to be worked out. However, one point is clear: No scientist in the U.S. will directly benefit from the extra largess. The reason offered is that three years ago, the trust used $400 million of the proceeds of a sell-off of 60 percent of the Wellcome Foundation shares that it owned to start up a new, independent charity in the U.S., the Burroughs Wellcome Fund. According to Ogilvie, the trust regards this one-time grant as having enriched the U.S. scientific community to such an extent that further grants are unwarranted.

The acquisition links two pharmaceutical powers with several similarities. Before the merger, each had a major U.S. presence and large centralized research efforts in the U.K. Glaxo also had research facilities in Italy and Japan.

In recent years, however, the two companies have taken different pathways on the route to commercial success. Since it launched Zantac, a prescription drug for patients with ulcers and chronic heartburn, in the early 1980s, Glaxo has performed very effectively on the stock market. The company has brought out several successful new products over the past decade, earning significant profits, according to Stewart Adkins, a pharmaceutical analyst at Lehmann Brothers in London.

Wellcome, on the other hand, which has traditionally operated almost like a nonprofit company, has done very little in the market since it introduced Retrovir, the anti-AIDS drug also known as AZT, in 1987, analysts say. That lack of new products to fill unmet medical needs probably made Wellcome a target for takeover, observes Charles Cooney, codirector of the Program on the Pharmaceutical Industry at the Massachusetts Institute of Technology's Sloan School of Management.

pic of Charles Cooney Upheaval Ahead: MIT's Charles Cooney foresees a shuffling of scientists between facilities. In addition, the acquisition links up similar avenues of research into prescription drugs being pursued by the companies. "We have very complementary product lines, with Glaxo's strength in respiratory and gastrointestinal medications and Wellcome's in antiviral remedies," says Rick Sluder, Glaxo Wellcome's director of communications in Raleigh. "So there's the chance for synergies."

More specific synergy has emerged recently. Glaxo has reported that a combination of Wellcome's AZT and Glaxo's 3TC, an anti- hepatitis B drug now in clinical trials, works better against AIDS than either drug alone.

Appealing as they are, such synergies won't be enough to save scientists' jobs. At present, Glaxo has 7,300 scientists worldwide, while about 4,000 work in Wellcome's global operations. Of those, about 1,350 Glaxo scientists and roughly 1,550 Wellcome scientists are in the U.S. These numbers will soon start to fall, according to analysts. Glaxo Wellcome has already acknowledged that it will lay off scientists in the U.K. "Of the 1,300 R&D staff [at Beckenham] it is anticipated that a significant number [of layoffs] will be among those in the new R&D organization, but it is not yet clear what proportion will be made redundant as a result of the Beckenham site closure," company officials said in a press statement. The reason, the statement continued, is that the selection process, aimed at retaining "the most appropriate people from the two former companies," is continuing. In addition, the company says that it can't predict how individuals will react to offers of relocation.

Management at Glaxo Wellcome isn't talking about layoffs, or any other aspect of the merger, in the U.S. Top executives are reviewing the organizational design best suited for the new company, according to Sluder: "We hope it will be finished quickly. At that point, it will be implemented. Till then, we won't know how staff will be distributed."

Also uncertain is the effect such layoffs will have on the new company's research initiatives. Glaxo plc increased its R&D spending by 16 percent between 1993 and 1994, while the Wellcome Foundation's expenditure rose by 6 percent. In general, says Cooney, pharmaceutical companies are still committed to research, just doing it in different ways, often contracting out the development of new drugs to biotechnology companies, or setting up various forms of research collaboration. "I see that as a re-engineering of how the discovery process is carried out," he remarks.

What will that mean for U.S.-based R&D personnel at Glaxo and Burroughs Wellcome? "I would think one of two sites in North Carolina will close, losing about 1,500 jobs," Adkins forecasts. Cooney isn't so sure. It's possible, he says, that there may not be enough overlap to persuade management to close one of the labs; nevertheless, he foresees the need to shuffle scientists between the two sites, to ensure that individuals working on complementary projects are located in the same building.

States Adkins: "A number of people are just going to have to find jobs here. Unemployment is no respecter of class."

The Wellcome Trust faces no such uncertainties. Founded in 1936 as a charity dedicated to supporting research in the biomedical sciences and the history of medicine, the trust has benefited from the will of Sir Henry Wellcome, which vested in the trust the entire share capital of the Burroughs Wellcome company that he cofounded (and that later became known as the Wellcome Foundation). The trust sold the first 60 percent of those shares in 1992, using part of the funds to start up the Burroughs Wellcome Fund. According to Bridget Ogilvie, the windfall from this year's enforced sale of its remaining Wellcome Foundation shares has increased the trust's endowment from "just short of $8 billion to a little short of $11 billion." That not only has made the trust the world's richest research foundation, but also guarantees an extra annual income of about $80 million, according to Ogilvie.

Even before the sale of shares to Glaxo, the charity was setting up new initiatives. For example, it had decided to devote more funds to population research. That decision had stemmed from last year's International Conference on Population in Cairo, during which scientists had indicated that government and industry neglected research in that field owing to political and religious sensitivities. Ogilvie herself notes that pharmaceutical companies put relatively little effort into research on contraception in comparison with their revenue from contraceptives.

The infusion of new funds has enabled the trust to put a solid figure to new grants in this area. Sir Roger Gibbs, a nonscientist who is chairman of the Wellcome Trust, has announced that the organization will spend the extra $80 million on population research across the globe during the next five years.

As part of that effort, the fund will aim to spread its grants among researchers based in more countries than has been the case in the past. Until recently, Ogilvie has acknowledged, the trust's work has been largely Anglo-centric. Now, she says, it will disburse "increased funds for international health, in various ways." Those funds "will progressively increase over the next five years."

The trust will not forget its roots in the U.K., however. It has moved quickly to reassure British university researchers that it will continue its recent efforts to support them and provide them with security of funding in the form of renewable grants. Between 1992 and 1994, the trust increased the number of academic researchers it supports by more than 50 percent--from 1,843 to 3,092. In fiscal 1995, the fund has already spent $379 million.

The trust plans to fund another 1,000 scientists as a result of its cash windfall. In addition, it has started providing its researchers with support for longer than the traditional three-year grant. Last year, 92 of the scientists it supported held five- or 10-year fellowships, and 800 held five-year renewable grants. In addition, the trust has set up a career- development scheme to support scientists at all stages of their careers.

"The trust's strategy will continue to be focused on the individual scientist, whether new in research or the established leader of a large team," states a Wellcome Trust document on future funding. "Part of this strategy is to attract and retain productive researchers by providing them with competitive salaries and longer-term support."

The new wealth will bypass U.S. scientists, however. When the trust used $400 million from its 1992 sell-off of Wellcome Foundation shares to endow the Burroughs Wellcome Fund, based in Raleigh, it created a kind of American cousin that it expected to take care of the American issues similar to those that the trust dealt with here. That fund "is related to us, but is run entirely independently," says Ogilvie. It is also independent of Glaxo Wellcome.

Nonetheless, there's apparently no inter-fund envy at the Wellcome Trust's windfall. "I think it's wonderful," says Enriqueta Bond, a molecular biologist who is director of the Burroughs Wellcome Fund. "Every little bit of money [the scientific community] can get for the research enterprise is welcome. The more dollars we can get from private enterprise the better." As for the soon-to-be-displaced scientists, she adds, "We sincerely hope they will land on their feet." q

Peter Gwynne is a freelance science writer based in Lenox, Mass.

(The Scientist, Vol:9, #14, pg.3 , July 10, 1995)
(Copyright, The Scientist, Inc.)