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This month in 2000: The formation of GSK

The twenty-first century’s first ‘mega merger’
The formation of GSK

GSK may be among the most well-known three letters in healthcare today, transcending the pharma industry to become an established name in the minds of consumers across the world.

It's a struggle to think then that this abbreviation has only been around for 14 years, when Glaxo Wellcome and SmithKline Beecham merged to become one of big pharma's biggest members - GlaxoSmithKline.

Since then, GSK has been consistently one of the world's best-performing healthcare companies, led by such prescription drugs as asthma treatment Advair/Seretide (fluticasone/salmeterol) and the antidepressant Seroxat/Paxil (paroxetine), as well as a strong vaccines business and a consumer division that until recently included the drinks Lucozade and Ribena.

This success has arguably lived up to the industry excitement on January 17, 2000, when the world woke up to the news that two companies had agreed the UK's largest ever corporate merger to become what GSK's first press release described as the 'world's leading research-based pharmaceutical company'.

The deal was not unexpected, however, as both Glaxo Wellcome – a prescription-drug focused firm based in London - and SmithKline Beecham – a fellow UK company with more of a focus on consumer health and OTC products - had been contemplating a merger for some time.

Unification was initially suggested in January 1998, with an Economist report at the time describing the deal as the 'mother of all mergers'.

'The new firm's share of the world drug market, at 7.5 per cent, would tower over Merck's 4.5 per cent and Novartis' 4.3 per cent. Its research budget would be equivalent to a quarter of total private-sector R&D spending each year in Britain. And it would boast a market capitalisation of over £100bn ($165bn), making it the second-largest company in the world after America's General Electric,' the publication excitedly proclaimed.

The prospect of this merger also put a dampener on the attempts by US drug company American Home Products (later known as Wyeth Pharmaceuticals, which was acquired by Pfizer in a major deal in 2009) to merge with SmithKline Beecham in a deal that would make it the world's biggest pharma company.

However, this 1998 deal between Glaxo Wellcome and SmithKline Beecham was shelved just one month later after discussions between the two companies collapsed due to “insurmountable differences” on how the new company would be managed.

According to the BBC, this was because Jan Leschly, CEO of SmithKline Beecham – and former pro tennis player - was “unwilling to play second fiddle to Glaxo's dynamic chairman, Richard Sykes” when it came to running the new company.

Evidently, despite the breakdown of this deal, discussions between the two companies remained ongoing, with the announcement in January 2000 spurred by two key incidents.

First, SmithKline Beecham's CEO Leschly announced at the end of 1999 his decision to retire from the company the following year, paving the way for the company's chief operating officer Jean-Pierre Garnier to take over leadership at the company.

And second of all, the US drug firm Warner Lambert announced it had abandoned its merger plans with American Home Products – the former suitor of SmithKline Beecham - to accept a takeover deal from US pharma company Pfizer to create a global drug giant.

According to the BBC in an article about the formation of GSK: 'Not wanting to be overshadowed, Glaxo and SmithKline decided to accelerate their merger schedule.'

With the prospect of more receptive new leadership at SmithKline and a desire to stay ahead of a competitive industry fuelled by mergers – Astra and Zeneca and Sanofi and Synthélabo had also recently announced plans to join forces – a deal that suited both sides was carved out, eventually being completed by December 2000.

As for who would lead the newly-formed GSK, it was a joint effort between the two constituent parts, with Jean-Pierre Garnier at the management helm as CEO of and Sir Richard Sykes taking on the role of non-executive chairman.

Sykes would remain in his role for two more years, before retiring from industry to take on an academic pursuit as rector of Imperial College London.

Garnier held the CEO role until 2008, leading the company as it acquired Block Drug in a deal worth $1.24bn; relocated to GSK House in Brentford; and made its first R&D moves into China among other achievements.

After Garnier's departure to become CEO of Pierre Fabre Labs, the company's European head Sir Andrew Witty took on the top job – a role he continues to hold, overseeing the company during perhaps its most challenging years facing billion dollar lawsuits in the US and corruption allegations in China, but also spear-heading pharma moves towards clinical trial transparency.

GSK has come a long way since 2000, and who knows what it or the rest of the industry will look like in another 14 years.

Article by
Thomas Meek

PMGroup editor

17th January 2014

From: Sales



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