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The on-off engagement of the UK's two biggest drug companies was finally concluded with the January 2000 announcement that SmithKline Beecham and larger rival Glaxo Wellcome would merge to create Glaxo SmithKline.
SmithKline Beecham had itself been formed 11 years earlier from the merger of American drug company SmithKline Beckman with Britain's Beecham Group. The core of SmithKline Beckman was provided by John K Smith & Company, first established in 1830, initially as a Philadelphia drugstore. The business later expanded into wholesaling when John Smith was joined by younger brother George. In 1875, Mahlon Kline, the company's bookkeeper-turned-sales director, became a partner in the firm, and its name changed to Smith Kline & Company. At the beginning of the 1890s Smith Kline & Company acquired healthcare remedies business French, Richards & Company, and became Smith Kline & French. The business had a major success with new remedy Eskay's Neurophosphates, or Neuro, which scored a big success in the as yet undeveloped Latin American market. Twenty years later, the "Blue Line" range of iron tablets and lozenges were another notable revenue-earner.
Between the 1930s and 1950s Smith Kline & French broke new ground through pharmaceutical research and development, introducing a string of new drugs including Benzedrine (originally for nasal congestion), Dexedrine (a form of amphetamine, marketed as a weight loss treatment), and above all anti-psychotic drug Thorazine, which revolutionised the treatment of mental illness from 1950 onwards. To counter the amphetamine properties of Dexedrine, the company also began research into ways of delaying the effects of the drug and this led to the introduction in the 1950s of a new form of time-release capsule which delivered measured doses over a period of time rather than all in one go. In 1960, the company launched best-selling cold remedy Contac using the same time-release formula. SK&F launched ulcer cure Tagamet in 1974, which went on to become one of the world's most successful drugs, with annual sales topping $1bn by the mid-1980s. In the 1980s, the company also absorbed eye care business Allergan as well as diagnostic supplies company Beckman Instruments, becoming Smith Kline & Beckman.
The key deal followed in 1989 with the merger of SmithKline Beckman with its British counterpart, Beecham Group. As a farm worker in the 1830s, Thomas Beecham noticed the laxative effects of certain plants and shrubs on animals, and began to market the same herbal preparation for humans from 1842 as Beecham's Pills. Other patent medicines followed with some success, but the business was slow to adjust to increasing competition towards the end of the century, and its influence dwindled in the early years of the 20th century. It was taken over in 1924 by entrepreneur Philip Hall. He introduced Beecham's Powders two years later as a remedy for headaches, neuralgia and the common cold, and set about building the business through acquisition. Macleans toothpaste and Lucozade energy drink were added to the portfolio in 1938 and soon became the company's most profitable products. The same year, the purchase of Eno's Salts brought with it a large international sales force. In 1939, Brylcreem hair products joined the business, and the company introduced a new a blackcurrant syrup high in vitamin C under the brand name Ribena. In 1943 Beecham's also established research laboratories to develop new prescription medicines.
In the 1950s, Beecham's isolated part of the penicillin nucleus which allowed the manufacture of synthetic strains of the bacteria-killer, to combat germs that had become resistant to organic penicillin. The company also began flexing its muscles, mounting a hostile takeover bid for rival Glaxo in 1972, which was eventually barred by the British government. Later that decade, Beecham developed the children's antibiotic Amoxil, followed by Augmentin at the start of the 1980s. In 1986, Beecham moved into the US acquiring Northcliff Thayer, maker of Tums and Oxy, and built up the world's leading clinical laboratory group with a series of acquisitions culminating in International Clinical Laboratories in 1988.
The 1989 merger of SmithKline Beckman and Beecham created a transatlantic healthcare and pharmaceutical giant with what were then the world's biggest research and development facilities. The acquisition of Sterling Health five years later made the group Europe's leading OTC medicine business, and the world #3. (SB sold Sterling's US business to Bayer the same year). A brief foray into animal health products was ended in 1994 when the business was sold to Pfizer. The same year, SB's patent on Tagamet expired. Sales plummeted, forcing the company to find new golden drugs to fill the gap.
Early in 1998, the group announced that it was in merger talks with American Home Products (now Wyeth), a development superseded only a few weeks later by an agreed merger with another partner, Glaxo Wellcome. Share prices in both companies soared, triggering a general leap in stock values for leading companies. By April, however, the deal was off, apparently as a result of fiction between SB's high profile CEO Jan Lechsly and his opposite number at Glaxo, Sir Richard Sykes. Institutional investors were irate over the collapse in talks and began pressuring the two companies to return to the table.
In 1999, the company announced restructuring plans designed to slim down the business and boost productivity. The stated aim was to avoid the need for merger with a competitor. As part of this, the company refocused on its core OTC and pharmaceuticals businesses, selling off the various mostly US-based healthcare services businesses it accumulated during the 1980s and 1990s. These included its world-leading laboratory division SmithKline Beecham Clinical Laboratories. SB retained a 30% stake and access to diagnostic data, but sold control to Quest Diagnostics for just over $1bn. The loss-making Diversified Pharmaceutical Services division, which managed prescription delivery for US physicians, was sold in its entirety to Express Scripts for $700m.
Later, SB was forced to abandon osteoporosis drug idoxifene after spending hundreds of millions of pounds on its development, after reviews of trials concluded that the drug would not be sufficiently effective. However another new compound, Avandia, designed to combat the adult onset of diabetes, was approved by the US FDA. SB recruited Bristol Myers-Squibb to assist in marketing the drug in the US, where the latter already marketed Glucophage, the leading diabetes treatment.
Merger rumours sparked up again in 1999, when SB was said to have started tentative merger talks with Swiss drug company Novartis. Later that year the group was forced to play down widespread press speculation that chief executive Jan Lechsly was preparing for imminent retirement. As the move towards consolidation in the drug industry grew ever stronger, SB chief executive Jan Lechsly finally announced he would retire earlier than expected. Behind the scenes, negotiations with Glaxo had already reopened. With press speculation growing ever more frenzied, Glaxo and SB finally confirmed they were back in talks in January 2000, and only days later confirmed they would merge to create what was then the world's largest pharmaceutical company by market share.
See Glaxo SmithKline profile for more.
Last full revision 8th December 2017
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