Warner-Lambert Company (US)

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 Warner-Lambert lit a match beneath the global pharmaceutical sector towards the end of 1999 with the announcement it would merge with US rival American Home Products (later Wyeth) to create what would then have been the world's biggest drug company, with combined sales of $26bn. The immediate response was an unprecedented hostile bid from Pfizer, the company Warner had recruited to help market its important cholesterol-reducing drug Lipitor.

Warner-Lambert's business was originally built on a single early innovation which consumers now take entirely for granted. In 1852, Philadelphia pharmacist William R Warner developed a process for coating foul-tasting medications with a hard and sugary shell to make them more palatable. Not surprisingly, the process took off, and by 1886 Warner's drugstore had grown into a fully fledged drug company, incorporated that year as William R Warner & Co. Warner died in 1901 and his business was subsequently acquired by Henry and Gustavus Pfeiffer, brothers who ran the less well-known Pfeiffer Chemical Company. They merged their own business with the new purchase under the Warner name, and went on to acquire a series of other companies, including Richard Hudnut, considered to be America's first perfume and cosmetics company. In 1945, the group floated as Warner-Hudnut, and continued to expand rapidly through acquisition. Chilcott Laboratories was an important purchase in 1952, but the key deal was a merger with Lambert Pharmacal Company in 1956 to form what then became Warner-Lambert.

Lambert had been formed at around the same time as William R Warner, to market what was then a revolutionary anti-bacterial mouthwash. Developed by scientist Dr Joseph Lawrence, its formula had been acquired by entrepreneur Jordan Wheat Lambert, who marketed it under the brand name Listerine. Further purchases followed, including American Chicle in 1962. This business had been founded in 1869 by Robert Adams to make car tires out of chicle, a rubbery substance similar to latex derived from Manilkara trees in Mexico. The tires were unsuccessful, so Adams decided instead to turn his raw product into a new form of chewable gum as an alternative to the generally used paraffin wax. Suddenly an industry was born. Numerous competitors launched, introducing new processes, including the addition of sugar to improve the gum's taste. In 1899, the six leading businesses merged as American Chicle, nicknamed "the chewing gum trust". Arch-rival Wrigley, famed for its aggressive marketing, stayed outside the group, becoming its fiercest competitor. Eight years after the acquisition of American Chicle, Warner-Lambert added wet-shave razor pioneer Jacob Schick (see Energizer Holdings) in 1970.

For much of the 20th century, the group had devoted its principal attentions to the OTC healthcare market. In the early 1970s, it took a decision to bolster the more serious research side of its pharmaceutical business. The result was the acquisition of Parke, Davis & Co, one of the US's most respected drug companies, responsible for several innovations including systematic clinical testing and chemical standardisation methods. Its key drugs included epilepsy compound Dilantin and the first US antihistamine, Benadryl. But by now Warner-Lambert was too widely diversified, and it spent much of the 1980s selling off non-core assets and restructuring its businesses. This led to a massive $550m write-off of goodwill in 1985.

The company renewed its drive forward in the 1990s, bolstering Schick with UK-based shaving products business Wilkinson Sword in 1993. Four years later, the drugs division launched cholesterol reducer Lipitor, the first pharmaceutical product to reach $1 billion in worldwide sales in its first year on the market. Much of the drug's success came as a result of an alliance with Pfizer, whose aggressive salesforce was responsible for selling the brand to wholesalers and physicians around the globe. In 1998, Lipitor sales alone more than doubled to $2.1bn, making it the group's biggest brand by far. The following year, Warner-Lambert spent $2.1bn to acquire Agouron Pharmaceuticals, the makers of the leading HIV/AIDS treatment Viracept.

The 1999 announcement of a merger with American Home Products came as something of a surprise, even though Warner-Lambert had long been involved in the series of merger conversations that had occupied all the world's big drug companies over the two previous years. Despite the massive success of Lipitor, Warner had been unable to develop a follow-up blockbuster, and its second most important product, Rezulin, was under considerable pressure as a result of evidence which suggested it might cause liver damage. A merger of equals with AHP seemed to promise greater future security, while also giving Warner-Lambert's management team control of a combined group. Keen not to lose its hold on Lipitor, Pfizer launched an unprecedented hostile bid, arguing to Warner's shareholders that it was the better partner, and attempting to win over the target company's research scientists with the offer of a substantially increased development budget.

In January 2000, Warner CEO Lodewijk de Vink was forced to concede that the Pfizer deal would be better for shareholders than AHP, but then tried to put together an even more handsome deal by engineering a three-way merger between Warner, AHP and Procter & Gamble. But the consumer giant withdrew from talks after three weeks, blaming feverish press speculation for spoiling the talks. Finally Warner was forced to admit defeat when Pfizer increased its offer to $90bn in stock. AHP received a payout of $1.8bn as compensation for termination of its own bid.

[see Pfizer profile for more]

Last full revision 29th March 2018

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