British drug giants Glaxo Wellcome and SmithKline Beecham today announced their agreement to form the world's biggest pharmaceutical group with market capitalisation exceeding $180 billion. SmithKline Beecham's Jean-Pierre Garnier will be the chief executive of the emerging entity, called Glaxo SmithKline, and Glaxo's Sir Richard Sykes will hold the position of non-executive chairman. Also see .

Glaxo SmithKline will have annual sales of nearly $28 billion, and a market share of 7.5 per cent. Though the group will have headquarters in London, operations will be largely conducted from a US base, either SmithKline's headquarters in Philadelphia or a new location in New Jersey.

The merger is expected to result in annual cost savings of $1.8 billion, to be realised in three years. The group has a global workforce of 105,000, and it is likely that around 10,000 jobs may be lost after the merger, which will take about six months to complete.

The all-stock merger deal will be reportedly realised through an offer of Glaxo shares or SmithKline Beecham shares, which will result in an approximate 58.75 : 41.25 split in Glaxo's favour. This is a marginally better deal for SmithKline compared to the 1998 offer of Glaxo, when the merger talks had failed. To find out what made the merger successful this time, .

The two companies have also decided to put SmithKline's nutirional business on the block. The nutritional business is estimated around $3.3 billion and includes popular brands such as Ribena, Horlicks, and Lucozade. However, Glaxo SmithKline will retain SmithKline's consumer health division, which has popular brands such as Nicorette (an aid to stop smoking). This is supposed to complement Zyban, Glaxo's prescription drug in the same category.

The new company will hold a dominant position in at least five therapeutic categories. These are respiratory conditions (asthma), anti-virals (HIV, and hepatitis), diseases of the nervous system (depression, and migraine), antibiotics, and vaccines. It is also likely to emerge as a major player in diabetes- and bowel-related problems.

Significantly, the two companies will together create an exceptionally strong research and development base with an annual R&D spend of $4 billion. This figure will be next only to the combination of Pfizer and Warner Lambert, if they merge.

Both companies have significant exposure to emerging technologies. SmithKline Beecham, the first to predict the impact of the genomic revolution in drug discovery, is expected to contribute significantly in this area, while Glaxo, besides its genomic work, will provide other cutting edge technologies such as combinatorial chemistry, and DNA micro-chips. This will result in fast-track development of drugs from the laboratory to the marketplace.

On the marketing front, the new company will have a whopping 7,500-strong sales force in the dominant US market and will be supported by a mammoth marketing budget. Moreover, Glaxo SmithKline stands to gain by leveraging on the branding skills developed by SmithKline’s consumer health division.

Jean-Pierre Garnier expressed confidence on the merger and said that the combination of R&D excellence with marketing strength and financial power will give the group an edge in the fast-changing healthcare environment.

The deal could trigger another round of mergers, analysts predict, as mounting pressures on global drug companies are compelling them to join forces. Monsanto recently announced a merger with Pharmacia and Upjohn, while Pfizer is keen to acquire Warner Lambert.

Morgan Stanley is reportedly advising SmithKline Beecham, and Goldman Sachs is working for Glaxo.

also see : Financial results: Glaxo India
Financial results: SmithKline Beecham Pharma