SmithKline, Glaxo Renew Talks on Possible Merger

British pharmaceutical heavyweights Glaxo Wellcome and SmithKline Beecham said Friday that they’ve resumed talks on a merger, which would create the world’s largest drug maker if successful.

The renewal of talks, which collapsed two years ago over differences between their top executives, highlights the pressure that even the biggest pharmaceutical firms are under to consolidate with industry rivals as a way to afford the rising costs of developing and selling new medicines.

The announcement came a day after Pfizer Inc. emerged as the likely winner in the battle for U.S. drug maker Warner-Lambert Co. Bowing to pressure from its investors, Warner-Lambert management said they will negotiate a buyout from Pfizer, backing away from a merger deal with American Home Products Corp.

Glaxo Wellcome and SmithKline Beecham confirmed that were in discussions. They refused to elaborate.

Glaxo’s strength lies in its top anti-migraine drug, Imitrex, and in treatments for asthma and viral infections such as HIV.

SmithKline’s top products include the antibiotic Augmentin, the antidepressant Paxil and a new diabetes drug, Avandia. It also has a strong vaccines business.

Analysts said the merger would involve Glaxo buying SmithKline in a stock deal. Glaxo has a market capitalization of $101 billion and SmithKline has a $71-billion market capitalization.

“I think the merger makes a great deal of sense,” said Anthea Gaukroger, an industry analyst at London-based brokerage Greig Middleton.

The companies have complementary drug portfolios and could save as much as $2.4 billion in costs on overlapping operations, she said.

Analysts predicted that a merger could occur within a week.

The announcement sent their American depositary receipts up on the New York Stock Exchange. Glaxo rose $2 to close at $60, while SmithKline rose $3.31 to $70.

Worldwide pharmaceutical sales of the combined company would total $17.8 billion, based on 1998 annual figures. That would surpass the $15.9 billion in sales of a combined Pfizer-Warner-Lambert.