As is often the case in healthcare marriages that founder, conflicts over management control in the merged company proved to be the stumbling block for British drug giants SmithKline Beecham and Glaxo Wellcome.
Now the companies, which called off their planned $65 billion merger Feb. 20, are expected to regroup and eventually retest the merger market with new partners.
As the costs to bring new drugs to market mount, most drug companies will at least consider beefing up by merging. "I think we're in a long-term consolidation trend, and over the next five years we'll see four or five (major) mergers," said Alex Zisson, drug company analyst at Hambrecht & Quist in New York. With the prominent exceptions of Merck and Pfizer, which have vowed to go it alone, every other drugmaker is potential acquirer, prey or both, Zisson said.
Because the SmithKline-Glaxo deal made so much sense, its breakup is especially jarring.
The fruits of the deal would have been a combined annual research and development budget of roughly $3 billion, complementary product lines, and the chance to save 30% in overhead costs.
Defying its reputation for British gentility, SmithKline publicly pointed the finger at Glaxo for playing the spoiler. In an unusually direct and detailed statement, SmithKline said Glaxo failed to honor earlier commitments on key management roles in the combined companies. In contrast, Glaxo declined to comment except to confirm that the merger discussions have been terminated.
The deal, which would have created the world's largest drug company, came undone just three weeks after Glaxo and SmithKline disclosed they were in detailed discussions to merge. In a sign that the original talks were well along, the companies had identified the chief executive, chairman and the roles of several other key executives.
But according to SmithKline, Glaxo indicated it was not prepared to proceed as first agreed.
Further talks, SmithKline said, failed to solve the problem and revealed other serious differences in management philosophy and corporate culture.