The Pharmaceutical Journal Vol 264 No 7085 p325
February 26, 2000 Business

Profits up at Glaxo and Smithkline, but City not impressed

Both Glaxo Wellcome Plc and Smithkline Beecham Plc reported increases in pre-tax profits for 1999 on February 16, ahead of their planned merger, but shares in both companies have fallen by about one-fifth since the deal was announced.

Glaxo Wellcome announced underlying pre-tax profits of £2.77bn, an increase of 5 per cent on 1998. Costs associated with restructuring the company's manufacturing operations reduced headline profits to £2.57bn. Group turnover increased by 6 per cent to £8.49bn. Respiratory products are now Glaxo Wellcome's biggest therapeutic area with sales of Flixotide (fluticasone), at £666m, exceeding $1bn for the first time, an increase of 33 per cent over the year which was helped by heavy direct-to-consumer advertising in the United States. Sales of Serevent (salmeterol) rose by 14 per cent to £569m. In the antiviral products area, the company has seen extensive uptake of Combivir (zidovudine and lamivudine), with sales up 77 per cent to £454m, but equivalent falls in sales of the separate products, Retrovir and Epivir. Sales of Imigran (sumatriptan) and Zantac (ranitidine) fell, but both remained just above the $1bn mark at £653m and £640m, respectively.

Flixotide: now a $1bn product for Glaxo Wellcome

Smithkline Beecham's results were more positive, with pre-tax profits rising by 13 per cent to £1.94bn and turnover rising 10 per cent to £7.75bn, excluding the Diversified Pharmaceutical Services and clinical laboratories divisions, which were sold during 1999.
Seroxat (paroxetine) was the company's biggest product, with sales rising by 21 per cent to £1.3bn, exceeding $2bn for the first time. Sales of Augmentin (co-amoxiclav) rose by 16 per cent to £1.12bn. Smithkline Beecham's recently launched diabetes product Avandia (rosiglitazone) had sales of £91m during its first seven months on the American market. Sales of over-the-counter products rose by 6 per cent to £1.4bn.
The two companies issued pro-forma results on February 18 which showed that if the companies had merged on January 1, 1999, they would have had combined sales of £16.24bn, excluding businesses sold during the year, and made profits of £4.69bn.
However, all of these figures failed to impress stock market investors. Glaxo Wellcome's shares closed down 50p at £14.59 on February 16 and Smithkline Beecham's fell 20.5p to 674p. The shares are now around 20 per cent lower than when the merger was announced on January 17, some of which has been due to funds being switched into alternative, and high profile, internet technologies.
Asked about this during a telephone press conference on February 16, Sir Richard Sykes (chairman, Glaxo Wellcome) advised his shareholders: "Hold your nerve". The new company had the potential to be very strong, he said.