Drugs: Merger mania won't go away

The year ahead: What 1999 is going to mean for six crucial stock market sectors
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The Independent Online
IT WILL be difficult for pharmaceutical companies to recreate the hype in 1999 that surrounded the industry last year.

After a year in which mergers, merger attempts and merger rumours threw a halo of glitz over a sector often seen as dull, the signs are that the next 12 months will be quieter.

Consolidation is still one of the industry's most pressing needs as companies struggle to cope with their ballooning research and development budgets, but many analysts believe that the next merger wave will be delayed until the new millennium.

For a start, there are few deals that could realistically be done. The City's favourite blockbuster, the tie-up between the UK giants Glaxo Wellcome and SmithKline Beecham, for example, still makes commercial and clinical sense, given the superb fit of the two companies' drug portfolios.

But the clash of personalities between Glaxo's Sir Richard Sykes and the SmithKline Beecham boss Jan Leschly, which sank the deal the first time around, is likely to prove too big a stumbling block.

There could be more merger activity among the medium-sized players, which need to achieve critical mass to survive. Roche, the Swiss Group, and Schering of Germany are the prime candidates. Either of these could spoil the merger between the British drug company Zeneca and Astra of Sweden, launched at the end of 1998.

On the new drugs' front, 1999 should bring positive news for SmithKline Beecham, with the launch of its diabetes drug Avandia expected in the second half of the year. The drug has the potential to be a big-seller and could reach pounds 4bn in sales over the next five years.