Garnier leaves the way open for £50bn Bristol-Myers takeover

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GlaxoSmithKline cheered the market with a strong set of first-quarter results yesterday, as speculation swirled it is considering a £50bn bid for Bristol-Myers Squibb of the US.

Jean-Pierre Garnier, chief executive of GSK, left himself room for manoeuvre yesterday, by refusing to rule out a bid or nil-premium merger but reiterating his strategy of buying in new drugs and developing products from its own pipeline.

He said: "We are looking at the best early-stage clinical pipeline in the industry at this point. The trick is to mature this pipeline into real product launches by 2005 and that is clearly our first priority. We can never exclude anything else but this is really where the priority is at the moment at GlaxoSmithKline."

Bristol-Myers shares have plunged this year after an experimental cancer drug, developed by its partner ImClone, failed to gain approval from US regulators. Its woes were compounded by a profit warning earlier this month.

Although GSK was pouring cold water on the speculation yesterday, analysts believe it is still likely to swallow Bristol-Myers at some point in the next 18 months. GSK does not have a strong position in cancer and cardiovascular drugs, Bristol-Myers' specialities, reducing the danger of a bar on competition grounds.

One UK-based analyst said: "They would be fools not to consider it. Mr Garnier worked at Bristol-Myers for years and has good links there. A combined giant, driven by merger savings, would be able to buy up anything it liked, in terms of biotech companies or new drugs. I think it is about 70 per cent likely to happen."

GSK is still reaping the benefits of its founding merger of Glaxo Wellcome and SmithKline Beecham in 2000. It said yesterday it is on course to realise annual savings of £1.8bn by 2003, and these helped margins and contributed to the group's 17 per cent earnings per share growth in the first quarter.

The group had sales of £5.1bn in the first three months of 2002, up from £4.8m last year. The growth was again driven by Advair, its new asthma drug, marketed in the UK as Seretide, and the combined sales growth of GSK's portfolio of asthma drugs was 34 per cent.

Mr Garnier reaffirmed GSK's promise of "mid-teens" earnings growth this year and "low-teens" growth in 2003. The latter is subject to the company keeping patent protection for two of its biggest selling drugs, the antibiotic Augmentin and the anti-depressant Paxil – but analysts are far from certain GSK will triumph in its courtroom battles with the makers of copycat products.

Mr Garnier said: "If generics were to enter the market in the US, that would put in question our current guidance."

The company has launched a new version of Paxil and yesterday said it expected its new version of Augmentin will be on the market by the end of this year after earlier setbacks.

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