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The biggest drugs merger would create a pounds 17bn mega-group

A MERGER between SmithKline Beecham and American Home Products would create both the world's biggest drug and consumer healthcare products maker with over pounds 17bn in sales, writes Dane Hamilton.

SmithKline made pre-tax profits of pounds 1.5b in 1996 on sales of pounds 7.9bn. Its shares trade on a historic price/earnings ratio of 38.6: the industry average is 24. AHP had pounds 8.6bn sales in 1996, and pre-tax profits of pounds 1.6bn. Its shares' historic PE is nearly 30.

In prescription drugs, AHP-SmithKline would leapfrog Glaxo Wellcome to first place in the $222bn market. SmithKline is best known for anti-ulcerant Tagament, antibiotic Augmentin, and antidepressant Seroxat and produces many vaccines. AHP sells Premarin, the biggest-selling antidote for osteoporosis in post-menopausal women, the anxiety drug Effexor, the antibiotic Minocin and other major drugs.

SmithKline generates about 30 per cent of its sales in over-the-counter remedies such as Tums antacids, Aquafresh dental products and Panadol analgesics. AHP sells the analgesic Advil and oral contraceptives.

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