SmithKline chief breaks silence on plans with Glaxo

SMITHKLINE Beecham yesterday signalled that its blockbuster pounds 100bn- plus merger with Glaxo Wellcome, designed to create the biggest drugs company in the world, was on track. The two groups will unveil their merger plans early next month.

In his first comments since talks between the two drugs giants were announced last month, Jan Leschly, SmithKline's chief executive, said yesterday: "The proposed merger ... represents a compelling strategic opportunity for both companies to enlarge their industrial position and enhance shareholder value."

He insisted that the merger was a way of maximising the effectiveness of research and development spending, a key issue facing pharmaceutical companies in an increasingly competitive market.

Mr Leschly also indicated that the combined group was likely to keep its clinical services arm, despite speculation that it could have been a casualty of the merger. The division recovered strongly in 1997. SmithKline dismissed criticism of its acquisition of DPS, its troubled pharmacy benefit manager. Mr Leschly insisted it made a useful contribution to the group and would continue to do so for years to come.

Analysts said yesterday that SmithKline was likely to sell its nutritional division, which makes Ribena and Lucozade, as a result of the merger. However, SmithKline refused to be drawn on further details.

Mr Leschly's comments came as SmithKline unveiled a 7 per cent rise in 1997 pre-tax profits to pounds 1.65bn at what is likely to be its last annual results presentation as an independent group. Ignoring the strength of the pound, which wiped pounds 157m off earnings, profits rose 17 per cent.

This strong trading performance was driven by a jump in profits from its pharmaceuticals division. Sales of Seroxat, its anti-depressant which is an alternative to Prozac and trades as Seroxil in the US, rose 36 per cent. Augmentin, an antibiotic, and its vaccines portfolio also showed good sales growth.

Meanwhile, a 17 per cent rise in profits at its consumer healthcare division was driven by a sharp rise in sales of Aquafresh toothbrushes and toothpastes. Nicorette patches and chewing gum, designed to help smokers kick the habit, have also shown rapid expansion with annual sales reaching pounds 273m. A string of new drugs contributed to the profits rise and SmithKline increased its research and development expenditure by 17 per cent to pounds 841m.

SmithKline's shares rose 2p to 837p. Glaxo's shares rose 22p to 1961p.