SmithKline selling 2 U.S. units, cutting 3,000 jobs to raise cash

`They're getting out of some dumb moves'

Pharmaceuticals

February 10, 1999|By BLOOMBERG NEWS

LONDON -- SmithKline Beecham PLC, maker of the anti-depressant Paxil, agreed to sell its U.S. clinical laboratory and pharmacy benefit units for $2 billion in cash and stock and will cut 3,000 jobs to boost spending on new drugs.

SmithKline, the United Kingdom's No. 2 drugmaker, will sell Diversified Pharmaceutical Services, its pharmacy-benefits provider, to Express Scripts Inc. for $700 million cash, less than a third of what it paid for the business.

Quest Diagnostics Inc. will buy SmithKline's clinical labs for $1.02 billion cash and $245 million in Quest stock.

Selling the units -- which generated 13 percent of SmithKline's 1998 sales of $12.7 billion -- will raise cash to repay debt and fund drug development, and free the company from businesses that failed to meet its goals.

"They're taking some smart pills; they're getting out of some dumb moves," said Gruntal & Co. analyst David Saks.

SmithKline paid $2.3 billion in 1994 for the pharmacy benefits unit, which serves as a middleman between health insurers and drugmakers.

SmithKline's move, and similar ones by Merck & Co. and Eli Lilly and Co., were an effort to get direct access to patients at a time when health insurers and government officials seemed likely to restrict patients' drug choices.

The businesses became less valuable to drug companies as those threats receded, and antitrust regulators said the drugmakers couldn't use the subsidiaries to favor their own products over those of rivals.

Lilly sold its pharmacy benefit unit last year and other rivals such as Pfizer Inc. have sold some businesses to focus on their most profitable one, pharmaceuticals.

Also yesterday, SmithKline reported that its fourth-quarter profit rose 5.7 percent to 370 million pounds ($607 million), or 6 pence a share, from 350 million pounds, or 5.6 pence, a year earlier.

SmithKline said it expects profit excluding one-time items to rise 13 percent in 1999 and by percentages in the "mid- to high teens" in 2000 and 2001.

Pub Date: 2/10/99

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