Smithkline Beecham PLC

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Smithkline Beecham PLC

SB House
Great West Road
Brentford, Middlesex TW8 9BD
United Kingdom
(081) 847-0830
Fax: (081) 560-5151

Public Company
Incorporated: 1989
Employees: 62,800
Sales: £4.28 billion (US$6.90 billion)
Stock Exchanges: London New York

In 1989 the Beecham Group merged with the U.S. company SmithKline Beckman to form one of the world’s largest pharmaceutical companies. The merger was the latest response to changes in the pharmaceutical industry. Faced with growing competition, higher research costs, and the prospect of an economically unified Europe after 1992, both companies adapted as they had many times before.

One of the first British companies to undertake intensive advertising, Beecham grew from a small regional pill-peddling operation to a multinational patent medicine company at a time when very few companies branched beyond their own communities.

In 1847 Thomas Beecham began hawking his own brand of pills throughout the town of Wigan and the surrounding countryside. He soon set up shop as an herbalist and grocer in Wigan. Beecham, born the son of a farm worker in 1820, had spent his youth as a shepherd boy, and in that job he had learned a good deal about herbal remedies. Beecham was said to have had a special knack for healing sick animals and, on occasion, even humans. For several years Beecham sold his laxatives at local markets with a sales pitch that included showing off a jar of intestinal worms.

In 1859, after mixed results in Wigan, Beecham moved his operation to nearby St. Helens, where he focused on two products: a cough tablet and the famous laxative Beecham’s Pills, advertised in the local newspaper as “worth a guinea a box.” Both products were available through mail order and Beecham increased spending on advertising to take advantage of a rapidly growing demand for health products.

In 1881, when Thomas Beecham’s son Joseph took effective control of the company, Beecham’s sales were at £34,000, demonstrating average annual growth of about 18%, a rate it had sustained since 1865. The elder Beecham remained active in the operations of the company until his official retirement in 1895.

Joseph Beecham increased the company’s advertising expenditures considerably. By 1891 annual advertising expenditures had increased to £120,000, from £22,000 in 1884, and Beecham introduced more creative ads. Advertising gimmicks included free distribution of sails printed with Beecham slogans to boat owners and inexpensive general information booklets bearing Beecham’s messages.

During the 1880s Joseph Beecham spearheaded the company’s expansion overseas. First, Beecham’s Pills were exported to countries throughout the British Empire. In 1888 they were distributed in the United States and Canada, and two years later a manufacturing facility was set up in New York.

Extensive advertising had made Beecham’s Pills practically a household word on several continents by the end of the 19th century. This success was not at first duplicated after the turn of the century, however. Although Beecham remained profitable, its rate of growth slowed considerably. Joseph Beecham spent more of his time on projects unrelated to the business, including numerous philanthropic endeavors and patronage of his music-minded son, Thomas, later to become a renowned conductor. In 1913 sales remained static at £290,000, although the firm’s profitability had improved.

In 1916 Joseph Beecham died, leaving a complicated estate. Beecham had never incorporated the pill buisness and it remained entwined with his other affairs. Henry Beecham, Joseph’s younger son, ran the business with three other executors until 1921, but had no active role after that time. Three years later the pill business was acquired by financier Philip Hill. Hill incorporated the company as Beecham’s Pills in 1928 and launched a new period of growth.

For the next ten years Hill made acquisitions broadening the product line of the company. He purchased patent medicines like Yeast Vite, Iron Jelloids, Phosferine, and Phyllosan. In the later 1930s the company entered the toiletries business with the acquisition of Prichard and Constance, a shampoo manufacturer that distributed the brand name Amami. In 1938 Beecham acquired Macleans Ltd., well-known for toothpaste; County Perfumery, manufacturers of Brylcreem; and Eno Proprietaries, makers of a popular antacid. In 1938 Beecham acquired Lucozade, a popular glucose drink, from its inventor W. W. Hunter, to enter the health-drink field. The company changed its name to Beecham Group Ltd. in 1945 to reflect its diversified nature.

When Beecham acquired Maclean’s in 1938 it unknowingly changed its direction. With the purchase came company secretary and director H. G. Leslie Lazell. Lazell became corporate secretary of Beecham’s Pills, and during the war took over as managing director of the Maclean’s unit. Leslie Lazell had always been a firm believer in research, and he developed a research department at the company, which soon entered the medicines field.

Beecham Research Laboratories Ltd. employed 115 people, 34 of them graduate-level scientists. In 1947 a 27-acre facility was opened at Surrey, with Alexander Fleming, the discoverer of penicillin, presiding over the opening ceremonies. Beecham Research Laboratories started out researching both Pharmaceuticals and food products but before long concentrated solely on pharmaceutical research. In 1949 Beecham’s acquisition of the C.L. Bencard company, a manufacturer of allergy vaccines, paved the way for entry into the prescription drug field.

During the 1950s Beecham expanded its consumer-products line and pumped the profits into drug research. It purchased new health drinks, including Ribena blackcurrant juice, Shloer apple and grape drinks, and PLJ. Horlicks beverages were acquired in 1969. The toiletries division also expanded, adding Vosene shampoo among others. A real breakthrough came in 1957 when company researchers isolated the penicillin nucleus 6-aminopenicillanic acid (6-APA). This discovery opened the door to the manufacture of a multitude of new antibiotics.

In 1959 Beecham marketed Broxil (phenethicillin), followed shortly by Celbenin (methicillin). The introduction of these products represented a medical breakthrough, as many bacterial strains had built up a resistance to the original penicillins—Penicillin G and Penicillin V. In 1961 Penbritin (ampicillin) hit the market, and soon Beecham’s facilities were inadequte for the worldwide demand. A 35-acre complex at Worthing came on line in the early 1960s to produce 6-APA, the base for semisynthetic penicillins. Beecham’s lead in antibiotics brought tremendous growth in the 1960s and 1970s.

Lazell’s emphasis on marketing was also key to Beecham’s growth. By 1960 the company was the second largest advertiser in the United Kingdom. Beecham was one of the first British firms to put the CEO directly in charge of the marketing team, long a standard practice in the United States.

In the mid-1960s, Beecham products penetrated the European continent. Within 20 years, this region comprised Beecham’s largest single market. In the later 1960s Beecham Pharmaceutical marketers turned their attention to the United States, where an expanding business had been built on foundations provided by Brylcreem hair dressing. In 1967 the company opened an antibiotics factory in Piscataway, New Jersey. In 1971 Beecham bought the U.S. feminine hygiene company S. E. Massengill.

In 1972 the company planned to increase the size of its prescription drug business by merging with on one of its chief British competitors, the Glaxo Group. The British government blocked the merger, citing the possibility of reduced spending on research and development within the industry. Glaxo was particularly attractive because it had a large network overseas.

In the mid-1970s new non-antibiotic drugs such as the allergy vaccine Pollinex and the antidepressant Norval joined Beecham’s growing antibiotic line, which included three widely used products: Amoxil (amoxicillin), Floxapen (flu-cloxacillin), and Ticar (ticarcillin).

Acquisitions of American drug and consumer products companies accelerated toward the end of the decade and into the 1980s. In 1977 Beecham bought Sucrets throat lozenges for $76 million and acquired the floundering Calgon bath products line. Beecham turned the businesses around, revamping old products and packaging, and using aggressive marketing strategies. In 1979 Beecham purchased Jovan, the U.S. perfume manufacturer, for $85 million. Other fragrance lines were later acquired, including Diane Von Furstenberg in 1983 and the cosmetics and fragrances of the BAT company in 1985. Other big acquisitions in the early 1980s included the J. B. Williams company, makers of Geritol, Sominex, Aqua Velva, and Lectric Shave among others for $100 million in 1982; DAP, Inc., manufacturer of caulk and other home improvement products for $68 million in 1983; and Norcliff Thayer, a major manufacturer of OTC drugs including the well-known antacid, Turns, in the United States for $369 million in 1985. Beecham also acquired a number of European pharmaceutical companies in France, West Germany, and Italy.

In 1984, Beecham’s profits began to level off, due in part to decreased popularity of ampicillin, caused by increased antibiotic competition, and pressure from the British government to cap profits on drugs. Following Lazell’s formula, Beecham’s new chairman, Sir Ronald Halstead, hoped to pay for rising research-and-development costs through profits on consumer goods. A number of acquisitions of consumer products companies in 1984 and 1985 seemed to the company’s directors too costly and out of line with Beecham’s overall thrust. Halstead was let go in 1985. In 1986 Robert P. Bauman became chairman of Beecham. Bauman the company’s first U.S. chairman, knew the North American market well, having worked at General Foods, Avco, and Textron. Bauman sold off some of Beecham’s consumer products lines, primarily soft drinks lines, although he retained the successful Ribena, Horlicks, and Lucozade brands, and implemented cost-cutting measures worldwide. Between 1986 and mid-1989, Bauman disposed of £400 million of noncore businesses.

By the mid-1980s Beecham had made significant headway into the U.S. marketplace and continued to hold its place as the largest OTC drug producer in its home market. Beecham’s pharmaceutical research focused on three general areas: cardiovascular therapy, diseases affecting the central nervous system, and anti-infectives. Demand for health care products increased substantially as the wealthy U.S. market grew older. Relifex, a nonsteroidal anti-inflammatory used by arthritis patients, began limited marketing in 1985 and by the late 1980s showed promise for the company. An anticlotting agent, Eminase, introduced in Europe in 1987, also appeared to be a significant breakthrough for cardiac patients. Two new antibiotics, Augmentin and Timentin, earned the Queen’s Award for technological achievement in 1986. Both drugs received widespread acceptance throughout the medical community.

In July 1989, Beecham merged with an equally well established business, the U.S. SmithKline Beckman Corporation to form what was at the time the second-largest pharmaceutical company in the world, behind Merck and Company. The new SmithKline Beecham, based in London, tallied US$6.9 billion in sales annually. Beecham was widely considered the healthier half of the new company. With Eminase and Relifex about to hit the American market, Beecham looked solid enough to shore up its ailing U.S. partner for at least a short time. SmithKline had failed to come up with a blockbuster product since it introduced the ulcer remedy Tagamet in the mid-1970s despite substantial research and development expenditures. New competition from Glaxo’s Zantac had eroded some of Tagamet’s expected market share, and SmithKline was accused by stock analysts of lacking direction. A headline in The Wall Street Journal, July 7, 1989, called the merger “just what the doctor ordered” for SmithKline. SmithKline’s chairman Henry Wendt became chairman of the merged company while Robert Bauman, who became the new company CEO, faced combining two distinct corporate cultures and had little time to spare: just one week after the Beecham SmithKline merger was finalized, two U.S. giants, Squibb and Bristol-Myers, announced their own merger plans. Beecham, with its new prescription drugs and strong presence in the over-the-counter drug market looks like a good partner for SmithKline, with its strong American sales staff. The SmithKline Beecham merger permitted both companies to compete on a global level neither could manage alone. In addition, the companies’ research-and-development programs were complementary. Beecham had several new products ready for market while SmithKline was at the opposite end of the research-and-development cycle, promising results down the road. Geographically, Beecham’s strength in Europe fit well with SmithKline’s coverage in the United States and Japan. Bauman expressed his intentions to cut costs by eliminating administrative and production personnel, rather than by paring sales or research staffs. Although the company will face problems with its reorganization, its sheer size and its continued commitment to developing new products should insure it a place at the forefront of the pharmaceutical industry.