By Randall Osborne

By combining research and development capabilities of Glaxo Wellcome plc and SmithKline Beecham plc, the merged entity could clear a path toward making drugs in a faster, more efficient, and essentially old-fashioned way — employing small teams devoted to focused projects that break down and use genomics information, analysts have observed.

Glaxo and SmithKline, both of London, on Tuesday continued talks regarding their merger, valued at $65 billion to $70 billion.

The two companies' investments in genomics have brought about the need to make sense of the data they have gathered, said David Stone, an analyst with Cowen & Co., in Boston, and this will be best done by smaller units.

"Companies who have bought into any particular genomics resource have found out either that it's so wonderful they want more or that, by itself, it's not enough," Stone said.

"You still need a fair amount of serendipity, and the dogged efforts of a small group of people championing the project, working out the biology and making inferences," he went on. "These are not replaceable with a large database and computer algorithm. And you need a horse in every race, which is really only possible with a large research and development budget."

SmithKline has chalked up biotech deals potentially worth more than $600 million. The company's big step into genomics came in 1993, when SmithKline signed a $125 million pact with Human Genome Sciences Inc. (HGS), of Rockville, Md. That alliance has been supplemented by other deals focused on functional genomics, gene sequencing and gene discovery.

William Haseltine, chairman and CEO of HGS, said the company formed in Glaxo and SmithKline's merger could have a research and development budget of more than $3 billion.

"That's the goal," Haseltine said.

Glaxo is collaborating with, among others, Incyte Pharmaceuticals Inc., of Palo Alto, Calif., in a deal providing Glaxo with access to Incyte's LifeSeq database of human gene sequences; with a subsidiary of the former Sequana Therapeutics Inc., of La Jolla, Calif. (since merged with Arris Pharmaceuticals Corp., of San Francisco) to evaluate gene function using the nematode worm; with Vertex Pharmaceuticals Inc., of Cambridge, Mass., to develop HIV protease inhibitors; and with BioChem Pharma, of Laval, Quebec, for development of AIDS and hepatitis B drugs.

In 1995, Glaxo bought Affymax NV, of Amsterdam, the Netherlands. Affymax, a combinatorial chemistry company, launched the genomics company Affymetrix Inc., of Santa Clara, Calif., in 1993, in which Glaxo has a share.

Stone said pharmaceutical companies are getting genetic information "at an unprecedented pace and size. They have to go about business in a very different way."

The pharmaceutical companies' stocks leveled off in trading Tuesday, following the previous day's rise. On the London Stock Exchange, Glaxo's shares (LSE:GLXO.L) closed Tuesday at £19.26, down 55 pence. SmithKline's stock (LSE:SB.L) closed at £8.265, down 18.5 pence.

In the U.S., Glaxo (NYSE:GLX) ended Tuesday at $62.75, unchanged. SmithKline (NYSE:SBH) closed at $68.687, up $1.187.

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