Market Pressures Make IT a Priority in Drug Merger

Information technology may not be the first thing on the minds of executives at Glaxo Wellcome PLC and SmithKline Beecham PLC as they move forward with a $76 billion merger deal that was announced last week.

But analysts said competitive pressures should make it a priority for the two U.K.-based pharmaceutical heavyweights to combine their systems - which are based on different enterprise resource planning (ERP) applications - into a unified setup.

The pharmaceutical business "is an incredibly competitive market, and everybody is facing the same huge urgency to improve speed to market and globalize operations," said Steve Shaha, an analyst at Gartner Group Inc. in Stamford, Conn. "You can't do that with fragmented systems."

Shaha said the combined company, which will be known as Glaxo SmithKline if the deal goes through, needs to decide on a new IT strategy and be well on its way to executing it within two to three years.

But the presence of multiple ERP systems complicates matters. "Technically, this will not be a slam dunk," Shaha said. But, he added, neither Glaxo Wellcome nor SmithKline Beecham "is advanced enough to be able to rely on its current systems to manage the combined company."

Glaxo Wellcome uses SAP AG's R/3 software throughout most of its operations.

On the other hand, SmithKline Beecham has installed financial and order processing applications developed by Denver-based J. D. Edwards & Co. and manufacturing software from System Software Associates Inc. in Chicago.

The high cost of proving that different manufacturing systems comply with government food and drug safety regulations is another big reason for the two companies to develop a common IT plan, said Roddy Martin, an analyst at AMR Research Inc. in Boston.

Compliance costs can chew up as much as 40% of a pharmaceutical company's IT budget if its systems are fragmented and need to be validated separately across key functions, according to research conducted by AMR. "That's a scary number," Martin said.

Spokesmen at Glaxo Wellcome and SmithKline Beecham said it's too early for the companies to talk publicly about nuts-and-bolts issues, such as their IT plans.

Until last week, the merger was being discussed only at the highest executive levels, they said.

But Glaxo SmithKline would hope to better exploit at least one form of technology after the merger's scheduled completion next summer: the Internet.

Officials from the two companies said they plan to be more aggressive about marketing via the Web.

That could be one way to stand out in what remains to be a crowded market, despite a recent rash of proposed mergers and acquisitions.

"It's such a disjointed market," said Andrew Becker, executive vice president of The Mendel Group Inc., a management consulting firm in Redwood City, Calif.

"I don't know of any other large business that's this fragmented."

Other pharmaceutical deals in the works include a proposed merger of Monsanto Corp., a St. Louis-based SAP user, and Pharmacia & Upjohn Inc. in Peapack, N.J.

Warner-Lambert Co. in Morris Plains, N.J., is another SAP user that's involved in an acquisition saga. Last fall, it agreed to merge with American Home Products Corp. in Madison, N.J. But now it's discussing a deal with New York-based Pfizer Inc.

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