Executives from GlaxoSmithKline and US rival Bristol-Myers Squibb have met to discuss a possible merger, which would create the world's largest pharmaceutical firm, a report has said.

Senior staff from both firms have held meetings at Bristol-Myers' New Jersey offices in the US during the past fortnight over a tie-up.

A successful deal would create a firm worth $190bn (�129.7bn; 202.8bn euros), an analyst told the New York Times.

But the negotiations have so far been exploratory, executives told the newspaper.

While both firms have so far refused to comment, the report comes only two weeks after John Coombe, chief financial officer at GlaxoSmithKline (GSK), said that Bristol-Myers was "on our radar screen".

Share slide

UK-based GSK has become increasingly surrounded by rumours that it is seeking a merger to boost its flagging shares, which fell a further 37p to 1,400p in morning trade on Friday.

GSK stock, which a year ago stood above 1,900p, has not closed below 1,416p since December 1997.

On Thursday, the firm said it was lining up a bid for Spanish biotech firm Zeltia.

Zeltia later denied receiving an offer rumoured at 20 euros per share.

A merger could bring the firm a new pipeline of drugs to offset an earnings loss prompted by the lapsing of patent protection on some of its existing pharmaceuticals.

Antibiotic Augmentin could lose US patent protection in July, with protection for anti-depressant Paxil potentially lapsing in 2004.

'Sizeable bite'

The attraction of Bristol-Myers lies primarily in its relative cheapness - the firm's share price has nearly halved since October - and its strengths in cardiovascular and oncology drugs, areas in which GSK is weak, investment bank ABN Amro said.

But the firm questioned whether GSK, formed only two years ago in a mega-merger between GlaxoWellcome and SmithKline Beecham, was in a position to seal another large-scale deal.

"With a market capitalisation of $58bn, Bristol-Myers remains a sizeable bite even for GSK," ABN researchers said.

But Alex Isaac, at fund manager Tilney Investment Management, pointed to problems that have helped undermine Bristol-Myers' share price.

"Bristol-Myers have a few good products in their pipeline, but they have got management problems and I wouldn't like GlaxoSmithKline to have to overcome the credibility hurdles in dealing with that," Mr Isaac said.

Other analysts questioned whether GSK shareholders would swallow the merger so soon after the GlaxoWellcome and SmithKline Beecham deal.