Bottom Line: Two questions for Glaxo to answer

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The Independent Online
WITH Glaxo the questions are always the same. When will it cut its dependence on Zantac? When will it find a successor to the legendary Sir Paul Girolami? What will it do with its cash pile? And how will it deal with US healthcare reform?

Since this time last year we have made some progress on at least two issues. An impressive performance by new products, especially Imigran, has helped to push Zantac's share of sales down one percentage point to 43 per cent.

And there may be more to come. Glaxo says Imigran is reaching only 6-7 per cent of sufferers. If it could increase that to half the drug would become almost as successful as Zantac.

Sir Richard Sykes has also made a better stab at being heir apparent than might have been expected. His grasp of fundamentals is serving Glaxo better than his high- profile predecessor's marketing expertise.

Sadly, there seems no answer to the problem of the cash mountain, which grows ever more acute as interest rates tumble and the company continues to generate surplus cash. Any sensible investor would have been punting equities over the past 18 months, but Glaxo stuck to its conservative line lest it should need the money quickly.

Perhaps Glaxo has designs on using some of it to solve the last and thorniest of its problems, the US healthcare market. Sir Richard clearly has something up his sleeve to deal with the threat posed by links between drug companies such as Merck and drug buyers like Medco. Spending some of his pounds 2bn might be part of the best solution.

Given that Glaxo is yielding nearly 5 per cent and has underperformed the FT-SE 100 by 16.5 per cent in the past year, it is hard to see how investors can go very wrong. Buy.

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