SmithKline claims it can go it alone successfully. But trying and failed to join forces with a competitor twice in the space of a month has severely dented its credibility. For Glaxo the deal was always an opportunistic one and yesterday it was at pains to stress that it did not need to pair up with another pharmaceutical partner.
Nevertheless for Sir Richard Sykes, Glaxo's chairman, it may prove a missed opportunity. He has set Glaxo the target of developing three significant medicines a year by the millennium against an industry average of one per year. That would have been a much easier goal with the economies of scale in research and development a SmithKline merger would have brought.
After an indifferent 1997, when it felt the full effects of the ending of patent protection on the blockbuster anti-ulcer drug Zantac, Glaxo's priority now will be to deliver on its promise to maintain earnings this year and then grow them significantly in 1999 on the back of double digit sales growth.
It has two new treatments in the pipeline for HIV, where its existing drugs, Epivir, Retrovirt and Combivir notched up a 16 per cent sales increase last year to pounds 1.8bn. Approval is also being sought in China to use Epivir as a treatment for Hepatitis B while Glaxo will file for regulatory approval later this year for a new flu treatment, Zanamivir. Other drugs in the pipeline include Seratide, a treatment for respiratory diseases, a sector of the market where Glaxo's existing drugs Flixotide and Serevent brought in sales of pounds 1.8bn last year.
Meanwhile SmithKline's failure to forge a deal has raised concerns about the future of the group and Jan Leschly, its chief executive. Potential partners could have been frightened off by the group's antics over the past month. "Who would want to work with Jan Leschly and Jean Pierre Garnier now. They want nothing less that to run any merged company," said one analyst. A hostile bid remains unlikely, with drugs rivals unwilling to give up costs savings by paying a premium for the group.
If SmithKline remains independent it will have to prove it can produce major new drugs over the next few years to replace Paxil, the group's answer to Prozac and Augmentin, its best selling anti-biotic. Only then can it restore investor confidence.
Underlying profits rose 17 per cent to pounds 1.65bn in 1997, but several of its most promising treatments failed to get through clinical trials and the group could struggle to produce this sort of growth rate in the future.