Only a few months ago, Glaxo was riding high as Britain's largest company, worth pounds 24.8bn, briefly bigger even than the mighty BT. But since Christmas the slide has been swift and steep; in a rising market Glaxo's capitalisation has been slashed by almost a fifth.
Behind this switch in sentiment lurk more than simply the worries about US health care reform which have dogged all pharmaceutical companies since President Clinton took power, or the relative loss of interest in defensive stocks as investors scented the end of the recession.
Despite Glaxo's notoriously secretive nature, it is evident that behind the scenes a big debate is taking place about how future strategy can best be achieved. This uncertainty has made the City nervous.
Some have even gone so far as to discern a tussle between the group's long-standing 67-year-old chairman, Sir Paul Girolami, and its suave arriviste 54-year-old chief executive, Ernest Mario. The debate centres on how the group should break into the market for non-prescription drugs sold 'over the counter' (OTC).
While Sir Paul, it is said, reluctantly backed the company's decision in January to switch from his successful formula of concentrating exclusively on research-intensive, high- price, prescription-only drugs, he remains opposed to entering the OTC market quickly, by buying a company which already specialises in OTC medicines. But DrMario is thought to favour such an expensive and high-risk approach if that is what is necessary to establish the group rapidly in the field.
Behind Glaxo's decision to move into OTC products are the changing fundamentals of the drug business. Governments around the world are restricting both the range and price of drugs which can be prescribed. In future doctors look increasingly likely to be sending their patients to buy their drugs over the counter from pharmacists. Then there is the fact that as the patents on prescription drugs expire, they face competition from cheap copies which doctors may choose instead.
For Glaxo this is a serious danger. The patent on Zantac, the blockbuster anti-ulcer drug that accounts for half the group's pounds 1.4bn profits, could run out as early as 1995, though it is more likely that it will run until 2002.
But switching from selling a drug to doctors to selling it to the general public can offer a solution to patent expiry. Often this involves finding minor remedies to treat with the OTC versions of prescription drugs. It is unthinkable that Glaxo would be allowed to sell it as a DIY remedy for ulcers, but subject to regulatory approval, Zantac could be marketed as a very effective cure for heartburn, for instance.
Switches can be very successful. In the US, nine of the 10 top-selling OTC drugs were formerly prescription drugs, and their average sales are now four times higher.
Nevertheless, the OTC market remains a leap in the dark. OTC drugs account for only a small percentage of sales at present - about dollars 30bn ( pounds 21bn) a year out of total sales of more than dollars 200bn. There is no guarantee that the market will grow as fast as the prescription market will shrink. Nor, given the far higher advertising and marketing costs of selling medicines to the public and the greater risks involved in establishing a brand, is it as profitable.
The broker Nomura Research Institute calculates the typical net trading margin for OTC products at 17- 23 per cent, against around 30 per cent for prescription drugs. Nevertheless, the drug industry is convinced a presence in the OTC market has become indispensable.
The problem is that the entry costs - especially if the fastest route, an acquisition, is chosen - are daunting. Ciba-Geigy, for instance, paid around 36 times earnings for Fisons' American OTC business, while Roche paid around 30 times earnings for Nicholas Labs.
The most frequently touted candidate for a marriage with Glaxo has been Warner Lambert, the number four ranked in terms of the US OTC market. Warner has sales of around dollars 750m a year, and a market share of about 6.8 per cent. Its products include Halls cough tablets and Rolaids antacids. But its market capitalisation is around dollars 9bn, and a take-out value is probably more than dollars 11bn. Even Glaxo, with a cash pile of pounds 1.4bn, would be stretched. It would have to raise at least an additional dollars 7bn, and possibly more if the bid were hostile.
The City, which worked through this calculation at the beginning of the year, disliked the conclusion it reached - that Glaxo would either have to ask the market for a giant pounds 4bn rights issue or face very heavy borrowings. Moreover, Warner's OTC sales only account for around a third of its business. Many analysts wonder why Glaxo, with possibly the strongest and highest- quality prescription business in the world, would want to dilute it.
While it might have made sense to buy a US company last autumn, when pounds 1 would buy nearly dollars 2, it makes a lot less sense when it is worth just dollars 1.40.
Alternative routes into the OTC market are slower but less pricey - a joint venture with a company with an existing OTC presence, or organically by growing its own business. In Japan, for instance, Glaxo has already signed an agreement with Sankyo and Taisho pharmaceuticals of Japan to co-develop Zantac for the OTC market there.
Given the closed nature of the Japanese market, co-operation with a local company was probably essential. Nevertheless, it does add credence to speculation that in place of a bid, Glaxo will take a similar joint venture route with Warner - or another OTC company - in the US.
Certainly a number of OTC companies seem to have put the negotiation of joint ventures with other drug groups on hold until Glaxo decides. But given Zantac's enormous potential, Glaxo is understandably reluctant to choose the joint-venture, shared-profit route. The hot money is therefore on it going it alone, possibly by buying a tiny core business in the US and recruiting around it a consumer sales force.
Admittedly, this would be time- consuming, and there is the risk of an early expiry of the Zantac patent to worry about. Equally, SmithKline Beecham, which has Tagamet, Zantac's great rival, is well ahead in terms of getting its American OTC version out before Glaxo.
Yet assuming the worst on the patent expiry date and Tagamet, Glaxo probably still has a year to 18 months to grow a sales team - not an impossible target. In the US it recruited 600 people in a year to sell its Imigran migraine drug. And organically, after all, is how Glaxo traditionally grew - the Girolami way.
For the moment however Glaxo's path remains unclear. Which is why Thursday's results will be scoured for clues to boardroom thinking. One may lie in the dividend it declares. Unless Glaxo makes an acquisition soon, its cash pile will grow dramatically over the next two years. By the end of 1995-96 it may reach pounds 2bn, according to Bill Blaire, an analyst with brokers Bell Lawrie White.
In a low-interest-rate climate, the pressure is on to increase the dividend. The only reason not to would be if the company had other plans for the money. If Glaxo fails to boost its dividend by significantly more than this year's probable earnings growth of 10-15 per cent, that would indicate the blockbuster acquisition is still under consideration. In which case the market may need some over-the-counter smelling salts.
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