Outlook: There is life after Zantac for Glaxo

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ABOUT FIFTEEN years ago, the City editor of this newspaper undertook an interview with Sir Paul Girolami, then chairman and chief executive of Glaxo. An anti-stomach ulcer drug called Zantac was about to be launched onto the US market. Even then it was clear that this product had vast potential and that by extension, Glaxo shares were a roaring buy.

Unhappily, the then reporter failed to follow his own advice, and when he next looked at the share price, it had doubled. Damn, missed the boat, he thought. But actually, this was only just the beginning. Zantac was to become the world's best ever selling prescribed drug, and since then the shares have risen twenty fold, substantially helped along the way by a merger with Wellcome. Anyone not invested in Glaxo Wellcome by now surely has well and truly missed the boat. Or is it still worth trying to climb aboard?

In those fifteen years, Zantac and Zovirax, the blockbuster that Wellcome brought to the party, have come and gone, with sales exceeding all forecasts along the way. In the meantime Glaxo has been working hard at putting its eggs in different baskets, so as to cushion earnings from expiry of patents on these two products.

Plainly, the strategy has worked. Despite what Glaxo's chairman, Sir Richard Sykes, calls an "unbelievable year" in which the patents expired on both its wonder drugs, Glaxo has kept sales moving ahead and profits haven't collapsed. Sales of non Zantac and Zovirax products now account for 86 per cent of the total. Sales have also been bolstered by new developments, such as aggressive TV advertising in the US. Growth from new products is so encouraging that Sir Richard can now afford to match the promise of double-digit sales and earnings growth made by his arch-rival Jan Leschly, head of SmithKline Beecham.

Since there is no new Zantac or Zovirax in the pipeline, growth will in future have to come from a wider range of drugs, particularly in the respiratory and HIV franchises. It would obviously be unrealistic to expect the Glaxo Wellcome share price to continue outperforming in the way it has, but if new products maintain their early promise, the post-Zantac era looks like being just as successful as the one that went before.