View from City Road: Glaxo ploughs traditional furrow

GLAXO is returning to its roots. As Sir Paul Girolami, who yesterday made it abundantly clear that he is back holding the reins of one of the world's biggest drug companies with a determination undiminished by his 67 years, put it: 'We have no intention at this point of going into the over-the- counter market.'

The strategy espoused by the fallen chief executive, Dr Ernest Mario - an aggressive acquisition-led entry into the OTC market - has been firmly discarded.

Gone is the danger of a monster rights issue. The growing cash pile, no longer needed for a blockbuster acquisition, will probably be returned to shareholders. Glaxo will plough its traditional path, concentrating on developing and exploiting a small number of high-quality, high-price, prescription drugs. OTC, says Sir Paul, might in due course be a branch of the Glaxo tree, but it certainly will not form another trunk.

All of which may help to stop the share price fall. It has sunk by more than a fifth over the past six months and yesterday it dropped another 19p to 668p as the market reacted nervously to Dr Mario's surprise resignation.

Some shareholders will doubtless be glad that the boardroom strife and uncertainty over strategy that has dogged Glaxo for the past year or more is now over. Relief that there will be no giant rights issue or acquisition and the possibility that Sir Paul will deal with the cash pile by way of a special dividend will also help - though the numbers have yet to emerge. Admittedly, there are President Clinton's dreaded healthcare plans to come but his bark will probably prove worse than his bite.

Yet Glaxo remains a one-product company, heavily reliant on sales of its phenomenally successful anti-ulcer drug Zantac. It is as unclear today as it was yesterday what Glaxo will do once the patent on Zantac expires - possibly as soon as 1995. Will it be able to replace those lost profits? If OTC is not the solution, will another Zantac emerge from the Glaxo stable?

Glaxo now is also even more of a one- man company. Sir Paul has lost two able chief executives in less than four years and has no clear successor. The long-term worries are as serious as ever.