(FORTUNE Magazine) – GLAXO HOLDINGS is the house that Zantac built. Taken daily by millions of ulcer sufferers, Zantac is the best-selling prescription drug in the world. David Jack, 65, the man who oversaw the development of ranitidine, the medicine's active compound, has watched the blockbuster drug's miraculous effect on the once-stodgy, 116-year-old British pharmaceutical company. Attending the ground breaking ceremony for Glaxo's $350 million, 280-lab facility in Research Triangle Park, North Carolina, last year, he turned to his American hosts and, in a tone mingling pride with caution, reminded them, ''We discovered ranitidine in a 12-by-12-foot room.'' From such cramped space has sprung one of the drug industry's greatest successes. Zantac accounts for half of Glaxo's $4.4 billion in revenues. The American subsidiary, Glaxo Inc., which did not exist until 1980, now brings in over 40% of the company's worldwide sales and has been the fastest-growing major pharmaceutical firm in the U.S. for the past seven years. But now Zantac sales are starting to plateau. In 1995 its original U.S. patent will expire, and cheaper generic versions of ranitidine will pop onto the market. Though Glaxo has packed its new-product pipeline with promising compounds (see table), the company will have to buck long industry odds to score another hit like Zantac. Glaxo's ascent comes at a time of dramatic realignment in the pharmaceuticals industry. As they enter the 1990s prescription drug manufacturers are being buffeted by increasing R&D expenses, government efforts to curb rising health care costs through price controls for prescription drugs, and shifting regulatory standards, especially in Europe as the Continent moves toward a single market by the end of 1992. The turmoil has sparked a wave of buyouts and mergers. This year Beecham and SmithKline Beckman, Bristol-Myers and Squibb, Merrell Dow and Marion Laboratories announced that they would join forces. The multibillion-dollar corporate marriages, these companies hope, will provide them with the financial muscle and marketing clout to discover, develop, and sell blockbuster drugs worldwide. Leading Glaxo into the post-Zantac age is an American, Ernest Mario, 51, who was named chief executive in May. Among his challenges: competing with the new global drug alliances while vindicating Glaxo's strategy to go it alone, transforming Glaxo into a multiproduct company focused exclusively on prescription drugs to treat human diseases, and welding the thousands of scientists and salespeople who signed on during the wonder years into a disciplined organization that will produce the breakthrough pharmaceuticals of the 21st century. As recently as the mid-Seventies, Glaxo encompassed a seemingly inchoate mass of mostly tired businesses -- from manufacturing furniture to selling infant formula. Long respected for its scientists' talent for finding new ( drugs, the company was politely derided as ''Glaxo University'' because so few promising discoveries made an impression on the marketplace. The ever-so- gentlemanly sales force tended to promote Glaxo's drugs on the strength of their elegant molecular properties, not on what they could do for patients. Though the company had flogged its products for decades in the remote outposts of the dwindling British Empire -- making it perhaps the most international pharmaceutical company long before globalization was a rage -- it was a weak presence in some of the world's biggest markets. Through the early 1980s, for instance, Glaxo sold more drugs in Nigeria than in the U.S. BUT WHEN the dons of Glaxo University discovered ranitidine, things changed. The master of change: Paul Girolami, Glaxo's chief executive from 1980 to 1986 and chairman since 1985. The Italian-born Girolami spearheaded the acquisition of Meyer Laboratories, a small Florida drug company, to gain a foothold in the U.S. But as Glaxo's scientists narrowed in on Zantac's therapeutic properties -- it cures ulcers without such awful adverse side effects as swollen breasts and impotence in men and mental confusion -- he orchestrated a full-scale attack on the American market. His goal: to overtake SmithKline's best-selling Tagamet on its home ground. By forging a joint marketing agreement with Hoffmann-La Roche, the big Swiss pharmaceutical house with a large U.S. sales force, Girolami brought the British drug to Yankee soil. Beginning in 1983, the company blitzed hospitals, clinics, and, most important, the family physicians who were Tagamet's biggest fans, with a whirlwind of seminars and advertising. The sales force touted Zantac's advantages as a drug that could be taken half as frequently as Tagamet without the side effects. Within three years, sales of Zantac had surpassed Tagamet's. Today, Zantac commands 53% of the market for prescription ulcer remedies in the U.S. vs. 29% for Tagamet. Meanwhile, Girolami sold off the unrelated businesses -- six companies in all. He also redrew Glaxo's organizational charts to decentralize the company's imperial decision-making hierarchy and give more authority to local managers better able to tailor product development and sales efforts to seize market opportunities. As profits from Zantac rolled in, Glaxo built a plant to produce the drug in the U.S., established state-of-the-art research labs in Geneva, Switzerland, and Research Triangle Park, and poured funds into research. By increasing spending an average 45% each year, the company invested over $1.7 billion in R&D between 1984 and 1989. Now, when most pharmaceutical companies are beginning to wonder where their next patented prescriptions will come from, Glaxo has ten promising new compounds in full development. Girolami, 63, who was knighted in 1987 for his success as one of Britain's leading industrialists, is turning his job over to a new Glaxo generation -- a global group. He transformed Glaxo's 12-person board, naming an Italian, a Swiss, and two Americans, Mario and James Ferguson, the former CEO of General Foods. He tapped a Brit, Richard Sykes, 47, a veteran of Squibb with ten years' experience in the U.S., to replace the retired David Jack as worldwide research chief. The capstone to Girolami's cultural revolution: the selection of Mario, who joined Glaxo's U.S. subsidiary as chief operating officer three years ago, as his successor. THE AMERICAN chief executive marks Glaxo's final break from its starchy British past. The son of a janitor, Mario may be the only head of a major drug company to have actually worked in a drugstore. As a teenager in Clifton, New Jersey, he stocked shelves and waited on customers to earn his tuition at Rutgers University. After receiving a pharmacy degree in 1961, he married his college sweetheart, Mildred. With two young sons to support, he worked his way through a doctoral program in physical sciences at the University of Rhode Island. ''We used to eat hamburger with Rice Krispies added to bulk up the meat,'' he says of his impoverished student days. ''Rice Krispies work magnificently if you're ever low on cash.'' If the Mario family diet was loaded with filler, Ernie Mario's wide-ranging career in the pharmaceuticals industry gave him a resume that's all muscle. Beginning as a research chemist for a small drug company in upstate New York, he moved to SmithKline as a quality-control manager in Philadelphia, quickly rising to become head of U.S. production facilities. In 1976, he moved on to Squibb as a vice president for operations and was soon assigned to run its medical products division. When Squibb later sold off parts of the division in a restructuring, Glaxo grabbed Mario, who, in addition to his background in research and operations, possesses the missionary zeal of a supersalesman. He quadrupled Glaxo's sales force from 500 to 2,000 while increasing revenues of the U.S. subsidiary from $620 million to nearly $1.7 billion. For all the job hopping, Mario hewed to a simple management formula, which he insists is as valid in R&D as in manufacturing or marketing. He reduces problems to a few variables, defines what he calls ''the key event'' that needs to be addressed, and sets a tight deadline to reach it. The key event that preoccupies Mario now is managing the company's explosive growth. His deadline: the expiration, six years away, of Zantac's patent -- the blink of an eye given how long it takes the pharmaceuticals industry to develop products and help them over the regulatory hurdles. That is not to say that Mario is so wrapped up in discovering the next blockbuster that he is ignoring Zantac. On the contrary. He aims to extend its uses until new drugs are ready for the market and continues to pour money into clinical testing of line extensions and new dosages for Zantac. Says he: ''There's a two- or three-year period in which the company cannot lose sight of the absolute importance of protecting and expanding market share with Zantac. Unless we keep our wits about us, we face the risk of someone taking away our lunch the way we did to Tagamet.'' STILL, Mario is preparing for the day when Zantac profits begin to dry up. Though no compound currently in development is likely to match Zantac's spectacular success, he wants to ensure that each makes the biggest possible splash by getting into the market before competitors. Once the researchers discover a new compound, Glaxo creates a steering committee made up of marketing specialists and scientists to hasten its development. The marketers identify the drug's widest possible applications and a strategy for selling it. The scientists' job is to engineer the drug to hit the marketers' target and ready it for the regulatory maze. Two of Glaxo's most promising compounds: Sumatriptan, the first real relief for long-suffering victims of migraine headaches that has no serious side effects, and Salmeterol, a 12-hour asthma relief medication. A third drug, Ondansetron, will soon be filed for FDA approval for use in preventing the side effects of radiation and chemotherapy for cancer victims. Ondansetron may ultimately be Glaxo's best bet. The company is studying its possible use for treatment of anxiety and schizophrenia, as well as to help millions of nicotine and alcohol addicts kick their habits. Glaxo's research on gastrointestinal, respiratory, and infectious diseases is well established. Now the company wants to find cures for, among other things, cancer, and diseases of the cardiovascular and central nervous systems. To feed that vaulting ambition, Glaxo has increased its population of research scientists from some 2,000 in 1986 to 5,000 today. The company's biggest challenge, of course, will be to spur all those highly paid scientists scattered around the globe to come up with promising new remedies without slipping back into ''Glaxo University'' ways. Research director Sykes thinks the company can avoid that problem by encouraging the scientists' instincts for serendipitous breakthrough discoveries -- a trait known as having ''a prepared mind.'' How do you promote such creativity? Glaxo's technique is to maximize communication among the scientists and lavish resources on as many potentially promising projects as the company's research budget allows. The researchers share a single focus: discovering prescription medications to treat human diseases. Glaxo alone among the drug industry giants is so focused. At Glaxo the job of management is to harvest the most promising fruits of the scientists' efforts. Not a bad lesson, even beyond the pharmaceuticals industry.

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