SmithKline President Resigns Amid Discord Over Future Policy

SmithKline Beckman Corp. surprised Wall Street Wednesday by announcing that President George W. Ebright has resigned.

Not so surprising was a separate announcement that profits for the big Philadelphia drug manufacturer dropped 60% to $229 million in 1988. Sales rose 10% to $4.7 billion.

Fewer people are using the company’s major product, the ulcer medicine Tagamet, and SmithKline management has no new drugs ready to take up the slack in sales. Instead, SmithKline--the nation’s eighth-largest drug company--is trying to decide whether to sell or restructure some of its businesses.

These include two Orange County subsidiaries: Beckman Instruments in Fullerton, a manufacturer of instruments for medical laboratories, and Allergan in Irvine, a manufacturer of eye-care and skin-care products.

SmithKline recently sold 17% of Beckman’s stock to the public as part of the company-wide restructuring.

Ebright may have resigned because he disagreed with the pace of the changes, some stock analysts said. Another possible source of friction: Chairman Henry Wendt, who will assume Ebright’s duties, said he would give more autonomy to subsidiaries, which meant less responsibility for the president.

In a statement, Wendt said that Ebright, 50, resigned over “differences on matters of corporate policy.”

Ebright, president since April, 1987, said in an interview only that his resignation was “instigated solely by me, over some policy matters that deeply affect this company.”

Neither man would elaborate.

Two other top SmithKline executives resigned recently, and the company’s stock price is well below analysts’ estimates of its break-up value, touching off rumors that another drug company might try a hostile takeover. Those rumors weren’t allayed by Wednesday’s news, stock analysts said.

“This brings everything else out in the open,” said Jonathan S. Gelles, an analyst at brokers Wertheim Schroeder in New York. “I don’t think you can rule out a takeover.”

Rumored in the past to be interested: British drug manufacturer Beecham Group PLC and Swiss drug company Ciba-Geigy AG, both of which have said they aren’t interested.

While the parent company is struggling, some of SmithKline’s businesses are doing well enough to be coveted by other companies. Beckman Instruments, for instance, said Wednesday that profits rose 9% to $42.5 million last year. Sales rose 11% to $770 million.

SmithKline hasn’t ruled out selling more Beckman stock to the public or selling part of Allergan. Both companies said Wednesday that SmithKline had yet to make a decision on whether to spin them off.

The parent company also owns SmithKline Bio-Science, which has a laboratory in Van Nuys. Together the three subsidiaries employ nearly 8,000 in Southern California.

But even a stock sale may be too little, too late for the company, according to stock analysts, who said that management hasn’t prepared very well for the decline in Tagamet sales.

Investors Wednesday seemed to agree. They greeted news of Ebright’s resignation by bidding up SmithKline stock $1.375 a share, to $52.

Analysts said that Wendt, 55, should share the blame for the company’s declining fortunes. Wendt became chairman at the same time that Ebright assumed the presidency. Both are long-term employees.

“To say Ebright did not do a very good job is evident from the company’s position,” said Viren Mehta, an analyst at S.G. Warburg & Co. Inc. in New York. “But to single out one person is to suggest nobody else is to blame, which is simply not true.”

Despite spending hundreds of millions of dollars on research, the company has yet to come up with a new drug to replace Tagamet, once the best-selling prescription drug in the world.

“They’ve spent that kind of money and there’s very little in the pipeline,” said Robert Uhl, an analyst for Salomon Bros. “They haven’t had anything for five years.”

In addition to these products, SmithKline also makes Dyazide, a blood pressure drug; Ecotrin, a coated aspirin, and Contac, an allergy medication.

But it was Tagamet that showered profits on SmithKline in the heady 1970s. SmithKline had the $1.8-billion U.S. market for prescription ulcer medicines pretty much to itself until 1983, when British drug manufacturer Glaxo Holdings PLC introduced Zantac.

At the time, patients could take Zantac less frequently and it was thought to have fewer side effects. And although it was more expensive than Tagamet, it stormed into the lead within a few years. Zantac now accounts for 46% of the U.S. market, compared with 29% for Tagamet.

Worldwide, where sales of ulcer medicines totaled $5 billion last year, Zantac had an estimated 44% market share, compared with 21% for Tagamet.

Although Tagamet still accounted for more than $1 billion in sales last year, the company said sales of Tagamet were down “sharply” in the United States. That’s a problem because Tagamet accounts for a significant portion of SmithKline’s profits.

Mehta, the analyst, estimates that Tagamet sales fell 10% worldwide last year. He predicted that Zantac will become the first drug in history to have $2 billion in sales this year.

Like other analysts, Mehta said he wouldn’t be averse to seeing SmithKline radically restructure, either prompted from within or from a new owner.

“At the moment, only Wendt is left from the old guard,” Mehta said. “So far he appears to have the confidence of the board. But one has to ask whether the situation is getting desperate and how long the board can wait?”

Times staff writer Leslie Berkman contributed to this report.

SMITHKLINE’S OPERATIONS IN SOUTHERN CALIFORNIA Allergan: With headquarters in Irvine, the company manufactures eye-care and skin-care products and employs 2,700 people. Sales rose 37% last year, to $756 million.

Beckman Instruments: Beckman manufactures instruments for medical laboratories and employs 3,500 people. Its headquarters are in Fullerton. Sales rose 11% last year, to $770 million.

SmithKline Bio-Science Laboratories: The nation’s largest chain of clinical testing laboratories, Bio-Science has headquarters in suburban Philadelphia but operates a big laboratory in Van Nuys and employs 1,500 people. Sales rose 57% last year, to $675 million.