ONE of Britain’s most successful long-distance runners, Liz Yelling, is a big fan of Lucozade. She gets paid to endorse the sports drink, and happily enthuses about how it gives her an “extra kick-start” and a “bounce in her step”.

The amber-coloured liquid is not only providing a boost to medal-winning marathon runners but is proving equally capable of giving a lift to Glaxo Smith Kline, the pharmaceuticals giant that makes Lucozade.

Glaxo’s consumer healthcare division — responsible for Aquafresh toothpaste, Panadol painkillers and Horlicks, the bedtime brew, as well as Lucozade — has been the subject of intense demerger speculation in the past year or two but has defied the rumour-mongers and investor catcalls by delivering an 11% rise in sales last year to £3.5 billion. That far outshone its larger pharmaceuticals arm, where sales fell 4% to £19.2 billion.

The world’s big pharma companies have well-documented problems, with concerns over patent expiration and tougher regulation causing share prices to wilt. Glaxo is far from immune, but its consumer division is a rare bright spot.

Some of the leading brands in the division performed even better than the consumer business as a whole. Sales of Lucozade, for example, grew 16%, Sensodyne toothpaste brushed up its revenues by the same amount, while Panadol achieved a rather soothing 14% sales increase.

Masterminding the growth of the consumer healthcare division is John Clarke, who has spent 32 years at the company and has been president of the business since January 2006.

Before assuming the top job, Clarke ran the consumer division’s research and development department, responsible for creating all those line extensions in toothpaste or headache pills that crowd the supermarket shelves.

Toothpaste does not just clean teeth any more, it whitens, freshens breath, reduces sensitivity — in fact, just about everything, it seems, except pour you a glass of water to rinse with.

While it is easy to be cynical about the never-ending brand variations and the science behind them, Clarke insists this is what has enabled Glaxo’s consumer business to prosper in recent years and will allow it to continue to do so. “Is there a frothy end

to this market that people play with? There is, and it’s not going to go away quickly,” said Clarke in a rare interview.

“Where we focus our attention is at the scientific end. We spend about 90% of our R&D time and funding aiming at scientific product enhancements.”

Perhaps the most acute example of this is Lucozade, where the company has spent a huge amount of time working with top-level athletes and sports bodies to produce nutritional supplements that can be taken without sports stars falling foul of doping regulations.

The evolution of the drink from sickly children’s pick-me-up to one endorsed by top football clubs is “the best example, not just in Glaxo but in the market” of what can be achieved.

Clarke also points to more humdrum examples, such as the work being done with toothpaste to tackle enamel erosion, an increasingly common problem with diets full of wine and fruit juice.

He denies that this is simply self-serving, arguing that consumers have a “high interest” in innovation.

“It’s a consumer-driven aspect of our market,” he said. “The moment you become an inferior product, you are in trouble. Loyalty does persist and your brand equity would carry you for a few years, but you innovate to have better products.”

Clarke argues that it is the heavy science focus that means the consumer business is better off under the wider Glaxo umbrella rather than being spun off, as some have advocated.

Economically, it appears to be a one-sided argument. One pharmaceuticals analyst said: “Glaxo trades on a price-earning multiple of about 11 times earnings while consumer healthcare companies seem to be closer to 20 times. There’s a lot of hidden value there.”

Despite this, both JP Garnier, who steps down as Glaxo’s group chief executive in May, and his successor, Andrew Witty, are committed to keeping it within the fold. Clarke concurs.

He said: “Glaxo periodically takes a decision on whether to sell or retain — maybe not quite as often as the financial press — but if you look at the history of that you would find the judgment on this has been robust and correct.

“If you look at the future, the retain decision looks very sensible. This market has got strong growth and the business has excellent prospects.”

Arguably the most exciting of these is Alli, a weight-loss pill sold without needing a prescription. Launched in America last June, it has so far generated £150m. It is expected to make its debut in Europe in 2009, assuming it passes through the regulatory system with no hiccups.

Some analysts think that the early success of Alli could herald the growth in America of the “behind-the-counter” medicine market — where patients can buy medicines without a prescription but only after checks are made by the pharmacist.

Such a system is becoming more common in Britain, where drugs previously available only after consultation with a GP — Viagra is one example — can now be bought without a prescription, but it is far less common in America.

Clarke, however, thinks that the potential for this market is limited, although he continues to mine Glaxo’s pharmaceuticals arm for drugs that have the potential to be “switched” into over-the-counter (OTC) medicines. This has happened with Imigran, a migraine pill, and Abreva, a cold-sore medicine sold in America.

Some of the analysts who follow the company argue that one of their key concerns is the launch of new products. “To beat the market, it needs new assets and there is a question of how you find those,” said the analyst.

Clarke demurs when asked to comment on the scope for further switching, commenting only that the business has tended to convert one new drug every two or three years.

He said divulging more would spoil any commercial advantage Glaxo might have, and he did not want to do that because “when you get them, they are big”.

This is not to underestimate the potential that Clarke continues to see in his main consumer brands. The sales growth they have been enjoying seems remarkable for businesses that have been around for so long. One of the biggest challenges he faces is being able to continue these levels of expansion.

Clarke does not see it this way. “Horlicks was first marketed in the 1880s. It has just had its fastest rate of growth in living memory,” he said. “It’s running at 20% growth per year [in emerging markets]. There is absolutely no correlation between age and growth rate.”

It is notable that growth at the consumer healthcare division has been driven almost entirely organically, although it is not through lack of effort on Glaxo’s part that there have not been any transformational acquisitions.

In the past few years, three of its biggest rivals have been put on the market — Boots, the retail group, and Roche and Pfizer, the drugs companies, have all auctioned off their OTC divisions. Glaxo bid for each, but missed out on all of them.

If Clarke sees this as failure, he shows no sign of it. There have been significant bolt-on deals, such as a $566m (£284m) deal in 2006 to buy CNS, maker of Breathe Right nasal strips. He said that the trio of blockbusters just got too pricey for Glaxo.

“We were far from frustrated by those,” he said, “and we continue to look at opportunities. This is an industry that is still very fragmented. The biggest player [Johnson & Johnson] has less than a 10% share on the OTC side. When you have a market like that, there are going to be opportunities. They wax and wane, but there will be opportunities.”

In the meantime, Liz Yelling is not the only person on the Glaxo payroll who trots along with a bounce in her step. The boss of the consumer division can also afford to walk tall.

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