Drugs Sector's High Set to Last

By Stevenson, Tom | The Independent (London, England), January 9, 1996 | Go to article overview
Save to active project

Drugs Sector's High Set to Last

Stevenson, Tom, The Independent (London, England)

The pharmaceuticals sector has staged a spectacular recovery from its dismal performance in 1992 and 1993. The 33 per cent outperformance by the index against the market has been one of the best on record, although it failed to match the 55 per cent notched up in 1991, when investors fled to drugs stocks as a safe haven from impending recession.

A combination of the lifting of the threat of major US healthcare reforms by President Clinton and an outbreak of takeover fever helped lift the share prices of all the large companies last year. Most analysts are now looking forward to a continuation of the trend, albeit at a less impressive rate.

Most believe the pressure on drugs costs from governments, one of the sector's major depressants since 1991, may hit bottom this year. That should help arrest margin erosion, particularly as the cost-cutting on which recent mega-mergers have been predicted should start to bear fruit.

Perhaps even more significant, given the importance of sentiment to investment, is a possible repeat of the 1991 experience. If current forecasts prove correct and economic growth decelerates, then the sort of low double-digit earnings increases likely to be notched up by drugs companies in 1996 and 1997 will look attractive as more cyclical sectors enter a down-trend.

Finally, the optimists are pointing to further mergers and acquisitions this year, although on a smaller scale.

SmithKline Beecham could turn out to be the safest bet in 1996. The 1989 mega-merger between SmithKline Beckman of the US and the UK's Beecham which created the group is now well bedded down. It has also coped well with the ending of the patent on its best-selling Tagamet anti-ulcer drug in 1994.

A recent presentation on the group's research and development effort went down well with analysts, in contrast to similar briefings by Glaxo Wellcome and Zeneca. Products now in late-stage phase III trials and expected to come to market over the next two years could eventually represent peak sales of pounds 1bn or so.

The company should also be well placed to benefit from trends towards so-called self-medication, as people increasingly fight shy of doctors to treat themselves. The net $1.9bn (pounds 1.2m) acquisition of Sterling Winthrop in 1994 created the world's biggest non-prescription healthcare company, a strategy reinforced by last month's pounds 91m acquisition of a German maker of grocery-store medicines. More of a gamble was the $2.3bn addition of Diversified Pharmaceutical Services in the same year. DPS should allow SmithKline to cash in on the moves in the US by drugs "wholesalers" to manage the market on behalf of customers such as insurance companies.

Now the sector giant since last year's pounds 9bn takeover of Wellcome, Glaxo's attention is going to be focused in the medium term on integrating its new partner. Crucial to that will be promised cost-cuts, which brokers estimate could be a higher-than-expected pounds 800m by the end of 1998. But equally important is what it does to replace Zantac, one of the world's most successful drugs, and Zovirax, Wellcome's best-selling herpes treatment, when the patents on both run out in 1997. Zantac's profits in the following year are set to halve from just under 40 per cent of Glaxo's total now.

Imigran, a migraine remedy, could by worth over pounds 260m to the bottom line this year and the new 3TC-Retrovir anti-AIDS combination is expected to contribute a further pounds 200m or so.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Drugs Sector's High Set to Last


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?