Focusing on a product spread

THE INVESTMENT COLUMN

The last year or so has been a period of consolidation for SmithKline Beecham, after a period of giddy expansion for the drugs giant in 1994. In May that year it paid $2.3bn (pounds 1.6bn) for Diversified Pharmaceutical Services, went on to pick up the consumer health-care operations of Sterling Winthrop for $2.9bn and two weeks later off-loaded part of that deal in a $1bn disposal to Bayer. Along the way, the group dumped its animal healthcare operation on Pfizer.

The resulting spread of health-related products at the reshaped SmithKline Beecham was evident in yesterday's announcement that it had received US regulatory approval both for a new dosage for its Augmentin antibiotic and an over-the-counter version of the Nicorette anti-smoking treatment. Unlike others in the sector, the group has taken a deliberate view that there is money to be made both in so-called ethical patented pharmaceuticals like Augmentin and in self-medication, ranging from Panadol analgesics to Nicorette.

It is a strategy that has raised some eyebrows amongst pharmaceutical analysts, given the prevailing fashion for focus.

In drugs groups, current received wisdom has it that the big ones should focus on a few "blockbuster" treatments. Instead, the Sterling buy took SmithKline further into the consumer area.

But the surprises have been good so far, with an encouraging recent report on its drugs pipeline, in contrast to more lacklustre showings from rivals Zeneca and Glaxo Wellcome.

The shares' 23 per cent outperformance against the rest of the market over the past 12 months says as much about the ferment affecting the rest of the market as SmithKline Beecham's performance, however. Glaxo's pounds 9bn purchase of Wellcome and the mega deals in the US set shares in the sector alight in 1995 and there has been strong US buying of SmithKline units, the more actively traded of the group's two classes of shares in New York.

But as results out next Tuesday should show, the group has been doing an effective job of managing the decline of its one-time best-seller, the anti-ulcer drug Tagamet.

That is expected to have seen its sales slump from pounds 480m in 1994, when it went off patent, to just pounds 280m last year. Seroxat, the anti-depressant competitor to Eli Lilley's Prozac, could have seen sales rise from pounds 333m to pounds 474m, while the Engerix-B hepatitis vaccine could be near to the pounds 400m mark with Augmentin showing continued growth. Consumer health is expected to have done well and chief executive Jan Leschly has promised double digit earnings growth going forward.

The problem is that all the good news is in the share price, which stands on close to 22 times last year's estimated earnings and 19 times the current year's forecast. Any slippage will take its toll on the shares which are high enough.

PROMOTED VIDEO
Life and Style
techCould new invention save millions in healthcare bills?
Sport
David Moyes gets soaked
sport Moyes becomes latest manager to take part in the ALS challenge
Voices
A meteor streaks across the sky during the Perseid Meteor Shower at a wind farm near Bogdanci, south of Skopje, Macedonia, in the early hours of 13 August
voicesHagel and Dempsey were pure Hollywood. They only needed Tom Cruise, says Robert Fisk
News
peopleEnglishman managed quintessential Hollywood restaurant Chasen's
Life and Style
food + drinkHarrods launches gourmet food qualification for staff
Arts and Entertainment
Michael Flatley prepares to bid farewell to the West End stage
danceMichael Flatley hits West End for last time alongside Team GB World champion Alice Upcott
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Life and Style
Horst P Horst mid-fashion shoot in New York, 1949
fashionFar-reaching retrospective to celebrate Horst P Horst's six decades of creativity
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
i100
Life and Style
Black Ivory Coffee is made using beans plucked from elephants' waste after ingested by the animals
food + drinkFirm says it has created the "rarest" coffee in the world
Arts and Entertainment
Jamie T plays live in 2007 before going on hiatus from 2010
arts + entsSinger-songwriter will perform on the Festival Republic Stage
Life and Style
food + drinkThese simple recipes will have you refreshed within minutes
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Service Desk Analyst- Desktop Support, Helpdesk, ITIL

£20000 - £27000 per annum: Harrington Starr: Service Desk Analyst- (Desktop Su...

Service Desk Analyst - (Active Directory, Support, London)

£25000 - £35000 per annum: Harrington Starr: Service Desk Analyst - (Active Di...

Junior Quant Analyst - C++, Boost, Data Mining

£30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...

Junior Quant Analyst (Machine Learning, SQL, VBA)

£30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst (Machine Lea...

Day In a Page

All this talk of an ‘apocalyptic’ threat is simply childish

Robert Fisk: All this talk of an ‘apocalyptic’ threat is simply childish

Chuck Hagel and Martin Dempsey were pure Hollywood. They only needed Tom Cruise
Mafia Dons: is the Camorra in control of the Granite City?

Mafia Dons: is the Camorra in control of the Granite City?

So claims an EU report which points to the Italian Mob’s alleged grip on everything from public works to property
Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Once the poor relation, the awards show now has the top stars and boasts the best drama
What happens to African migrants once they land in Italy during the summer?

What happens to migrants once they land in Italy?

Memphis Barker follows their trail through southern Europe
French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

The ugly causeway is being dismantled, an elegant connection erected in its place. So everyone’s happy, right?
Frank Mugisha: Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked

Frank Mugisha: 'Coming out was a gradual process '

Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked
Radio 1 to hire 'YouTube-famous' vloggers to broadcast online

Radio 1’s new top ten

The ‘vloggers’ signed up to find twentysomething audience
David Abraham: Big ideas for the small screen

David Abraham: Big ideas for the small screen

A blistering attack on US influence on British television has lifted the savvy head of Channel 4 out of the shadows
Florence Knight's perfect picnic: Make the most of summer's last Bank Holiday weekend

Florence Knight's perfect picnic

Polpetto's head chef shares her favourite recipes from Iced Earl Grey tea to baked peaches, mascarpone & brown sugar meringues...
Horst P Horst: The fashion photography genius who inspired Madonna comes to the V&A

Horst P Horst comes to the V&A

The London's museum has delved into its archives to stage a far-reaching retrospective celebrating the photographer's six decades of creativity
Mark Hix recipes: Try our chef's summery soups for a real seasonal refresher

Mark Hix's summery soups

Soup isn’t just about comforting broths and steaming hot bowls...
Tim Sherwood column: 'It started as a three-horse race but turned into the Grand National'

Tim Sherwood column

I would have taken the Crystal Palace job if I’d been offered it soon after my interview... but the whole process dragged on so I had to pull out
Eden Hazard: Young, gifted... not yet perfect

Eden Hazard: Young, gifted... not yet perfect

Eden Hazard admits he is still below the level of Ronaldo and Messi but, after a breakthrough season, is ready to thrill Chelsea’s fans
Tim Howard: I’m an old dog. I don’t get too excited

Tim Howard: I’m an old dog. I don’t get too excited

The Everton and US goalkeeper was such a star at the World Cup that the President phoned to congratulate him... not that he knows what the fuss is all about
Match of the Day at 50: Show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition

Tom Peck on Match of the Day at 50

The show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition