Market Report: Wellcome doubts add to drug sector woes

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The Independent Online
SHARES of Wellcome, the once high-flying drugs group, are looking increasingly vulnerable as British and US investors continue to fret about the growing controversy over Retrovir, the anti-Aids drug, and the signalled Clinton healthcare reforms.

The drug sector was again weak with yet another transatlantic securities house said to be making negative noises. Glaxo Holdings fell 10p to 553p, SmithKline Beecham 11.5p to 429.5p and Wellcome 13p to 655p. But Medeva, again rumoured to be eyeing Fisons, rose 3p to 226p. Fisons fell 4p to 177p.

The once glamour-rated drug sector has been in the stock market sickbay for about a year as heady growth expectations have given way to much more pedestrian estimates.

But it is Wellcome that is attracting by far the most intensive investment attention following last year's pounds 2.16bn share sale, handled by the Robert Fleming investment group for the Wellcome Trust. It was the biggest non-privatisation share sale.

Early last year Wellcome's shares touched a peak of 1,128p. But from then onwards it was largely downhill, and with the market price standing at 826p in July the 800p sale price was announced.

In March this year the Wellcome price dipped below 800p and, allowing for the occasional rally, it has fallen steadily since May.

The Wellcome Trust, which still has 40 per cent of the drugs group, reduced its interest to spread its investment risk. Much of the cash raised through the well-orchestrated Fleming sale was pumped into the stock market with an improved yield a significant consideration.

As is now being pointed out with increasing admiration, the stock market has risen strongly since the share sale, with the FT-SE 100 index up more than 500 points at 2,888.8. But wilting Wellcome now stands at 145p below the the trust's selling price.

Wellcome could be a big casualty of the US health reforms, now expected to be put into place next year. And other governments are tackling drug margins.

But it is growing uncertainty about prospects for Retrovir that is doing much of the damage, although the Aids drug represents a relatively modest proportion of profits. To add to the Retrovir discomfort, Wellcome faces legal challenges over its exclusive right to make and market the treatment.

Last month Wellcome compounded profit growth worries when it ended studies aimed at increasing the role of its Flolan heart and kidney drug. In the current year Wellcome's profits are expected to be about pounds 670m, up from pounds 504.7m.

The rest of the market briefly welcomed the German interest rate cut. But the move had already been discounted and by the close the FT-SE blue chips index was down 11.2 points although the second liners, as represented by the FT-SE 250 index, ploughed on remorselessly, reaching yet another peak - 3,241.7, up six.

Hillsdown Holdings, the food group, gained 7p to 144p ahead of next week's analyst meetings. As is now the custom, it attempted to blunt the impact of the get-together by indicating a half-year profit of pounds 80m against pounds 81.8m.

Storehouse, as its new chief executive, Keith Edelman, settled in, was hit by a James Capel profit downgrading by 9 per cent to pounds 62m. The shares fell 6p to 206p. Boots, after a Smith New Court investment meeting, shaded 2p to 440p.

SNC was thought to be responsible for another sharp deterioration at Spring Ram, the bathroom and kitchen group that has suffered a catalogue of setbacks. A rumoured SNC sell recommendation sent the shares tumbling 6p to 44p in brisk trading.

Standard Chartered, the banking group, was helped along by a rumoured Cazenove push, up 10p at 788p.

Electricities were bright as Southern Electric took the lead in the dividend race with an increase of 17.9 per cent. Southern rose 10p to 482p.

Astec (BSR), once famed for its record changers, gained 4.5p to 69.5p as takeover talk continued to intrigue. The group is now based in Hong Kong, where it produces power converters and electronic components. Last year it switched a pounds 4.81m loss into a pounds 7.82m profit. The shares were down to 8p in 1991.

The interest rate cuts helped Redland and RMC, which have German interests. Redland rose 7p to 483p and RMC 12p to 748p.

Micro Focus, the computer group, responded to Jim Slater's interest with a 22p gain to 2,095p. Further increases in the US shareholding at Vodafone, the mobile telephone group, left the shares 2p down at 449p. The US ADR involvement is now 22.07 per cent.

Ascot Holdings, formerly Control Securities, put on 2p to 8.5p and Brent Walker edged ahead 1.5p to 9p. But Ratners fell 2p to 33.5p.

HunterPrint slumped 17p to 50p as takeover talks ended and Eurocamp lost 28p to 205p on the forecast of lower profits. Two years ago the shares were placed at 225p.

Suggestions that Nigel Wray, the entreprenurial investor, was prepared to pump cash into Millwall Holdings, the football club, are circulating. It is rumoured that pounds 5m could be injected at 2.5p a share. The shares shaded 0.25p to 5.25p.

Scottish & Newcastle dipped 2p to 461p. Some punters are betting on the brewing and holiday group buying the Coral betting shops chain from Bass, thought to be a reluctant bookie. A price of pounds 200m is going the rounds. S&N results are due on Monday. Kevin Feeny at Henderson Crosthwaite is looking for a fall to around pounds 205m but suspects the figure could be lower. Bass was 1p stronger at 488p.

Behind-the-scenes efforts to achieve a compromise at Seafield appear to have failed and Waterglade International, a revamped property group, is demanding a shareholders' meeting to remove three Seafield directors, including the chairman, Brian Chilver, formerly with Laing Properties. Waterglade has 11.2 per cent of the struggling Irish property and transport group, unchanged at 17p.