Market Report: Wellcome falls victim to drug company sickness

THE sickness that has afflicted healthcare shares this year claimed another victim yesterday when Wellcome, famed for its Retrovir anti-Aids drug, slumped 52p to 742p, its lowest since autumn 1991.

The slump took the shares uncomfortably below 800p, the level at which the Wellcome Foundation, through Robert Fleming, raised pounds 2.1bn last year by selling shares to institutional investors in one of the most spectacular international flotations attempted by a UK investment house.

As a result of the sale the foundation cut its stake to 40 per cent from 75 per cent.

In the past year Wellcome shares have been as high as 1,174p. They were unsettled by the secondary flotation but held up relatively well until last week's interim results, which were seen as confirming the suspected acute growth slowdown in the drugs industry.

The shares have fallen from 890p since the results, with an interim dividend accounting for just 4.8p of the fall.

Wellcome's discomfort has been slow to develop compared with the agonies experienced by the drugs leader, Glaxo Holdings. It has collapsed from last year's 943p to 576p. Confirmation that Glaxo had, as expected, bowed to US pressure to lower its claims for its successful Zantac ulcer drug added to the uncertainty. Many veteran market followers are watching the Glaxo performance with keen interest. In the past two decades it has been right to buy the drug shares once they fell below 600p.

There is widespread disagreement this time about the shares. Some wonder whether history will again be repeated. Others fear that even Glaxo has encountered pressure that will reduce growth to much more mundane levels.

The stock market's worry that the remarkable growth of drug earnings is slowing down has been compounded by indications that government pressure around the world is cutting the highly lucrative profit margins that have been enjoyed for years.

And the Clinton administration in the US, the so-called 'Billary' factor, is expected to attempt to curb drug profits next month when Hillary Clinton's much-publicised task force reports on the US healthcare industry.

American drug shares have fallen for the past 15 months as US investors have grown increasingly disenchanted with the sector. US selling of UK shares is thought, so far, to have been steady, but not heavy; much of the weakness has stemmed from UK institutions taking evasive action in anticipation of a wave of US disposals.

The rest of the stock market made a hesitant start to the three-week account. In subdued trading the FT-SE 100 index finished 6.4 points down at 2,846.5; the calculation was struck after allowing for the 10.6 stripped out for dividend payments. Composite insurers were among the best performers, inspired by growing indications that the industry's recovery was gathering pace. Commercial Union rose 11p to 610p.

Euro Disney improved 50p to 1,125p on a new pricing policy. Pelican, the restaurant group that appears to be the subject of a reverse takeover by the entrepreneur Robert Earl, rose 3p to 54p. SelecTV fell 2p to 15.5p on the outbreak of boardroom hostilities.

Hazlewood Foods dipped 1p to 178p. Analysts are talking with the company.

The engineer, BM Group, the former Roger Shute company, continued to fret about forthcoming results, falling 5p to 42p. Last year the shares topped 400p.

Cookson, the industrial materials group, slipped 1p to 191p. Its pounds 185.6m rights issue enjoyed a 96.3 per cent take-up. The rump was placed by Cazenove at about 185p.

Gabicci, the casual clothing group where a takeover row has broken out, gained 2.5p to 45p, the price at which a former director is said to be prepared to make a counter-offer to the Helene share exchange bid. Two Gabicci directors have rejected the Helene bid which is, however, supported by a majority of the Gabicci board.

Buckingham International fell 1.75p to 3.25p as its independent directors took a much more cautious attitude towards the enforced takeover bid by companies associated with the Jivraj family, which runs the hard-pressed hotel group.

The sale of a German manufacturing subsidiary lifted Kewill Systems, the computer group, 38p to 112p. Avesco, the television and video equipment group, rose 6.5p on hopes of a deal soon over its VideoLogic off-shoot.

Two newcomers are due today. Hambro Insurance Services, placed by Panmure Gordon, is expected to reach 155p against a 138p placing price.

Quality Software Products, a computer group placed at 380p by Hoare Govett, is thought likely to achieve an opening price in the 460p-480p price range.

Atreus, the bathroom products group, continued to disappoint. The shares were unchanged at 21.5p after touching 28p in first-time dealings on Friday.

THE EASTER account started quietly with the FT-SE 100 index down 6.4 points to 2,846.5 in moderate trading. The FT-SE 250 index lost 7.4 to 3,091.6. Volume reached 484.9 million shares with 36,027 bargains. The three-week account ends on 16 April with settlement on 26 April

SHARES OF Kenmare Resources, the Dublin-based group, held at 7.25p. It has arranged more finance for its Mozambique graphic venture and is expected soon to reveal a link with Broken Hill Proprietary, Australia's biggest company, over its minerals sands development in Mozambique. Kenmare, headed by Charles Carvill, has halved its interim loss to I pounds 84,000. The shares once topped 50p.

EUROPEAN Colour's dull share price turned a shade of blue, rising 3p to 22p on a large deal that brings David Williams, formerly of Mosaic and Usher Walker, on to the register. Paul Kohnstamm, a director of the pigment-maker, sold his 2.95 million shares (9.87 per cent), to Ringwood Investments, of which Mr Williams is a beneficiary. Ringwood is understood to have paid 20p per share.

(Graph omitted)

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