Medeva shares dive on obesity drug fears

Health fears over Medeva's new anti-obesity drug, Ionamin, coupled with a warning about full-year profits, drove the share price in the UK's fourth biggest drug group down by 13 per cent to 222p yesterday.

Dr Bill Bogie, chief executive, said sales of Ionamin had collapsed to pounds 7m in the first six months of this year from pounds 21m in the second half of 1996, and would be unlikely to recover in the short term after a warning from the US drug regulator last week linking anti-obesity pills with heart failure.

Analysts were surprised by the news on Ionamin and cut full-year forecasts for group profits from pounds 120m-pounds 132m to pounds 110m-pounds 115m.

First-half sales of Ionamin, which was bought from Rhone Poulenc last year and has been sold in the US since 1959, were affected by destocking and competition.

James Culverwell, an analyst at Merrill Lynch, said: "Medeva had always said that Ionamin would be a wild card, but no one thought it would be this bad." Analysts were also concerned about Ionamin's prospects, given that Roche's Xenical anti-fat pill, a safer breed of drug, could be launched shortly.

However, Dr Bogie said he still expected growth from Ionamin. "It's not like we've bought a dead duck. The obesity market is growing."

He warned that second half profits also depended on emerging competition for Methylphenidate, the group's leading drug for hyperactivity, which grew sales by 6 per cent to pounds 54m in the half year

Medeva has more than 70 per cent of the US market for this quota-controlled and licensed drug. However, three other generic companies, Johnson Matthey, Mallinckrodt and Ganes, have obtained licences. The first new generic drug is expected to enter the market by Christmas. Dr Bogie said although sales were likely to slip by around 15 per cent next year, the quota system would prevent a rush of lower-priced generics into the market.

Dr Bogie was upbeat over other products. "People should see that we are following our strategy. I am not worried about our share price. Glaxo made a remarkable turnaround after fears over Zantac."

However analysts were sceptical. Kevin Scotcher at NatWest said: "The great hope of replacing Methylphenidate with Ionamin has gone. And whether Medeva had good follow-up drugs is unclear."

Investment column, page 24

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