SmithKline survives patent loss; The Investment Column

Despite early prognostications of doom, SmithKline Beecham, the drugs giant, has prospered since Tagamet, its blockbuster anti-ulcer drug, went off patent in 1993. As Jan Leschly, the group's well-rewarded chief executive, boasted yesterday, all the numbers are moving in the right direction.

The huge debts taken on in 1994 to buy first Diversified Pharmaceuticals, the US "pharmacy benefit manager" (PBM), and then Sterling Winthrop, a US consumer products group, are being wound down, while earnings growth remains firmly in double figures. Pre-tax profits grew 16 per cent (excluding currency factors and exceptionals) to pounds 1.55bn, while earnings per share jumped by an underlying 14 per cent.

The pound's strength could be a short-term drag, given the proportion of sales on the Continent and the US, but probably not one to lose sleep over. The 14 per cent profits growth to pounds 442m notched up in the fourth quarter would have been a chunky 23 per cent without currency effects, but the group reckons the pound at year-end levels would only have shaved 5 per cent from last year's figures.

It is hard to gauge how successful SmithKline's acquisition record has been, given the opacity of the information on offer. Consumer healthcare trading profits rose a respectable 11 per cent to pounds 372m, and the record on brand growth looks decent. The increased global reach provided by Sterling means that brands such as Aquafresh and Panadol have done well, showing strong growth of 24 and 10 per cent respectively last year. That said, the fall in the first nine months of the over-the-counter version of Tagamet suggests SmithKline's abilities in extending the life of its drugs after patent expiry have taken a while to perfect, although competition has been intense.

The picture is fuzzier at Diversified. The group makes much of the fact that it now "manages" the healthcare requirements of 33 million lives, more than twice the 13.8 million at acquisition, and a drug spend of $5.2bn (pounds 3.2bn). But it refuses to reveal profit figures and in the absence of more concrete evidence, it is hard to avoid the conclusion that the same ends could have been achieved more cheaply by other means.

Acquisitions aside, the record remains good. The pounds 580m rationalisation provision of two years ago has delivered gains of pounds 125m and the core drugs business remains highly successful, growing profits 12 per cent to pounds 1.18bn last year. Sales growth should continue in double digits and the group has no big patent expiries until the next century. Assuming Coreg wins US approval for congestive heart failure later this month, new products, nearly a third of total drug sales, should be performing strongly.

Profits of pounds 1.79bn this year would put the shares, up 13p at 894.5p, on a forward p/e of 21. Hold.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
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

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Austen Lloyd: Law Costs HOD - Southampton

£50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

SThree: Recruitment Resourcer

£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn