The Investment Column: Flood of info from AstraZeneca fails to ease Losec indigestion

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The Independent Online
AS IS TO be expected of any D-Day, AstraZeneca's R&D day involved a heavy information bombardment. Unfortunately, the blizzard of information failed to put a rocket under City forecasts for the drugs giant, and the company failed to make a convincing case for its key gastrointestinal franchise.

AstraZeneca's problem is the phenomenal success of Losec, the world's best-selling antiulcerant, which is to lose its US patent in 2001. Sales of $6.2bn (pounds 3.9bn) are expected for Losec in 2001, plummeting to $3bn after it comes off patent.

The key question facing the company is whether Nexium, Losec's successor, will be a sufficient advance on Losec to see off competition from the cheaper generic versions of the drug, which are poised to swamp the market. It was a question the research and development day left unanswered.

Gastrointestinal drugs account for one-third of AstraZeneca's turnover, but the group is rightly proud of some of the products being developed by its other franchises. The group's promising 4522 superstatin cholesterol reducer is targeting a $10bn plus market. Trial data is supportive of the claim that the group's forthcoming thrombotic treatment, H376/96, will be the coagulant of choice.

On the other hand, it remains to be seen how effective Atacand, the hypertensive treatment, will be in insulating the group from the expiry of Zestril's patent in 2002. Zestril, AstraZeneca's number two product, enjoyed sales of $1.12bn last year - about 10 per cent of the group's pharma sales.

Of course, yesterday's data was largely academic. The fate of the group's agricultural business and the R&D day were the two uncertainties determining the trajectory of the shares of late. Ahead of their conclusion, AstraZeneca's shares have made strong gains, fuelled largely by investors switching into the stock when rival Glaxo Wellcome ditched its double-digit growth target in the summer. So there was an element of profit taking in the shares' 7 per cent fall to 2,522p yesterday. However, investors sniffing a buying opportunity should be cautious. AstraZeneca's long-term problems have not been resolved. It remains to be seen how the group will deliver the proposed synergies from hiving off its agribusiness into a joint venture with Novartis. The Losec issue remains hot.

On forecasts of $2.8bn post-exceptional pre-tax profits this year and $4.4bn next, the shares were trading yesterday on a comparable rating to SmithKline Beecham in 2000. That looks dear.

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