View from City Road: Blighted by uncertainty

Poor Zeneca. To have one key aspect of your business dogged by uncertainty thanks to the meddling of politicians may be regarded as a misfortune; to have two so blighted looks like downright carelessness.

The newly demerged former bioscience arm of ICI may be generally classed as a drug company, but it looks quite unlike most of its competitors, with the bulk of its turnover almost equally split between pharmaceuticals and agrochemicals.

The healthcare sector is at the eye of a maelstrom of change that makes predicting the future of the industry almost impossible.

Hence the difficulty of passing judgement on the pirouettings witnessed on Wednesday when the UK groups Glaxo and Wellcome linked up with the American giant Warner-Lambert, in an attempt to broaden their sales of non-prescription - and less politically vulnerable - drugs.

So much for the problems dogging the drug industry. Less well appreciated is the risk that companies dealing in agrochemicals are not merely enduring a predictable cyclical dip but are in at the deep end and unable to touch bottom. Zeneca believes that the worst of the impact of reforms to the Common Agricultural Policy has been weathered; but that is a thesis still to be tested.

Indeed, even God seems to have turned his hand against the agro- business. Witness the way a downpour of biblical dimensions in the American Midwest has wiped out 10 million acres of farmland. An unusually wet spring led to 20 per cent less Zeneca seed being planted in the first place.

With agrochemicals contributing 35 per cent of sales but only 20 per cent of trading profits - against 40 per cent and 73 per cent for pharmaceuticals, David Barnes, Zeneca's chief executive, should perhaps consider continuing the streamlining process started by ICI with the demerger.

The market, as we point out below, may have greeted Zeneca's debut figures with delight yesterday, but that has to be seen in the context of a sector that has temporarily shed its gloom. Even compared with SmithKline, Glaxo and Wellcome, Zeneca's position looks weak.