View from City Road: Justifiable concern about Wellcome

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Wellcome to the horror dome - at least, if you are a Wellcome shareholder. The consistency with which last year's worst-performing big drug stock has continued to disappoint should have John Robb, its chairman and chief executive, wishing he had succeeded in splitting the roles if only to have someone to share the brickbats.

The drug group would like to portray the market's reaction to its figures as irrational. Yet nervousness about Wellcome's prospects has a perfectly justifiable basis in concern over the prospects for sales of Zovirax and the lack of a compensating high-quality drug pipeline, especially now the future for Retrovir looks so uncertain.

What the City wanted but failed to receive was reassurance that last year's fall in Zovirax's sales growth from 17 per cent in the first half to 7 per cent in the second was a blip, not a trend.

While sales were up this year, a price hike in the US was largely responsible. Unfortunately for Wellcome, the trick is not repeatable; in 1995 SmithKline Beecham will have its competing Famciclovir on the market.

In the increasingly cut-throat world that is the US drug industry, margins will in any case come under pressure.

Mr Robb acknowledged as much when he indicated current trading margins of almost 33 per cent were probably unrepeatable, and the future range would probably be 28 to 32 per cent.

Analysts took that as a profit warning. Unless some good news is forthcoming soon about how the company plans to tackle the American market, shareholders should do the same.