View from City Road: Wellcome reads the writing

There may have been nothing in Wellcome's interim figures which merited yesterday's precipitate fall in its share price, but the writing has been on the wall for months. All pharmaceutical stocks have taken a hammering since Christmas as investors have grown nervous about the US healthcare reforms being hatched by Hillary Clinton.

Wellcome's shares have held up better than most. Until yesterday they had fallen by around 10 per cent since Christmas, compared with around 20 per cent for Glaxo and SmithKline Beecham, its two main UK rivals. The latest 72p drop to 818p means Wellcome's share price has now fallen 17 per cent, bringing it roughly in line with its peers.

Wellcome has avoided Glaxo's public battles over strategic direction, but it is also heavily reliant on one product. In the first half, Wellcome's anti-viral drug Zovirax contributed pounds 369m out of the group sales of just over pounds 1bn. Sales from continuing operations on an underlying basis (ignoring currency translation) were up 11 per cent, and Zovirax sales rose 17 per cent.

Like Glaxo's money-spinning Zantac, though to a lesser extent, Zovirax is threatened by patent expiry. This will affect German sales from this year; the US from 1997; Japan from 1999 and France from 2002. These last three markets account for more than 60 per cent of Zovirax sales.

Admittedly, Wellcome seems to be putting more effort than Glaxo into protecting the goose that lays its golden eggs. It has been pumping money into researching broader arguments for using the product, including any cost and time savings for patients.

Wellcome has also made progress in finding over-the-counter sales to replace lost prescriptions. Zovirax preparations for treating cold sores have been approved for OTC sale in six countries: Germany, the largest European OTC market, New Zealand, Finland, Denmark, Eire and South Africa. There are hopes that the UK will follow 'very shortly'.

Wellcome also has a second string to its bow in the shape of its Aids treatment Retrovir, which contributed pounds 131m to sales, a 14 per cent underlying increase. But high-priced drugs like Retrovir are among the most visible of Mrs Clinton's targets.

One way or another, Wellcome Trust's decision to reduce its 73.5 per cent stake in its progeny to 39 per cent last year looks increasingly astute. There is no reason to buy yet.