Zeneca stands up for independence

ZENECA, the third-largest drugs group in the UK, said yesterday it was determined to maintain its independence and had not entered into any merger or takeover talks with rivals.

Sir David Barnes, Zeneca's chief executive, said that any competitor would have to be prepared to pay a substantial premium for control of Zeneca.

His comments come in response to intense speculation surrounding Zeneca's future after merger talks between Glaxo Wellcome and SmithKline Beecham broke down last week. The two drugs giants have been seen as natural predators for Zeneca in a turbulent industry undergoing rapid consolidation. However they are thought to be unlikely to be willing to pay a high premium for the company.

Zeneca, which had risen to new highs on takeover speculation, fell 105p to 2505p before recovering in late trading to end up 5p at 2615p.

SmithKline's shares jumped 43p to 780p on mounting speculation that is could be on the receiving end of a hostile bid. Glaxo is still sounding out its institutional shareholders about a deal and is rumoured to be ready to strike. There were also talk in the market yesterday that other drugs rivals, especially in the US, were also showing a keen interest in SmithKline after it two failed attempts to find a partner within a month.

Sir David said: "I do not believe that Zeneca's shareholders will easily part with their shares except at a substantial premium to where they are trading today."

He insisted that Zeneca did not need a partner and that the group's organic growth was better than Glaxo's and SmithKline's. "Compared to our competitors our performance is pretty good," he said.

Zeneca plans to increase its expenditure on research and development from pounds 443m to pounds 500m this year, to compete with the likes of Glaxo and SmithKline. It is also on the look out for acquisitions. "If we can find the right opportunity - we have a strong un-geared balance sheet - we will move," said Sir David.

However, he questioned the rationale of the Glaxo-SmithKline deal, suggesting that the idea of creating a research and development giant just meant that the larger group was under more pressure to produce blockbuster drugs on a more regular basis.

Overall, Zeneca yesterday announced a 7 per cent rise in profits to pounds 1.08bn in 1997. With 90 per cent of its business overseas, the strength of the pound wiped pounds 178m off earnings. Ignoring this currency impact profits rose 24 per cent, well above the 15 per cent target Zeneca has set itself.

Underlying profits at the pharmaceutical division rose 17 per cent, thanks to the launch of Accolate, an asthma pill, Seroquel, the anti-psychotic treatment, and Zomig, the migraine drug. Pharmaceutical margins were flat as Zeneca launched a consumer advertising campaign and beefed up its sales force in the intensely competitive US market. The results were in line with City expectations. However Zeneca said currency would cost it about another pounds 89m this year.