Investment: Nycomed needs some good news

NYCOMED AMERSHAM remains a company in transition. More than year after the pounds 2bn merger between the UK health sciences group, Amersham, and the Norwegian X-ray specialist, Nycomed, the enlarged healthcare group is still trying to find its own identity.

Yesterday's maiden interim results, which showed an 8 per cent increase in profits to pounds 114m on turnover down 2 per cent to pounds 667.9m, are a step in the right direction.

The imaging division, which provides the bulk of the group's sales, benefited from its efforts to move away from the low-margin, highly competitive US X-ray market towards more sophisticated products such as booming Iodine Seeds, used in the treatment of prostate cancer.

Nycomed will have to continue down this road and hope that the new products can offset the fall in X-Ray sales in the long term.

The biotechnology division, a joint venture with the US drug giant Pharmacia & Upjohn, posted flat sales. The company blamed the disruption caused by the merger and vowed that sales would bounce back next year helped by several market-leading products.

The pharmaceutical division was also disappointing and looks ripe for a sale, as it is too small to compete with the bigger players.

But the real bad news came on the cost-saving side of the merger, where the company admitted that its target of pounds 37m in improvements for 1998 would not be met and said that investors would have to settle for pounds 30m this year.

Nycomed maintained that this was just a "rephasing" of revenues and would not jeopardise its goal of pounds 70m of cost savings by the year 2000.

This may well be so, but added to the uncertainties over imaging and biotech, it looks as if Nycomed is asking investors to take a little bit too much on trust.

After yesterday's 7.25p slide to 395p, the shares are on more than 20 times forecast 1998 earnings of around pounds 230m. Until some firm news comes through on cost savings and product development, they are high enough.