Wellcome hit by drug block

The US Food and Drug Administration dealt the drugs giant Wellcome an unexpected blow yesterday, withholding approval for over-the-counter sales of the anti-viral drug Zovirax.

Analysts said approval could have doubled sales of the drug, which are forecast to rise to almost £400m in the US. On a day when the rest of the pharmaceutical sector posted rises, Wellcome's shares closed 15p lower at 664p.

The announcement is a serious blow to Britain's third-largest drugs company because Zovirax, used to treat genital herpes and shingles, is due to lose its patent protection at the end of 1997. Traditionally the loss of protection savages sales of drugs. SmithKline Beecham recently lost its patent on the ulcer treatment Tagamet and saw sales fall by three-quarters.

With the cost of developing drugs so high, companies depend on selling generic versions after patents expire and other companies can compete with similar formulations.

Wellcome said it remained committed to making Zovirax an OTC product and planned to reopen talks with the FDA.

Refusal to grant approval is understood to have hinged on two issues - the threat of the herpes virus developing resistance to the drug as a result of accidental under-prescription, and worries about misdiagnosis by first-time sufferers from other sexually transmitted diseases.

Worries about herpes developing resistance are significant because of the extent to which the virus has infected the US population. Some estimates are that 55 million Americans suffer from genital herpes.

Analysts say US sales of Zovirax represent just under 20 per cent of group turnover. Because of its relatively high return, however, it could contribute a quarter of total profits.

One of Wellcome's most successful drugs, Zovirax is thought to have accounted for half the rise in prescription drug sales in 1994. When its monopoly position expires in 1997 profits could fall by £100m, according to some estimates, and earnings per share could even fall, reversing the rising trend that characterised the pharmaceutical industry's boom years in the 1980s.

Wellcome's shares have been in retreat for three years since shortly before its former parent, the Wellcome Trust, sold a second tranche of shares to the public. In January 1992 the shares reached 1,128p, having been floated off at 120p in 1986.

The shares are less well-rated than the other large drug stocks, trading on a prospective p/e of 12.3 compared with more than 14 for Glaxo, SmithKline Beecham and Zeneca.

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