Zeneca profits slip
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February 17, 1999: 7:40 a.m. ET
U.K. pharmaceutical group is dragged down by healthcare, agrochemical losses
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LONDON (CNNfn) - U.K. drug giant Zeneca saw profits slip 2 percent in 1998, even as sales grew 6 percent.
Pretax profits came in at 1.063 billion pounds ($1.765 billion) on sales of 5.510 billion pounds, due to losses at its healthcare and agrochemicals businesses. The results were much in line with market expectations.
Analysts expected few surprises after the group disclosed its nine-month performance in the document relating to its $35 billion merger with Swedish pharmaceutical group Astra.
"The results came in slightly higher. We were expecting 1.040 billion pounds," said Stewart Adkins, pharmaceuticals analyst at Lehman Brothers in London.
There was disappointment over the performance of one of the group's key new drugs. Seroquel, a drug used in the treatment of schizophrenia, performed poorly. Sales rose 26 percent to 39 million pounds.
"Seroquel is not doing very well. Quite frankly, it is not a very good drug," said Adkins. He added, however, it could have done better with improved marketing.
It is the lack of punch globally in the marketing and research as well as the development arenas that has pushed Zeneca (ZEN) into merging with its Swedish counterpart.
Yet investor sentiment is weighing heavily on the stock amid concerns that it does not have enough new drugs coming on the market to replace those with patents expiring. About 50 percent of the current portfolio of drugs will lose that protection at the end of 2001.
Adkins maintains, however, that the worries are overdone as the combined group, to be known as AstraZeneca, claims to have 14 new drugs in the pipeline, which will be launched by the end of 2001. "If that's true, then I think the stock looks very cheap," he said.
He pointed to the high price-earnings ratio now attached to bigger rival Glaxo Wellcome (GLXO), which had a similar patent expiration problem several years ago and managed to surmount it.
Zeneca also published pro-forma results for the merged entity. AstraZeneca's pretax profits would have come in 1 percent higher at $3.458 billion, on sales of $17.234 billion, a rise of 9 percent.
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