SMITHKLINE Beecham is well placed to prosper in the more challenging
healthcare environment of the 1990s following a spate of acquisitions
last year. These included DPS, a US pharmacy benefit manager, and
Sterling Healthcare's over-the-counter medicines business.
The company is firmly focused on human healthcare and pharmaceutical
healthcare. It has a good product portfolio both in the prescription
market, and almost as important these days, in the over-the-counter
(OTC) medicine market.
The company exceeded City forecasts with pre-tax profits growth of 9%
to #1271m. A figure close to #1340m is expected for the current year.
Continued strong sales growth in some of the newer products coupled
with expansion of the OTC market and synergies from restructuring will
boost profitability in the years ahead. A one-off provision of #580m has
been made to cover restructuring of the group's supply chain over the
next three years.
Last year, the group's sales rose by 8% to just above #6000m with
acquisitions, in the second half, contributing 3% of the sales growth.
Chief executive Jan Leschly, said it was ''a very succesful year for SB
in financial and strategic terms''.
Sales of new drugs are more than offsetting the decline in the sales
of anti-ulcer treatment Tagamet since it came off patent in the US in
May. Tagamet sales have declined by $220m (#138m) in the US alone,
replaced by cheaper generic competition.
Since 1990, total new product sales of drugs such as the
anti-depressant Seroxat and the arthritis drug Relafen, has risen from
#17m to #811m with further strong future growth potential. The main
impact of Tagamet's patent expiry is expected to come through in
mid-1995.
The research and development of innovative products is crucial these
days if healthcare companies are to try to resist downward pressure on
their margins. SmithKline increased its R&D spend last year by almost
10% to #621m.
The company is well placed both internally and through its links with
external programmes, in areas such as biotechnology, to discover
potentially lucrative new chemical compounds.
The group's shopping spree last year inevitably put a strain on the
balance sheet with gearing at the year-end of 206%.
The sale of its animal health business for #927m will reduce gearing
to 99% but little further improvement is expected in 1995. However, no
more large acquisitions are envisaged within the next two years.
Interest cover was 24 times last year and is expected to drop to a still
healthy 10% in 1995.
SmithKline is high on the list of brokers' share recommendations
despite the fact that the stock outperformed its major UK pharmaceutical
rivals last year. Yesterday, the shares jumped 18p to 497p.
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