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Wednesday, 25 October, 2000, 10:42 GMT 11:42 UK
Pharmaceuticals: a healthy investment?
Drug companies give investors a boost
While old economy stocks falter and the volatile dot coms become ever more prone to the ebb and flow of the FTSE, the pharmaceutical sector is prospering. The BBC's Louise Greenwood takes a look at the reasons for its attractiveness to investors.

Drug companies have been reporting some impressive profit figures recently.

AstraZeneca results for the past three months revealed a 6% increase in pre-tax profits - and of 15% for the whole year.

The company makes a host of Britain's most popular treatments including the cardio-vascular drug 'Zestril'.

'Nexium', its new ulcer drug, looks set to become the drug with the fastest ever uptake in the UK after just first four weeks of sales.

"We expect fairly good growth for the third quarter" says Morton Herholdt, investment analyst with Barclays Stockbrokers.

"AstraZeneca could be hit by some stocking seen late last year ahead of prices rises but overall it's good".

Now that the market is settling down after last week's shock falls, pharmaceuticals are looking increasingly attractive to investors.

AstraZeneca itself has seen its share price rise by 70% since February.

AstraZeneca, UK
Pharmceutical companies show positive results
Many brokers are drawing the conclusion that whatever is happening in the world, people need drugs in the same way that they need food.

Safe haven

This is borne out by the insatiable public appetite for new "wonder drugs".

As soon as a new treatment is developed that promises to improve our lives, people want and expect to have it.

Witness the wrangle between NHS patients and health authorities over the provision of the anti impotence drug Viagra.

Also, an astonishing one in twelve of the US population now takes the powerful anti-depressant Prozac.

A drug so popular it has entered the language as a byword for mental health treatment.

It's not surprising then, that patents to manufacture these drugs are so jealously guarded.

30% was wiped off the share value of Prozac's manufacturer, Eli Lilley, after a court ruling in August opened the way for other manufacturers to start making copies of the drug.

Patent expiry is fast becoming the biggest headache for top firms.

When the market is jittery, as it has been of late, we need a safe haven.

Morton Herholdt, investment analyst , Barclays Stockbrokers
Added to the success of the pharmaceuticals is the wave of mergers which has boosted share prices.

Merger wave

AstraZeneca itself was formed by a merger between Britain's Zeneca group, formerly a part of ICI, and Sweden's Astra.

Pfizer, the company behind Viagra, took over its rival Warner-Lambert for around $85bn earlier this year.

Both of these deals have been dwarfed by the potential tie up between Glaxo Wellcome and SmithKline Beecham.

The 140bn Anglo-American deal would make the firm the biggest drugs company in the world.

And it has become so market sensitive it is currently subject to an investigation by the US Federal Trade Commission.

Shares in these firms inevitably look a safe bet as consolidation leads to economies of scale.

Also, research and marketing costs, usually the biggest overhead for pharmaceuticals, have fallen.

" When the market is jittery, as it has been of late, we need a safe haven," adds Morton Harholdt simply.

"If there is a pick up in the dot.coms later in the year that could conceivably mean some weakness but not now, it's a growth story."

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