Outlook: Garnier will need to get high on drugs to climb this Everest

Shafted again; Water charges

Was it worth the wait? It took Jean-Pierre Garnier three years to invite the investment community in for GlaxoSmithKline's first R&D open day but when the moment finally arrived it was one of pure bathos.

The Imax cinema next to Waterloo was full to bursting, the video thumped out, the giant screen was ablaze with graphics and then JP himself appeared on stage to declare: "We're on our way". At least Austin Rover was bold enough to say it was getting there.

As far as entertainment goes, Matrix Revolutions - showing later in the day at Imax - would have been a better bet. But what shareholders turned up for was information. Everyone can see what will happen to the sales curve of GSK's existing drugs now that most of its proprietary antibiotics and treatments for depression are off patent and facing fierce generic competition. Investors want to know is what is in the pipeline to replenish the top line.

The answer, according to JP, is more than 20 blockbusters - not of the Hollywood variety but new drugs, each with $1bn (£579m) worth of annual sales potential. But this mostly adds up to jam tomorrow, and in many cases the day after. It is the biggest drugs pipeline in the world but how many will navigate the bottleneck of Phase III clinical trials and make it to the point of successful commercial launch? In the past, GSK has been a company with a poor track record of actually getting products to market.

GSK's strategy of creating several centres of R&D excellence and then getting them to compete with one another for funds was a means of trying to replicate the entrepreneurial spirit of the small biotechs inside a big pharma. Despite a £3bn budget, however, it has not yet delivered the next Paxil or Advair.

What it has produced is a range of promising early stage drugs which JP likes to call "my babies". His refrain used to be that he could not chose between them. But at least yesterday demonstrated that GSK has finally selected a handful of new treatments for cancer, heart disease, diabetes and asthma for nurturing into full development. Now we can see if they grow up into useful contributions to society.

JP has been beset by his own little local difficulties over pay and yesterday was an opportunity to come to shareholders with a positive story. But the lack of momentum in driving more drugs to final clinical trials turned the open day into something of a damp church fete, not least for the share price.

The mountain JP still has to climb to prove that the creation of GSK was worth it all remains huge. Perhaps that is why one of the other movies on offer at the Imax yesterday went by the title of Everest.

Shafted again

King coal has lost his crown again. Many a good mine has been ruined by sinking the first shaft and so it has proved for Hatfield colliery which called in the administrators yesterday after eating up £10m of Richard Budge's fortune.

Mr Budge has a certain track record in the industry. He spent another fortune using other people's money to buy up the English coalfields and then found himself dumped on the slagheap by his own board when the shares turned to ash.

He thought he had tapped into another rich seam when his new venture Coalpower acquired Hatfield from the liquidators two years ago.

The purchase brought with it existing coal resources but also access to the Barnsley seam in south Yorkshire, one of the biggest in the country with some 80 million tonnes of reserves. Unfortunately, Mr Budge ran out of money before he could tunnel his way through to the coalface.

It is a story all too familiar to investors who have lost their money down a mineshaft. A geological setback here and a mechanical failure there and, before Mr Budge knew it, Coalpower was making a hefty loss on every tonne it did manage to bring to the surface. In the space of 18 months, it had run up losses of £14m before government grants.

There was a further £15m of subsidy on offer from the taxpayer to develop Hatfield but that was little help when Mr Budge had to find the first £35m out of his own pocket.

The collapse of Coalpower probably puts paid for now to Mr Budge's other wheeze - the construction of a £350m "clean coal" power station next to the pithead to burn the output from Hatfield and use the surplus gases to power a fleet of buses. A lot of hot air has been talked about the technology and the plant has government approval, but that is about all.

The administrators from Ernst & Young are talking up the prospects of an early sale of the business as a going concern. But any deal is highly likely to involve a partnership with Mr Budge himself since he is the principal creditor. At least his track record is there for all would-be rescuers to see.

Water charges

John Roberts, the boss of United Utilities, has sat in enough smoke-filled negotiating rooms to know how to play his hand. The same applies to the forthcoming water price review where UU has used the tactic of pitching high with the aim of being dragged back down to the figure it always had in mind.

The company caused a few ripples in October when it put in for a 71 per cent increase in water bills for the North-west. The stuff may fall out of the sky for free but UU proposed charging its customers an average of £416 a year by 2010 for pumping it into their homes and dealing with the sewage that comes out the other end.

It always looked like a bargaining position and so it has proved. By the time UU submits its final business plan to Ofwat next April, Mr Roberts promises it will be a lower figure. Hey presto, the citizens of Manchester will still be paying more for their water than anyone else in the country but they will think they have got a bargain.

How much of a bargain will depend partly on the company and the regulator but mainly on the Government, which must decide come the new year just how clean it really wants Britain's rivers, beaches and drinking water to be.

The flood of water directives emanating from Brussels and the Environment Agency would be enough to swamp the family finances in many a home were they all to be implemented. Everything from lead in the mains to the welfare of the humble shellfish is covered by one Brussels missive or another for those with a mind to look.

UU has already sunk some £3bn into its network since 1999 and anticipates having to invest a further £3.5bn by the end of the decade, two-thirds of it as a result of new environmental requirements.

That implies some hard choices for ministers, managers and customers alike. The higher water bills are likely to be dropping on the doormat just in time for the next election so no guesses where the environment will rank on the Government's agenda.

As for UU, Mr Roberts has plugged the hole in his bucket with the help of a £1bn rights issue. But even with that, its balance sheet is going to groan with the strain of all the additional borrowing that the environmental clean-up will demand.

That could put paid to any further expansion. UU would quite like to buy a local gas distribution network from National Grid Transco. But the price tag will have to be a long way south of the £1bn being mooted by the vendors for it to make sense to shareholders.

As for customers, they are about to discover that while it may rain a lot in Manchester, that does not make for cheap water.

michael.harrison@independent.co.uk