Outlook: AstraZeneca takes the slimming pill

FOR A long time Astra and Zeneca were the two wallflowers of the pharmaceutical industry's mating game until they too decided that big was beautiful after all. However, since their nuptials in the spring, the happy couple have turned into the incredible shrinking drugs company.

AstraZeneca's stock market value has fallen by a quarter since April, threatening its status as the world's fourth-biggest pharma company. At the same time, the Anglo-Swedish group has been disposing of unwanted businesses like a reformed hypochondriac clearing out the medicine chest.

Speciality chemicals was sold off for $2bn and now AstraZeneca has hoisted a for-sale sign over its agrochemicals business, which could fetch another $6bn.

It scarcely needs saying that these are not the best of times to sell an agrochemicals business. The scare over genetically modified foods has turned life sciences companies into everyone's favourite punchbag, however much AstraZeneca may insist that GM tomato puree and fungal-free bananas are only a tiny part of its portfolio.

But the bigger drag on the business is the collapse in commodity prices. Wheat, soya and corn are now so cheap that the last thing farmers want is AstraZeneca telling them how its latest pesticide will improve crop yields.

There is also a problem of scale monopolies. Unlike the pharmaceuticals industry, agrochemicals is a highly concentrated sector with 10 companies controlling 85 per cent of the world market. A sale to any of the obvious suspects such as Aventis, Novartis or Monsanto would court anti-trust difficulties.

Of course, the biggest challenge for AstraZenca is not what to do with the unwanted bits of the group but where its core business is going. The rationale for the merger was to strip $1bn out of costs and improve the drugs pipeline by combining the two companies' research and development budgets.

AstraZeneca's two blockbuster drugs - the ulcer treatment Losec and the cardiovascular treatment Zestril come off patent in 2001. Since they account for a third of total group sales, there is more than a passing interest in what will replace them. It is uncertainty about this which has depressed the share price as much as anything.

The great white hope is Perprazole, AstraZeneca's follow-up to Losec. But the group is not due to publish any research data on the drug until the autumn. Until then, the shares will continue to suffer from the shakes while investors will just have to keep on taking the tablets.