Riches in Zeneca drugs pipeline; The Investment Column

Few could have guessed that shares in Zeneca would triple in the space of under four years, but since the spin-off from ICI, Britain's third-biggest drugs group has developed a reputation as one of the best on the market. The question for investors is to what extent the current price reflects long-running hopes that Roche or some other deep-pocketed rival may pounce and how much it is a measure of fundamental prospects. The former seemed to be gaining the upper hand yesterday, with the shares dipping 42p to pounds 18.605 on profit-taking and gripes that the company's new drugs pipeline was looking a little empty.

That looks churlish for a company which churned out a 15 per cent rise in underlying profits before exceptionals of pounds 1.01bn in the year to December. More so when you add in Zeneca's "aspirational target" of achieving 15 per cent a year average earnings growth over the next five years.

There was little to quibble about in last year's figures. More than 14 per cent of the underlying sales growth in the main pharmaceuticals business to pounds 2.44bn came from products launched in the past two years. The cost of developing and launching these products is holding back profits, up an underlying 6 per cent to pounds 757m in the division, but the prospects are encouraging. Casodex, the prostate cancer treatment, saw sales jump from pounds 10m to pounds 68m and now claims a 45 per cent share of the US prescriptions market. Arimidex, the breast cancer drug, managed pounds 20m sales from a standing start last year, while Accolate, Zeneca's delayed entry into the asthma market, is said to be doing better than Glaxo's rival Flovent.

The group is also excited about the prospects for Zomig, the migraine treatment acquired from Glaxo last year. News that Zomig has won its first official approval, from the UK, will pit it against Glaxo's rival Naramig product, which has also just gained its first clearance, from Sweden.

But this is a big market and both Zomig and the Seroquel schizophrenia drug to be launched later this year are set to achieve peak sales well in excess of pounds 200m.

These and other launches should tide the group over any temporary gap in drugs in late-stage trials, while further out, some of the 18 products in the development pipeline will come good. The company can also use its pounds 272m net cash to plug any holes: Zestril, the group's best-selling heart drug, was after all acquired from Merck.

Currency could hit this year's figures, so profits of pounds 1.1bn would put the shares on a heady forward multiple of 24, but by 1998 that could have fallen to 20, in line with SmithKline Beecham and Glaxo. Hold on.