Glaxo Wellcome: Building For The Long Term

Industry observers and analysts agree that Glaxo's acquisition of Wellcome has improved the company's financial prospects. Analysts Paul Krikler and Mark Tracey at Goldman Sachs suggest in a new report on the recently-formed entity that the Wellcome acquisition will build a company better positioned for the long term, taking Glaxo Wellcome into the next century.

In the short term, the Goldman Sachs analysts say that sales growth for GW will be very modest; in the low single-digits over the next five years. They are forecasting modest top-line growth over the coming years, bearing in mind that GW will have sales erosion due to generic competition for the antiulcerant Zantac (ranitidine) and the antiherpetic Zovirax (aciclovir). They suggest generic competition will impact in 1997 regarding Zantac and has already started and will continue with increasing expiry of patents for Zovirax.

There will be positive growth in earnings per share, with an average level of 9% over the next five years suggested by Messrs Krikler and Tracey. This growth rate will be driven in the main by cost-cutting benefits from the integration of the two businesses. They are predicting annual cost savings will come in at around L900 million in 1998-99.