Product Launch Costs Restrain Zeneca's Margins

17 March 1997

UK biosciences group Zeneca announced record financial results for 1996which were in line with expectations (Marketletter March 17). However the firm's share price has fallen after an initial climb on the news. Zeneca's share price may suffer in the short-term due the pressure on profit margins from the cost of product launches. The firm is in the process of rolling out a number of new products from all three of its business sectors; pharmaceuticals, agrochemicals and specialties.

Sir David Barnes, chief executive of the group, said: "in order to ensure that we derive maximum benefit from the growth of new products, we have increased our investment in capital expenditure by 33% in 1996." For the group, capital spending is running at 1.7 times depreciation. He stressed that he has no intention of reducing the level of expenditure.

Tom McKillop, who heads up Zeneca Pharmaceuticals, illustrated how the firm is investing in its infrastructure. In the USA this year, he expects the total number of sales staff to rise from the 1996 level of 1,200 to 2,000.

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