City Waits with Open Arms for Wellcome on Valentine’s Day

Wellcome, Britain’s second largest drug company, is famed for its ability to bring together lateral thinking boffins and foot-in-the-door salesmen. When the company is floated on the stock market next month the City seems bound to unroll a red carpet, inscribed with an eponymous but fairly obvious message of greeting.

But the drugs group has been even cleverer. In order to guarantee a good reception for the shares, it has arranged for trading to start on February 14, St Valentine’s Day. It is hoping for love at first sight.

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Even though the stock market has fallen recently, there seems little doubt that investors will be queuing up, cheque books in hand, to subscribe for shares. After the flotation the group will probably be valued at comfortably over pounds 1 billion.

A special poignancy attaches itself to the whole idea of a Wellcome flotation. Underlying its undoubted commercial success there is a hard core of traditional philanthropy, not unlike the Quaker traditions which are part and parcel of Rowntree Mackintosh. It is the commitment to human well-being, as well as a keen eye for the market opportunity, which has led Wellcome to plough huge chunks of its research and development budget into work on treatments for herpes and Aids.

Until now Wellcome’s only shareholder has been a charity, the Wellcome Trust. It was the trust’s decision to sell some of its shares, so it could spread its investment portfolio, that has led to the flotation.

According to Sir David Steel, chairman of the trustees, there was concern about having ‘all our eggs in one basket, notwithstanding the excellence of that basket’.

The relationship between the trust and the company dates back to 1936, the year Sir Henry Wellcome died. Sir Henry, a pharmacist and collector, founded Wellcome in 1880, together with Mr Silas Burroughs, a fellow American and a keen salesman.

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From the start there was a tension between Sir Henry’s strong commercial instincts and his religious background. When he was 21 he wrote to his parents: ‘I have always had a desire for wealth and still have ..but I want to live a life devoted to the true God and to mankind’.

The trust was set up under the terms of Sir Henry’s will. It was to own the company, then called Wellcome Foundation, so it could use the profits for medical research. In the 50 years of its existence the trust has received pounds 150 million from Wellcome. It was able to spend pounds 22 million last year, making it the largest medical research charity in Britain.

Wellcome, the company, has an almost unrivalled reputation for producing new drugs. Historically it has attracted some of the brightest and best researchers available and, until last year, it had what many in the scientific community regarded as the best pharmacological department in the country.

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It was led by Sir John Vane, a Nobel prize winner, and Sir James Black, another world renowned scientist. Their time saw the development of both Septrin, an important anti-bacterial, and Zyloric, a treatment for gout which still accounts for 10 per cent of Wellcome’s sales.

But their main contribution to Wellcome was their work on anti-virals, a field where Wellcome now has a commanding lead. Zovirax, a treatment for herpes, was forst launched in 1981, when many Americans feared an outbreak of epidemic proportions.

Wellcome is currently carrying out clinical trials on a new anti-Aids drug but, as the company is the first to admit, it could be years before the drug reaches the market.

The time lapse between discovering a drug and launching it on the market makes it difficult to assess the contribution of individuals. It is clear, however, that the presence of Sir John Vane and Sir James Black attracted other brilliant researchers, who seem to have been undeterred by rivalry between the two great men.

Whether or not it was as the result of a power struggle or on the advice of Arthur D. Little, the consultants brought in to report on the management of Wellcome’s research, both Sir James and Sir John left the company last year. As one academic put it ‘Morals was shattered. The two big names had gone and, as if to add insult to injury, the Trust gave a vote of no confidence by announcing its decision to sell some of its shares.’

Earlier this month Dr. Pedro Cuatrecasas, the head of American research, announced plans to join Glaxo, Britain’s largest pharmaceutical company. Wellcome’s public relations team did its best to play down the importance of the departure but its task was made by more difficult by subsequent events.

With only two weeks to go before the prospectus was due out, Mr Bill Sullivan, the head of Burroughs Wellcome, the American subsidiary, resigned very suddenly on January 13.

Wellcome’s chairman and chief executive, Mr. Alfred Shepperd denied there had been a dispute about who would be heir apparent, but Mr. Sullivan’s unexpected loss nevertheless underlines the tension between the American and British ends of the operation.

The United States has powered Wellcome’s growth in the past five years, when sales have doubled from pounds 500 million to pounds 1 billion and profits have risen from pounds 50 million to pounds 122 million.
The loss of four key figures in less than 12 months is particularly unfortunate in view of the imminent flotation.

Wellcome is doing its best to dispel the cloud hanging over it with roadshows and presentations to financial institutions. But there is no British Telecom style appeal to private investors.

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Great play is being made of the company’s future plans, in which the anti-Aids drug clearly plays an important part. Other new drugs include Wellbrutin, an anti-depressant which will be launched in the US this year and a new antihistamine, and research continues on treatments for glandular fever and further uses of existing products. Wellcome is also trying to break in to the Japanese market.

These projects should keep Wellcome’s profits moving firmly forward over the next two or three years. This year, however, is proving more problematic, thanks to the vagaries of the exchange rates. The fall in the dollar has hit Wellcome hard so that it is not expected to push up profits very far in the year to end August. The flotation could have been better timed.

The shares will not be finally priced until January 29, when the prospectus is published. Unlike the Government, which has an interest in sponsoring people’s capitalism, Wellcome Trust only has an interest in raising as much money for research as possible. This means the margin for error is small. This time it is science and not the Treasury that benefits.

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