With the financial market backdrop likely to remain unsettled for the foreseeable future, sectors of the market which offer prospects for steady earnings growth will tend to be in favour. Typically in periods of slower economic growth the share prices of companies whose business is not heavily exposed to the economic cycle will tend to perform relatively well. These sectors will include among others: food retailing, telecommunications and pharmaceuticals.
Food retailing is a classic defensive sector with steady profit growth through good and bad times. Telecommunications and pharmaceuticals are sectors which are experiencing strong secular growth trends. Long-term growth trends in these sectors are so strong that many companies in these sectors will continue to grow strongly even in times of weaker economic growth.
Because of their higher longterm growth prospects companies in a sector such as pharmaceuticals will typically be highly rated by the stock market as the table highlights.
With the world population steadily ageing combined with advances in medical technology the demand for drugs looks set to continue to grow rapidly over the long term. Pharmaceutical stocks are poorly represented on the Irish stock market with the notable exception of Elan which has grown rapidly over the past two decades. The company is now the third largest company on the Irish market with a capitalisation of £5 billion. Elan is a leader in the development of drug delivery technologies and its revenues are derived from:
the sale of drug products and of medical diagnostic products and services;
licence fees relating to the attainment of product development milestones, and royalties from sales of Elan-developed products by third parties;
research revenues from collaborative agreements with pharmaceutical industry clients.
Elan's research and development activities focus on Alzheimer's disease and other neurological disorders including epilepsy, multiple sclerosis and Parkinson's disease. Although Elan's key strength is as the world's largest drug delivery company, it has actively broadened its product range through acquisitions. Its most significant recent acquisitions have included Sano Corporation and Neurex.
In recent days, Elan announced the acquisition of Nanosystems for $150 million (£101 million). The Pennsylvania-based Nanosystems has developed a technology which uses polymers to break down drug compounds for easier absorption by the body.
Elan's sales are forecast to come in at just under $600 million in 1998 generating profits of $250 million. Current stockbroker forecasts point to average annual growth in earnings per share of 25 per cent over the next three years.
Although Elan has been quoted for many years on the Irish Stock Exchange, the company was a pioneer as an Irish enterprise with a quote on the US Nasdaq market. The vast bulk of trading in the shares occurs in the US market and US investors dominate the shareholder base. However, more Irish investors are taking an interest in the stock and as the only Irish-based quoted pharmaceutical company it deserves to be represented in most Irish portfolios.
