PowderJect pays price for trust
Making drugs can be a dangerous business, especially if you are a high-profile Labour party supporter.
PowderJect Pharmaceuticals, whose founder Paul Drayson was at the centre of the Government smallpox vaccine controversy, found that out yesterday after his company withdrew its tuberculosis vaccine because of potency concerns.
As a one-off cost, the withdrawal will cost the company £5m of its expected £25m pre-tax profit this year. The company's market capitalisation, however, fell by a hefty £91m as the shares slumped 99.5 to 324.5p.
Is this overdone? The withdrawal of the vaccine is not good news - it damages the company's reputation as a safe and trusted producer of these important commodities. Drayson says that the vaccine is produced in a different place from the rest of its stock and by a different process.
He also assures us that the vaccines would still have been effective at the lower potency level. The Department of Health has commended PowderJect on its swift action - so all may not be lost at the reputation level.
How important was the tuberculosis vaccine? It accounted for 6pc of sales, but Drayson indicated yesterday that sales forecasts should remain unchanged because of good progress in PowderJect's other products.
It would face competition if it wanted to get the TB contract back after this recall, but TB is not a growth area for the company, which is concentrating on 'flu and high-margin travel vaccines.
Yesterday's share price fall puts PowderJect on 15 times forward earnings, after adjusting to yesterday's news. The shares are now near the lows they reached after September 11, and well off their October/November highs of more than £6.
Yesterday's news was bad, but the shares have reacted disproportionately. Buy on weakness.
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