THIS year will see the trough in earnings at Medeva, the pharmaceuticals group, according to chief executive Bill Bogie.

Profitability in the past year has been hit hard by the decline in sales of methylphenidate, its attention deficit disorder drug. That is facing increasing competition and market share has dropped from 72% in the US to 55% as Schein Pharmaceuticals has entered the fray. Another competitor, Mallinckrodt, is about to follow suit, further increasing the pressure on prices.

The problems led to a 39% drop in turnover of the drug, which works on the central nervous system, to just #68m, accounting for only 21% of group sales of #321m.

Bogie expects a further deterioration in the current year.

As a consequence, its pre-tax profits almost halved to #59.3m, but confidence in the future was underlined by a 5% rise in the year's dividend total to 5.75p.

The profits setback was exacerbated by a non-cash #17m write-down in goodwill following the disposal of some activities in the US. However there was considerable progress with the non-central

nervous system drugs.

The most important in the estimation of the City is Hepagene, a treatment for Hepatitis B. An application has been made for testing in Europe. Yesterday, Medeva submitted a similar application for the crucial US market to the Food and Drug Administration.

It is hoped to complete the final stage of trials by the end of 1999. Hepagene has a distinct advantage over the existing licensed products, SmithKline Beecham's Engerix-B and Merck's Recombivax, which both require three injections over a period of some six months. In addition, about 15% of recipients do not ''sero-convert'', a major disadvantage when medical staff are involved.

Medeva's product, on the other hand, has 100% success and requires only two injections. Assuming Hepagene does receive the regulatory all-clear, it will not make any great impact on earnings until 2001.

Also in development are Valstar, a treatment for bladder cancer, and Asmabec Clickhaler for asthma.

Gene technology is still at an early stage, but Medeva is working on a cure for cystic fibrosis.

Current year profits could recede to around #45m and hold that level in 2000 before the benefits of new products are felt.

Although the shares have fallen from an all-time high of 340p and now trade at 100.5p, there is a general understanding in the City over what the company is about. The Hepagene Phase Three trials will be the next important indicator as to its fortunes.

FACT FILE

Final19981997

Pre-tax profit#59.3m#111m

Turnover#321m#355m

Dividend5.75p5.5p

EPS11.1p21.4p