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Bright spot

UK stock market enjoys its best week in three years, but pharma sector underperforms

The stock market shone brightly, enjoying its best week in more than three years with the FTSE 100 hitting a two-month high at the close on Friday. Helped by a surge in global equity markets, the blue-chip index soared 4.5 per cent to come within spitting distance of the important psychological 6,000 mark.

Investors turned their focus away from the conflict in the Middle East, high oil prices, rising inflation and interest fears, and for the time being at least, risk aversion concerns melted into the background as equity prices moved higher. In the US, better than expected corporate earnings, merger and acquisition activity, a bond market rally and encouraging economic data were positive factors that helped propel the UK stock market as did some positive results from domestic companies.

The pharmaceutical and biotech sector, however, underperformed as investors piled into cyclical stocks. There was also some disappointment that full-year earnings guidance from the big two UK firms, GlaxoSmithKline (GSK) and AstraZeneca (AZ), did not quite meet optimistic market expectations.

GSK kicked the reporting season off with first-half earnings rising strongly, boosted by a share buyback programme, and fuelled by healthy sales growth of 13 per cent. The interim dividend was hiked by 10 per cent. On the sales front, its vaccines business did particularly well and Avandia, its diabetes treatment, achieved a 29 per cent sales increase. Sales of Advair, the asthma treatment, chalked up a double-digit gain. The group divulged that its vaccine against the H5N1 virus under development is on course to become the most effective treatment against the deadly strain of avian flu.

An earnings guidance upgrade by GSK for the full year from 10 to 12 per cent was less than some people were hoping for after the good first half showing.

AZ's share price fell significantly after its full-year profit forecast statement failed to quite live up to an expectant market's hopes, boosted by rumours that it might raise its profit forecast for the full year. Much of the gain made by the share at the start of last week, when it hit a four-year high on the back of news that the group had won US regulatory approval for asthma treatment, Symbicort, was wiped out. Profits for the second quarter were ahead of expectations. Total sales were up by a tenth with sales of Crestor, the cholesterol drug, surging by more than 50 per cent.

Shire Pharmaceuticals' first-half figures matched expectations with turnover up 12 per cent even though second-quarter earnings were lower. Shareholders were pleased to hear about the group's hopes of launching a new attention deficit hyperactivity disorder (ADHD) treatment in early October. Its best selling product, Adderall XR, an ADHD treatment, is facing the threat of generic competition. Shire's share price moved significantly higher on Monday after stockbroker, JP Morgan, raised its target share price to 1000p, a healthy premium on the current price.

Shares in vaccine maker, Acambis, dipped sharply after it said changes in the tender process for an important US smallpox vaccine called MVA would result in marginally lower total revenues for this year than it previously provided guidance for. Not even an announcement a few days later on Monday of promising preliminary results of an intermediate phase II clinical trial of its new smallpox vaccine, stemmed the slide in the share price towards a 12-month low.

After plunging to a new low, shares in Oxford Biomedica perked up after the gene therapy group said its clinical development plan for TroVax, its cancer immunotherapy product, is on track. It also said that it is in talks with a number of potential commercial partners for TroVax, all of whom have the capability to support the group's plans for the drug as well as the successful marketing of the product.

Biotechnology group, Asterand, whose share price has been under heavy pressure, said that its chief executive and co-founder, Randal Charlton, plans to retire when a successor has been appointed. The group, which is the product of a merger with Pharmagene in January this year, also said that considerable progress has been made in integrating and restructuring the two businesses. Its share price was a little higher on the news.

A solid debut by biotech Napo Pharmaceuticals, which has developed a treatment for irritable bowel syndrome and diarrhoea through using a medicinal plant from the Amazon rain forest, warmed the hearts of biotech backers waiting in the wings to undertake a stock market flotation. Napo, which has drawn some media interest because it is backed by Robert Kennedy Jr, the son of Bobby Kennedy, finished its first day of trading at 90.5p, a healthy premium on the price the shares were placed at when it raised fresh funds.

2nd September 2008

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