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Climate change

ONS reveals fastest rate of UK price growth since 1997 but US signals a welcome climate change on inflation fight

Britain is living with a record rise in energy costs that pushed consumer price inflation up 2.5 per cent in June, according to the Office for National Statistics(ONS).

This is the fastest rate of price growth since the data series started in 1997. A resurgence in house price growth coupled with evidence of stronger economic expansion and rising inflation expectations will eventually push the Bank of England to increase UK interest rates, but not for a while. A spokesman for RBC Capital Markets said: We see rates on hold in August and the coming months. A gleam in the clouds was provided by US Federal Reserve chairman, Ben Bernanke, signalling that a pause in the relentless increase in US interest rates could provide a welcome relief soon - possibly next month. This would provide some evidence that US inflation has turned the corner and is poised to fall. Relief on the US inflation front pushed the UK stockmarket ahead by 100 points on 19 July but the market continues highly volatile, with an extra whammy being provided by the escalating warfare in the Middle East, which is sending the oil price sky high.

The pharmaceutical sector has continued to attract institutional investors looking for defensive stocks to calm down the oscillations in their portfolios.

AZ gets US green light for Symbicort
Shares in AstraZeneca (AZ) rose on 24 July as the company announced it had won US Food and Drug Administration (FDA) approval for its inhaled asthma drug, Symbicort, and intends to launch it in the US by the middle of 2007. The drug, for the long term treatment of asthma in patients over 12 years old, has already been approved for sale in nearly 100 countries and had global sales topping the $1bn mark in 2005.

With nearly 20 million US citizens afflicted with asthma, the approval from the FDA means AZ has the green light to sell Symbicort into the world's biggest pharmaceutical market, competing with GlaxoSmithKline's (GSK) Advair, which has yearly US sales of £1.6bn.

Genzyme declares better than expected results - but shares fall back
Genzyme, BTG's US partner, which sells BTG's leukaemia drug Campath, declared better than expected second-quarter results, but the shares still fell back. Oncology sales shot ahead 41 per cent to £13.7m. Genzyme is also developing a multiple sclerosis product, which will go into phase III trials in the second half of this year. The two-year trial data is due in the second half from phase II studies of the drug when used with Rebif, made by Pfizer.

ReGen - share price falls on rights issue, and more capital raisings may follow
ReGen Therapeutics, listed on the Alternative Investment Market, saw its share price fall 0.5p to 1.35p. ReGen is developing a treatment for Alzheimer's disease. The share price fell because it is raising £1.1m via a share placing at around 1p per share. ReGen is thought to be arranging the cash via J M Finn for the commercialisation of its Colostrinin drug as well as the development of other potential drugs. ReGen said other fund raisings may follow. The company announced that its Guildford Clinical Pharmacology Unit subsidiary is expected to produce a turnover of between £550,000 and £600,000. This is the only part of ReGen that enjoys a revenue stream.

Novartis disappoints but predicts good cheer
Novartis disappointed the City scribblers by turning in second-quarter profits less than they had estimated. This was primarily due to the costs of integrating Chiron, the vaccine and diagnostics company. Chiron has accounted for $127m of sales since it was scooped up on April 20, for the period up to 30 June.

Net income in the quarter increased from $1.6bn to $1.7bn on sales up by 18 per cent to $9.2bn. Pharmaceutical sales grew 11 per cent to $5.7bn. Cardiovascular sales climbed 13 per cent to $1.6bn with a robust showing by hypertension drugs, Diovan and Lotrel. Oncology sales rose 13 per cent to $1.5bn on the back of 20 per cent growth from Glivec which is used to treat chronic myeloid leukaemia.

Novartis predicts record sales and earnings for the full current year. Without the $209m of one-off hits from integrating Chiron, net income would have climbed by a very healthy 15 per cent. For the full year, Novartis anticipates the integration of Chiron will reduce net income by between $400m and $450m but will add about $1bn in sales in 2006.

Sandoz, Novartis' generics operation, saw sales soar by 74 per cent to $1.5bn. The purchase of Hexal and Eon Labs added 72 per cent to sales growth.

The new Medicare drug programme in the US boosted Novartis' US sales growth by 20 per cent to $2.4bn. By way of contrast, European sales rose by only 4 per cent as a result of government healthcare cost saving programmes leading to price cuts, and also due to the marketing of generic versions of some Novartis drugs.

Malcolm Craig is the author of 14 books on different aspects of successful investment ranging from the stockmarket to gold, from overseas property to gilts. He is one of the country's most respected investment commentators

2nd September 2008

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