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Crash landing

Equity markets around the world have headed south after suffering a severe bout of jitters. Big pharma shares, both in the UK and in other major markets, however, were star performers.

marketeyeEquity markets around the world have headed south after suffering a severe bout of jitters. Investor confidence in the outlook for equities was shaken hard by mounting uncertainties over prospects for the US economy and equities.

Not surprisingly the UK stock market briefly touched a new low for the year on Monday, with the FTSE 100 Index nearly falling through the 4,800 level after the Dow Jones Industrial Average sank to its lowest levels since last November.

Poor US retail sales figures and trade data showing a slowdown in domestic demand were major catalysts behind the Dow Jones Industrial Average's worst one-day decline, on Friday, in almost two years.

Big pharma shares, both in the UK and in other major markets, however, were star performers as investors shifted their money into a sector perceived as being undervalued and offering tremendous defensive qualities.

The sector also benefited enormously from news that US group Eli Lilly & Company won a landmark patent case, seeing off a patent challenge on Zyprexa, its schizophrenia drug. Credit Suisse First Boston upgraded the sector from market weight to overweight in the wake of Lilly's victory.

Pharma stocks shine
In something of a role reversal, AstraZeneca shone to become the best performing FTSE 100 stock, gaining nearly 5 per cent last week, while the market lost almost 2 per cent.

GlaxoSmithKline was also one of the best performers, largely ignoring a lawsuit lodged in a US court by American shareholders who allege that they have lost money because of negative publicity surrounding Paxil, a depression treatment. The pharmaceutical and biotech sector has easily been the best performing sector recently.

Tysabri trial lifts Elan
Meanwhile, Elan's battered shares enjoyed a good bounce after a clinical trial confirmed the effectiveness of its multiple sclerosis drug

Tysabri, which was suspended recently after a couple of patients taking the drug developed a rare neurological disease. The 10 per cent rise in the Irish drug group's share price reflects investors' hopes that Tysabri may, in time, return to the market.

Biotech benefits from Novartis deal
Investors warmed to the biotech sector on the news that Novartis, the Swiss pharma group, has signed a deal with two small UK biotech companies to jointly develop a respiratory treatment.

In terms of the deal, Vectura Group, an AIM-listed company that specialises in respiratory drugs, and privately-held biotech company Arakis, equally share an upfront payment of $30m from Novartis. Thereafter, the Swiss group could pay up to $375m (£200m) as well as royalties depending upon the success of their treatment which is under development for chronic obstructive pulmonary disease (COPD).

Both the biotech companies will receive further payments as their drug clears clinical and regulatory hurdles and, if the drug receives regulatory approval, it could be on the market by the end of the decade. They will also receive additional royalties from the treatment, if used on its own or as part of a combination therapy with Novartis' products.

The market for COPD treatments has been estimated to be worth around $10bn. Vectura's share price gained almost a fifth in value last week, while Arakis' management has indicated that it might go down the IPO route this year, although such a move is unlikely.

Xenova secures agreement
Shares in drug developer Xenova also sparkled after it announced a licensing deal with PharmaEngine to market its brain cancer drug, TransMD, in China and South Korea.

Oxford BioMedica in takeover speculation
Oxford BioMedica shares soared to a fresh high for the year on the back of renewed takeover speculation. Recently, the biotech company confirmed that merger talks with an unnamed suitor terminated and its share price slumped.

Akers reports widening losses
Elsewhere, Akers Biosciences shares were hit hard, losing a little more than a fifth of their value after the company, which makes rapid diagnostic screening and testing products, reported substantially widening losses for last year. Earlier this week Akers recovered some lost ground after the market re-evaluated the company's briefings to investors last week.

2nd September 2008


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