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Falling Economy

The UK economy is still falling into recession at a pace that could lead to the Bank of England's minimum lending rate being cut back to one or even zero per cent

Economic Blues
The UK economy is still falling into recession at a pace that could lead to the Bank of England's minimum lending rate being cut back to one or even zero per cent. Across the Atlantic, facing the same situation, the Federal Reserve Bank (the US' central bank,) has cut its interest rate down to 0.25 per cent.

Despite this, the US mortgage rate is likely to stay at 5.5 per cent as banks have become highly risk-averse and need to rebuild their battered balance sheets. The same scenario is unfolding in the UK as banks and building societies continue to ignore falls in the UK minimum lending rate and are keeping their mortgage rates high in order to restore their profit margins and balance sheets.

Naturally, the worst hit are the savers whose real return on their investments has now become negative. Sterling continues to weaken as the Euro rises. Soon we will see the euro on a one-to-one basis – and travellers are being given exactly that from the foreign exchange kiosks. The last great currency crisis in the 1970s saw the pound almost at parity with the US dollar. Good for exporters but not for importers, or for those going abroad on once cheap shopping expeditions.

The UK stockmarket continues trading quietly in the run-up to Christmas with nervous investors buying into defensive sectors  – notably pharmaceuticals – which offer reliability on the dividend front and the knowledge that come what may on the recession front, people will continue to fall ill.

The chinese pharmaceutical company, China Medical System, submitted the outcome of its trials of its liver cancer drug to the State Food and Drug Administration (SFDA), way back in 2005 but this was blown into touch after the head of China's SFDA was executed in a political backlash. Now it is up and running again and the company reckons the cancer drug will be ready to be sold in 2012. China Medical System, imports and sells drugs from China itself and from overseas via a huge sales network catering for 6,500 hospitals. In addition to its cancer drug, it has other drugs in its pipeline and a division that sells traditional Chinese medicine.

NICE – U-turn on kidney cancer drugs?
We can expect news early in 2009 that NICE will announce a U-turn over its ban on certain kidney cancer drugs. The drugs, which cost around £70,000 per patient each year, were previously deemed by NICE to be too expensive. The four drugs for advanced kidney cancer – Sutent, Nexavar, Avastin and Torisel – could be released from their ban and made available on the NHS for treatment of advanced kidney cancer patients. The drugs are available in Germany, France, Spain and many other countries and new research in the US has found that Sutent is more effective than once thought. 

Renova – good news on Juvista for scar healing
Renovo, the pharmaceutical and biotechnology company, announced a loss of £16.7m on turnover of £7.6m for the year-to-end September, 2008. This compares with a loss of £23.2m on sales of £490,000 in the previous year. The company has £83m in its treasure chest, so it has enough cash to last until its lead product, Juvista, comes to market.

Other good news for Renovo includes positive results in its trial for Juvista, the scar healing treatment for varicose vein operations, with the final trial for the treatment due to take two more years. Earlier, Renovo hit a problem with Juvista, when its use in a clinical trial last March failed to lessen scars left by breast enlargement operations. The company believes that the latter trial used the wrong dosing and this has now been corrected by doubling the dose from 250 nanograms to 500 nanograms for breast surgery.

As well as Juvista, Renovo has another drug, Juvidex – for treating facial peeling after laser surgery, undergoing clinical trials. Results from this trial are due in the first half of next year. Zesteem, which was designed to heal scarring after skin grafts, has been abandoned.

Primary Healthcare looks well set to tackle the recession
Primary Healthcare is one of the biggest suppliers of healthcare properties in the UK. It supplies, builds and owns GP surgeries, pharmacies and other healthcare facilities across the country. It offers an attractive buying opportunity to investors seeking income, as the dividend yield is 6.5 per cent, which looks safe enough as revenues are locked in well into the future, with the average length of its leases being 19 years. In addition, revenue inflows look safe because over 90 per cent of its revenue comes from the NHS, and Primary Healthcare has an occupancy rate of virtually 100 per cent. With life expectancy rising, the company is selling into an expanding market.

The Author:
Malcolm Craig is a freelance financial journalist and author.

22nd December 2008

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