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Gaining ground

The UK stockmarket appears to be back on track as the effects of the recent bear market recede

Back in May, when the stockmarket lost 10 per cent of its value on fears of rising inflation, interest rates and commodity prices, some City scribblers were asking how long the bear market would last. Not long, has been the market's answer as it recovered some lost ground on the back of a raft of bids and deals.

While the US has raised its interest rate yet again, in the UK, the consensus forecast is that we will see a rise in interest rates much later this year or even early in 2007. Recent nuclear sabre rattling by North Korea has also had an unsettling effect.

Sluggish market puts major pharmas under pressure
In uncertain times punters head for defensive stocks to protect the value of their share portfolios, and pharmaceuticals are usually regarded as a safe haven. The sluggish state of the market has seen pharma stocks under pressure. Both AstraZeneca (AZ) and GlaxoSmithKline were among the fallers in subdued trading on US Independence Day when US trading desks were closed. AZ shares fell 45p to £32.19 after analysts at ING Financial Markets lowered their `buy' rating to a `hold'. They said several key events over the coming months would determine the future value of AZ as a standalone business. In the market, dealers prefer GSK and European pharma groups sanofi-aventis and Roche Holdings.

On the bidding front, the merger of Boots and Alliance Unichem has been approved by shareholders. Boots and Moss pharmacy owner, Alliance, are joining forces to create a pharmacy giant with some 2,600 British stores in addition to a store network across 10 other European countries. The company, which is due to merge on 31 July, will be called Alliance Boots.

Speculation has also mounted that Swiss biotech company, Serono, is in the frame to make a bid for Shire Pharmaceuticals. On one recent day, 5.8 million Shire shares changed hands - in contrast with the usual daily average of 4.5 million.

GSK clinches deal with Futura over non-prescription drug for impotence
GlaxoSmithKline (GSK) has clinched a deal with Futura Medical over fast tracking a treatment for impotence, which will be sold without prescription. Futura, listed on the Alternative Investment Market, is currently researching a gel for erectile dysfunction. The deal is that GSK will pay about £2.4m to Futura to finance 65 per cent of the drug's clinical development and run the development programme involving up to three studies encompassing around 1,500 men. Regulatory approval is likely to be sought in 2008 and the first clinical study will start before the end of this year. Futura is aiming to raise more finance for the project via a share placing of up to £2.5m. The biggest prescription drug on the market for impotence is Viagra, made by Pfizer.

Hikma Pharma to announce joint venture with major pharma?
Hikma Pharmaceuticals saw a sharp 18p jump in its share price to 365.5p as speculators hope for an announcement of a joint venture to be clinched with a major pharmaceutical company. Hikma is the first Jordanian company to come to the London stockmarket, having floated as recently as last November. The share price reached a high of 458p in April.

Reverse takeover results in Curidium Medica returning to the market after suspension
Little known Cielo, which had been suspended at just under 3p, has just returned to active life on the stockmarket, under the name of Curidium Medica. This followed a reverse takeover by Cielo of Curidium, a drug discovery and development company which concentrates on identifying medicines which will treat patients more effectively.

Goldshield prospers despite swirling legal clouds
Goldshield, the generic pharmaceuticals company, cheered the market with a 51 per cent rise in pre-tax profits to £6.8m on sales much the same at £80m for the year to 31 March 2006. House broker, Numis Securities, is looking for pre-tax profits of £15.5m in 2007. Goldshield's net cash has more than doubled from last year's £6.2 m. The news provided a silver lining to dark clouds swirling around Goldshield as a result of the four-year Serious Fraud Office investigation into alleged price-fixing of antibiotics and warfarin, the blood-thinning drug. The investigation and the Department of Health's lawsuit against Goldshield look like firming up into a lawsuit in 2008. While legal costs ran at £1.7m in 2006 against £1m in the previous year, Goldshield's generic drugs business is showing good profit growth despite the 7 per cent pharmaceutical price reduction brought in by the Department of Health.

Immupharma - speculation on good results soon from lupus treatment
Immupharma, the early stage biotech company, is attracting the punters. There is speculation in the City wine bars that the company's treatment of lupus, the chronic rheumatic disease that affects muscles, joints and other areas of the body, has been successfully going through phase II trials with no significant side effects being reported. The lupus market is calculated by analysts to be worth £2.14bn.

Deltex Medical - disappointing sales stem from NHS budget constraints
Deltex Medical, which makes cardiac flow monitors, posted a pre-tax loss of £1.5m for the year to end December 2005 on sales of £3.04m as against a pre-tax loss of £2.77m on sales of £2.49m in the previous year. Sales have been poor, despite the success of Deltex's products - which monitor post-operation blood circulation by means of a probe into the oesophagus. Deltex reckons its poor sales result from NHS budget strictures - although using the probes can speed up bed usage. Deltex makes 25,000 probes yearly and they are used in 200 out of 300 hospitals. The company reckons doctors would use ten times the number of probes were it not for the NHS budget constraints.

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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