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Helter Skelter

The UK stock market has taken a tumble to 6,050 as measured by the FTSE 100 Index. The slide in the US dollar has brought with it uncertainty, which is just what the market dislikes

The UK stock market has taken a tumble to 6,050 as measured by the FTSE 100 Index. The slide in the US dollar has brought with it uncertainty, which is just what the market dislikes. The dollar's continuing slide towards a $2 for £1 level results from the forecast weakness of the world's biggest economy. The UK cannot fully insulate itself against this and inevitably there will be knock-on effects on this side of the Atlantic; the stock market now looks vulnerable to further sharp corrections - reflecting a more gloomy scenario.

US broker Morgan Stanley, however, is bullish about European equities as a whole, due to bids and deals activity - globally £180bn of private equity is awaiting investment, valuations are still attractive and the macro economic outlook is set fair.

The pharmaceutical sector, traditionally seen as a safe haven in times of trouble, is attracting increased interest as a result of the current wave of bids and deals between companies and for biotechnology firms with strong drug portfolios in their pipelines.

AstraZeneca to bid for Shire?
There is speculation in the market that AstraZeneca (AZ) is focusing its bidding sights on Shire Pharmaceuticals, with another possible suitor being Forest Laboratories of the US. Some analysts reckon that Shire is fundamentally a US business and so any of the major US pharmacos could make a bid for Shire and its high-profit margin gene therapy products. Other possible US takeover targets include Acambis, particularly vulnerable since it was stopped from bidding for a major US smallpox contract, and Renovo. AZ has moved to try and prop up its share price, which has slid to a three-month low, by scooping up 375,879 shares for cancellation. A month ago, the firm's shares were exchanging hands for 3,529p, against 2,919p now.

Merck wins vital Vioxx ruling
Merck, manufacturer of Vioxx, has won a vital ruling in the US. Judge Eldon Fallon rejected the move to combine thousands of federal lawsuits - all claiming that Vioxx was responsible for heart attacks and other conditions leading to death or injury- into one national class action which could be tried under laws in New Jersey, where Merck is based. There are more than 7,000 outstanding lawsuits individually launched against Merck.

Fulcrum Pharma/acquisition of Quadramed
Fulcrum Pharma delivered a pre-tax profit of £154,000 for the year to end August 2006 against a loss of £76,000 in the same period in the previous year. Sales were ahead 22 per cent to £15.45m.

Fulcrum has four fee earning drug development businesses - oncology, anti-inflammatory, central nervous system and malaria. Its key measure of success lies in certain sales areas, which rose by one third, to £8.3m. Fulcrum enjoyed strong sales in Europe where sales rose from £3.08m to £5.16m. In the US, sales dropped by £175,000, to £1.35m.

In February 2006, Fulcrum bought Quadramed, which provides regulatory compliance services for drug companies and contributed an operating profit of £154,000 on sales of £1.09m. Brokers expect Quadramed to be a big contributor to the £500,000 of profits expected in 2006-2007 on a fee income of £10.5m.

Latest Vectura/Innovata results follow surprise announcement
Hot on the heels of Vectura's £126m bid for Innovata, the inhaled drug specialist, the two companies - which together will form a major player in the lung disease drug development sector - rushed out their results. Vectura delivered a loss of £2.7m for the half year to September 30, 2006, against a loss of £2.4m in the same period in 2005. Sales streaked up by 69 per cent, to £6.1m.

When the Innovata deal is completed, the merged companies will move to the main market from AIM. Innovata delivered a profit of £7.3m for the year to September 30, 2006 (against a loss of £6.6m in 2005) on sales up by 72 per cent, to £33.6m. When merged, Vectura and Innovata will have a cash pile of around £92m.

Vectura gets Innovata's haemophilia drug, Advate, marketed by Baxter, which should generate revenue of $900m this year. Innovata also has an early-stage inhaled insulin drug which it believes is more acceptable to patients than Pfizer's Exubera. A US licensing deal is in prospect for Vectura's asthma drug and there will be further deals for its sexual dysfunction drugs given positive results from current trials.

Malcolm Craig is the author of 14 books on different aspects of successful investment. He is one of the country's most respected investment commentators

2nd September 2008

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