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Join the crowd

Investors jostling in the market as they search for the bright young stars in the pharma and biotech sectors

The UK stockmarket continues in bullish mode as it strives to consolidate above the key 6,000 level as measured by the FT-SE 100 Index. Reasons? Sky-high demand for commodities, particularly metals, has sent prices soaring with potential economic giant China being the main buyer. Oil prices have hit a record high, which is bad news for companies' profits as energy costs mushroom. Despite the bad news we should see Footsie 6,500 breached during the summer months and the all-time record of 6,930, reached on the last trading day of 1999, overtaken by the end of 2006.

Investors crowd into private pharma and biotech companies
The pharma and biotech sectors came alight as hands-on investors crowded in to look for promising newcomers. Buying into the right company at an early stage can bring mega returns in the current climate as bigger biotech and pharma companies scoop up their smaller brethren in order to boost their drug pipelines.

Chroma, based in Abingdon, pulled in £30m to invest in researching small molecule drugs. Ingenium of Germany attracted £6.4m from investors to develop its range of painkillers.

Meanwhile, Richard Barker, director general of the Association of the British Pharmaceutical Industry (ABPI) is trying to get Chancellor, Gordon Brown to bring in tax breaks, to reverse the decline in the amount of pharma business carried out in the UK.

The other worrying trend is the transfer of specialised drug research work to low-cost countries such as India. UK medicines earned a trade surplus of £3.4bn in 2005 - a sharp 8 per cent fall on the previous year. The erosion of research and development has been building up for some years and Barker wants to see Gordon Brown bring in tax sweeteners to encourage more clinical trials to take place in the UK.

Chi-Med joins up with AIM to release potential from traditional Chinese drugs
Foreign pharmaceutical companies continue to crowd on to the London stockmarket, some choosing the less regulated Alternative Investment Market for capital raising and share trading purposes. The latest arrival is a spin-off from far-eastern giant, Hutchison Whampoa, Chi-Med, which is coming to AIM to raise cash for drug research. Chi-Med focuses on developing drugs to attack tumours that hit the body's immune system. Its drugs are based on age-old Chinese medicines which it believes are worth researching to pick out new drugs for the worldwide market.

Hunter Fleming is also aiming for AIM
A Bristol-based pharmaceutical company is also looking to join AIM in the next 18 months. Hunter-Fleming, backed by nearly £16m of venture capital finance, has linked up with a US partner to develop a new asthma drug. It is also focusing on treatments for heart attacks, rheumatoid arthritis and Alzheimer's disease.

Bayer bid for Schering could lead to overdue shake-up in German pharma sector
Bayer has launched an official bid for Schering of £11.4 bn - a further consolidation in Germany's pharma sector should follow if the bid goes through. Leading drugs made by the two pharma giants include Bayer's Kogenate for haemophilia A, and Schering's Betaseron for multiple sclerosis and Yasmin, a birth control drug.

The combined company will have sales of Ä14.9bn and Ä9bn from prescription medicines.

The merged companies are to focus on three markets: cancer drugs, blood and heart medicines and hormone treatments.

Schering had earlier resisted a hostile Ä14.9 bn bid from Germany's Merck - Bayer had entered the fray as a welcome white knight. The merger is expected to lead to a reduction in the combined work force to 54,000 from 60,000.

This is the latest in a series of deals for Bayer, which has been reorganising its business. It bought Roche's over-the-counter (OTC) drug business in 2004 to concentrate on healthcare. In 2005 it sold off most of its chemicals operations by spinning them off via a new quoted company, Lanxess.

Landmark victory for Herceptin
Ann Marie Rogers, a patient suffering an aggressive form of early-stage breast cancer won a landmark victory in the UK Court of Appeal to continue receiving Herceptin, a drug made by Roche, which costs £24,000 for a year's course of treatments. Herceptin is licensed for use in women with advanced breast cancer and is believed also to halve the possibility of contracting the aggressive HER2- positive form of breast cancer.

Ms Rogers had been told by the High Court in February that Swindon Primary Care Trust was entitled not to fund her course of Herceptin. The PCT `s case was that it would only provide Herceptin to women with early stage breast cancer in `exceptional circumstances' and Mrs Rogers was not eligible - despite the fact that her doctor had prescribed the drug as the best treatment for her breast cancer. The Court of Appeal said there was no rational basis for preferring one patient against another and ruled that the treatment should concentrate on what a doctor felt was right for the patient.

There are major cost implications for England's 303 primary care trusts (PCTS), which have to evaluate which other treatments to stop financing in order to pay for Herceptin.

CeNeS Pharma - gleam in clouds despite losses provided by M&G morphine treatment
CeNes Pharmaceuticals announced a pre tax loss of £7.2m for the year to end December 2005 against a loss of £5.4m in 2004. Turnover rose a little from £54m to £55m.

The gleam in the clouds is that CeNeS is to carry out final trials of its M&G morphine treatment this year. If successful, there will be calculable cash flows as from 2008 and the possibility of a partnership deal with a big pharma manufacturer. The morphine treatment could hit sales of $250m yearly worldwide and CeNeS could collect royalties of $50 million a year, at the 20 per cent royalty rate.

CeNeS is also carrying out intermediate trials on its drug for neuropathic pain, which could bring in $350m a year. Broker Canaccord Adams forecasts a 2006 pre-tax loss of £8.84m.

SkyePharma poised to announce bigger than expected loss
SkyePharma is poised to announce an operating loss of up to £36m in its last financial year when it posts its results on 19 April. While the City was expecting to hear a loss of £26m, the extra loss is due to the costs of developing Flutiform for treatment of asthma. No major news is anticipated by the City on a licensing deal for Flutiform or the sale of the injectables business. Revenues should come in at £66m against £75.2m last year - the fall resulting from slow sales of DepoMorphine, the painkiller, in the US and the withdrawal of the Foradil Certihaler in Switzerland and Germany as a result of problems over dosing.

Malcolm Craig is the author of 14 books covering aspects of successful investment from the stock market to the money markets, from gilts to gold, from alternative investments to buying overseas property.

2nd September 2008

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