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Losing ground

Pharma shares continue to underperform as worries intensify over the growing strength of generic competition

After two years, the long anticipated increase in UK interest rates has finally arrived, to the alarm and surprise of over-borrowed Britain. Further interest rate rises could take place in the first half of 2007, although we may be saved from higher borrowing costs by the pause in the long run of US interest rate hikes.

The stockmarket, which fell back sharply on news of the interest rate rise, is still highly volatile due to inflation fears along with the escalation of conflict in the Middle East, but is not showing any signs of developing into a full blown bear market.

Pharmaceutical shares continued to underperform the overall market as worries intensified as to the growing strength of generic drug producers. Both GlaxoSmithKline (GSK) and AstraZeneca (AZ) lost ground. GSK fell in price due to going ex-dividend and its share price was also hit after an adverse court ruling against US partner Biovail Corp which could lead to an earlier than anticipated generic version which would compete with Wellbutrin XL, GSK's anti-depressant. AZ was also marked down by 25p.

AZ clinches deal with Pozen over ulcer drug Nexium
AZ is to pay up to $375m to America's Pozen to develop together new pain relief drugs with less side effects than others on the market. AZ has clinched a separate deal with Pozen over the development of combinations of Nexium, AZ's ulcer drug, and naprozen, Pozen's pain drug. AZ will pay Pozen a front-end fee of $40m, along with potential development and regulatory milestones of $160m and potential sales milestones of $175m.

The US Food and Drug Administration (FDA) has given the green light to a 25mg dose of a generic form of AZ's Toprol XL. The generic drug is made by the Novartis unit, Sandoz. AZ reckons the generic drug will not eliminate all of its Toprol XL sales, which totalled $1.74bn in 2005.

Rosemont in MBO from US parent
Rosemont, the UK pharma that makes liquid medicines, has launched a £93m management buy-out from its US owner, Savient Pharmaceuticals, which is quoted on Nasdaq. Liquid medicine is a fast growth area due to the increasing number of elderly patients who cannot swallow tablets and Rosemont is the biggest British operator in this market.

Vernalis trials diabetes pain killer drug on humans
Vernalis, the UK biotechnology company, has started a human trial for its experimental pain drug (V3381) for diabetes. Between 10 per cent and 30 per cent of diabetes patients suffer neuropathic pain. The drug, if successful, would provide a major breakthrough as there are few drugs focused on neuropathic pain, caused in the main by diabetes. Diabetes is hitting an increasing number of people, partly as a result of the rising trend of obesity. The drug is potentially a blockbuster - global revenues for treatments for neuropathic pain were worth around £1bn in 2004 and are estimated to rise to $3.5bn by 2009.

Vernalis - the product of a merger of Vernalis, British Biotech and RiboTargets - makes Frova, for treating menstrual migraines, which is with the FDA for marketing approval.

Beximco boosts profits
Beximco Pharma, the Bangladeshi generic drug manufacturer, posted a pre-tax profit up 40 per cent at £382,000 on sales up 39 per cent at £2.59bn. Beximco undertakes contract manufacturing for Novartis and GSK. The company also produces its own generic drugs from a plant in Dhaka, Bangladesh including a generic version of Tamiflu, Roche's antiviral treatment.

The company has invested £25m creating five oral solid-dose production lines to meet FDA standards. These drugs could boost output nearly fivefold from the current level of 1.3 billion tablets.

Regen posts loss
Regen Therapeutics, which has Colostrinin for Alzheimer's disease, announced a loss of £2.22m on sales of £15.7m for the year to end December 2005. Back in July, the company announced it had clinched a deal to distribute Colostrinin in the USA. It has now abandoned its attempts to gain drug status for Colostrinin and is seeking instead large-scale over-the-counter nutraceutical sales. Some research papers confirm that Colostrinin helps treat chronic disorders of the central nervous and immune systems.

Probe into long acting beta-agonists
The long acting beta-agonists, or LABA, drugs are to be investigated as a result of concerns that they may prove fatal if wrongly prescribed. The Commission on Human Medicines has contacted the Medicines and Healthcare products Regulatory Agency (MHRA) to find out whether LABAs are being used properly. UK guidelines require LABAs to be used together with inhaled steroids. According to the magazine for doctors, Pulse, 40 per cent of patients on LABAs do not also have a prescription for an inhaled steroid.

The Commission has also asked for research on how asthma sufferers respond to LABAs and also the effects of their routine use. The drugs are prescribed for serious, difficult to control asthma and there are concerns that some doctors could be prescribing them incorrectly. LABA drugs have been linked to heart attacks and deaths when taken alone.

The author
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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