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Malcolm's Market Eye, 20 to 27 March 2007

After recent sharp falls the UK stockmarket took courage from the bullish news from the USA - the Federal Reserve is keeping US interest rates on hold at 5.25 per cent

After recent sharp falls the UK stockmarket took courage from the bullish news from the USA ñ the Federal Reserve is keeping US interest rates on hold at 5.25 per cent, and, more to the point, says: "We are no longer biased toward higher interest rates". Traders in London hope that the next move in US rates will be down. The FTSE 100 index first jumped for joy, having taken Gordon Brownís sleight of hand Budget in its stride.

But as I write, the Footsie has gone into reverse due a surprise fall in new US home sales for February and the fall in the US housing market gathering pace. The negative news re-ignited worries of an economic slowdown in the US and dragged the Footsie down to 6,291.

Here in the UK the interest rate outlook is not so good and we may well see another hike. Retail sales jumped in February 2007 by the highest level for over two years, with consumers spending GBP 18.3bn, up 4.7 per cent against a year ago. The increase puts pressure on the Bank of Englandës Monetary Policy Committee to raise interest rates to 5.5 per cent, which would be bad news for the already highly volatile stockmarket.

Disappointing Budget for biotech sector
In his latest and last Budget the Chancellor announced plans to raise public investment in science by 26 per cent from GBP 5bn to GBP 6.3bn by 2010-2011, while also increasing the value of the R&D tax credit by an extra GBP 100m. The DTI is launching a GBP 100m fund to encourage innovation with only GBP 7m allocated to medical research.

The City gave the news a thumbs down, so far as new biotech companies go, and highlighted the salutary fact that Venture Capital Trusts are moving away from the biotech sector, as returns on investments take longer than the usual five-year period. This leaves a large gap in the market funnelling risk capital to start-up and recently established biotechs. Companies will not benefit from the R&D tax credit relief - increasing to 175 per cent - until 2008.

AZ falls back on Crestor worries
AstraZeneca fell back GBP 0.37 to GBP 27.62 on reports that its Crestor (atorvastatin) cholesterol-reducing drug has not succeeded in meeting its main sales target. Market commentators reckoned the drop presented a useful buying opportunity, as the long term fundamentals are robust.

Good news for Curidium Media's Homomatrix tool for schizophrenia and manic depression
Curidium Media, the UK drug discovery and development penny stock, moved up GBP 0.25 to GBP 2.25 in a single day. The good news came from the disclosure that its Homomatrix Tool, which analyses genes to focus on new drugs and medicines to treat schizophrenia and manic depression, will meet the regulatory requirements and establish itself as an essential tool for clinical drug development.

Akers Biosciences ñ first large buying orders propel share price upwards
Akers Biosciences rose strongly by GBP 0.04 to GBP 0.34 in a dayís good trading. The reason for the share price spurt was the news of the company's first large buying orders for products in the UK through its UK distributor Advanced Rapid Diagnostics.

S R Pharmaís US partner advances to Phase I trials for acute kidney injury treatment
Quark Biotech, S R Pharmaís US partner, received the green light from the FDA to start phase I trials on S R Pharmaís new treatment for acute kidney injury. S R Pharma concentrates on revolutionary technology which ësilencesí disease-causing genes.

Acambis ñ future lies in non-biodefence pipeline
Cambridge-based Acambis announced a loss of GBP 15.9m on sales of GBP 31m in FY06, compared with a loss of GBP 27.7m on sales of GBP 41m in FY05. Costs are being trimmed to the tune of GBP 7m a year by 2008. Job cuts will mainly be made in the US. Acambis is seeking acquisitions in the infectious disease area.

The future of Acambis lies in its non-biodefence pipeline, according to current CEO, Gordon Cameron, who makes way in June 2007 for Ian Garland, now that the US government has stopped the company bidding for the Project Bioshield smallpox contract. US approval is expected for Acambisí smallpox vaccine ACAM 2000, which will unlock a useful future revenue stream.

Acambisí Japanese encephalitis product is now being carried on in partnership with Sanofi Pasteur. The travel vaccine pipeline is doing well while a West Nile vaccine product could be licensed out in 2007.

New pack warning for Tamiflu
The European Medicines Agency (EMEA) has ruled that packets of Tamiflu (oseltamivir) made by Roche are to include new advice to patients and doctors about "neuro-psychiatric events". The Department of Health has stockpiled 14 million doses of the drug, which would treat a quarter of the UK population if an epidemic broke out. The new pack warning comes after reports of two teenagers in Japan, both taking the antiviral drug Tamiflu, fell to their deaths from tower blocks recently.

The Japanese health authorities have advised doctors not to prescribe Tamiflu to patients aged between 10 and 20 years. A spokesman for Roche said reports of neuro-psychiatric events in patients taking Tamiflu were rare and there is no established causal relationship between the drug and the likelihood of neuro-psychiatric events in influenza patients.

Malcolm Craig, an author of books on successful investment, is one of the UKís most respected financial commentators.

27th March 2007

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