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Malcolm's Market Eye, 21 to 27 July 2007

The Dow Jones Industrial average broke briefly through the 14,000 barrier to a new record high, while the UK stockmarket continues trading in its volatile way as more mega-bids continue to materialise and drive the market up

Across the Atlantic the universally quoted US share index, the Dow Jones Industrial average, broke briefly through the 14,000 barrier to a new record high. The euphoria resulted from good corporate profit reports and better news on inflation. Sterling has hit a 26 year high against the US dollar ahead of a likely increase in UK interest rates to 6 per cent in August.

The UK stockmarket continues trading in its volatile way as more mega-bids, such as the Qatari royal family bidding for Sainsbury, continue to materialise and drive the market up, while the likelihood of another interest rate hike in the UK and inflationary pressures result in bouts of profit taking.

Cheap goods sourced from the Far East are no longer keeping inflation down, with annual inflation (excluding petrol, food, alcohol and tobacco) has hit a nine year high. News like this drags the stockmarket into gloomy territory and the FTSE 100 index takes a dive - we will continue to see this volatility as the wet summer continues.

Morgan Stanley analysts believe that the weakness in the global credit markets could spread to share markets. This week the FTSE 100 Index has opened on a positive note rising 39 points to 6,624.

Pharma stocks at their cheapest for 13 years
Large pharmaceutical companies have come under pressure after the world's biggest pharma, Pfizer, reported a slump in second quarter earnings due to competition from generic drug makers.

Sales of its anti-cholesterol drug Lipitor have also fallen as a result of cut price, aggressive competition from generic pharmas. AstraZeneca (AZ) and GlaxoSmithKline (GSK) both saw their share prices hit on the Pfizer news and the growing awareness in the market to the threat of generic competition to the major British pharmas.

According to investment bank Lehman Brothers, the pharmaceutical sector is the only sector in the UK stockmarket to be down on the year. The reason does not lie in profitability, which has been robust, but in a down-rating by the market on fears of generic competition and highly publicised drug failures. The weak US dollar hasn't helped - it has contributed to the de-rating due to the massive US dollar revenues big pharmas make from the world's biggest drug market.

Now pharma stocks are at their cheapest for 13 years and offer punters an opportunity to bottom fish while prices are low - ahead of a probable recovery based on good dividend yields and profitability.

On the bio-tech front we have seen very few companies coming to the market - with only Northwest Biotherapeutics and Neuropharm coming to the Alternative Investment Market successfully over recent months. Some of the biotech floats in 2006 have performed poorly and this has malaise has ebbed over into the new issue market, while  the initial public offering window for capital raising has remained firmly closed.

GW Pharma's Sativex hits regulatory delays
GW Pharmaceuticals saw its shares drop by GBP 0.27 to GBP 0.65, after EU regulators asked for more studies to be carried out on its cannabis-based drug Sativex. This could delay Sativex coming to the market by 12 to 18 months, although the oral spray is approved in Canada for use in multiple sclerosis treatments.

Bespak's Exubera enjoys robust sales in its first year
Bespak, the global leader in drug delivery inhaler valves, announced pre tax profits down 10 per cent to GBP 15.7m on sales 44 per cent up at GBP 126.5m for the year to 28 April 2007. Boss Mark Throdahl wants to see profits doubled over the next five years. Broker Numis Securities is expecting pre tax profits of GBP 17.1m in 2008. Bespak is changing its name to Consort Medical.

There were record sales of valves and dry powder inhalers due to the increase in chronic obstructive pulmonary diseases and asthma, along with better diagnostic techniques identifying more patients. Exubera, the insulin inhaler, sold well in its first full year of production.

There are now Bespak inhaler valves for 30 drugs and there are 50 more drugs being programmed for inhaler valve intake. There are also four new counter programmes, which register the number of doses left in an inhaler, being developed.

EMEA warns of risks accompanying Acomplia
The European Medicines Agency (EMEA) has warned that patients with severe depression should not be prescribed Acomplia (rimonabant), the dieting drug, because it could increase the risk of suicide. The agency said Acomplia should continue to be licensed but warnings should be placed on prescriptions.

The FDA banned the drug after a study showed that of 120 patients taking the drug, two had committed suicide.

Immunodiagnostic Systems' diagnostic kits to be automated
Immunodiagnostic Systems Holdings, the diagnostic testing kit maker, announced pre tax profits up a massive 109 per cent to GBP 2.2m on sales of GBP 9.9m for the year to end March 2007. The purchase of Nordic Bioscience Diagnostics for GBP 17m is well under way and gives the company an entry into the Scandinavian market.

Each diagnostic kit can deal with up to 300 samples each month - but the company plans to automate the kits which should then be able to deal with up to 3,000 samples each week. The company is intent on clearing the regulatory hurdles and launching the automated kits on to the market early in 2008.

This should speed the company's growth as automation will attract bigger clients and allow expansion in the US market where automation is well entrenched. The company has a good distribution system in the USA and Europe and plans to move into Europe.

The Author
Malcolm Craig, author of 14 books on most aspects of successful investment, is a freelance financial journalist and one the UK's most respected investment commentators.

26th July 2007

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