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Malcolm's Market Eye, 27 February 2007

The UK stockmarket surged then crashed as shockwaves spread from a nine per cent fall in the value of Chinese shares and the largest fall in US stock prices since 11 September 2001

The UK stockmarket soared to a six year high since the last Market Eye report, as measured by the Footsie 100 Index and to a record all-time high, as measured by the smaller companiesí FTSE 250 index. However, shockwaves spread around the world on 27 February, as a major correction occurred in Chinese markets, with shares falling nearly nine per cent.

The China crash was prompted by fears that authorities were planning to cool the overheated economy, but investor confidence in that market varies from day to day, according to analysts. The US followed suit, with the biggest fall in stock prices since the terrorist attacks of 11 September 2001, as investors pulled out of risky assets there.

The Dow Jones Industrial Average fell 3.29 per cent, or 416.02 points, while the Standard & Poor 500 Index fell 3.47 per cent, the largest falls since September 2002. The global selling panic was aided by weaker durable goods orders in the US recorded in January 2007, as well as a predicted fall in the US housing market sparking rumours of increased repossessions in FY07. A recession is very likely in the US, as a result.

European stocks were also sold off amid a sharp rise in the Japanese yen signposted the beginnings of a downturn in investor borrowing in currencies with low interest rates to buy higher-yield assets in other countries. The FTSE Eurofirst 300 index dropped 2.86 per cent, the biggest daily fall since June 2006. The Bank of England has already warned of rising inflation, a tumble for sterling and many more years of erratic prices and spiky economic growth. The emerging markets of Russia, Turkey and Brazil were the hardest hit.

Pharma sector enlivened by bids, deals and alliances

The pharmaceutical sector continues to benefit from increased bid, deal and alliance-forming activities. The latest rumour is a possible bid for UK-based CNS specialty company, CeNes Pharmaceuticals, in which 33.6m shares were traded in one day. The fierce trading gave rise to speculation that stake-building was taking place.

CeNes announced successful phase III results for its lead product M6G, an alternative to morphine, but with less associated nausea. The shares then fell back after Canaccord Adams analyst, Karl Keegan, downgraded the shares from Buy to Hold after stating that the nausea reduction claims were not proven statistically.

Another possible bid target is London and Berlin-headquartered SR Pharma, a biopharmaceutical company developing a gene-based RNAi therapeutic product. Broker Collins Stewart was reported as saying: We believe these rumours are warranted. We have long maintained that SR would make an ideal bid target for a pharmaceutical company looking to enter the area of RNAi.

Shire acquires New River

Shire Pharmaceutical, the UKís largest manufacturer of ADHD medicines, has scooped up New River Pharmaceuticals to gain control of potential blockbuster drug, Vyvanse (lisdexamfetamine), for the treatment of Attention Deficit Hyperactivity Disorder (ADHD).

Shire saw its share price increase GBP 0.40 to rest at GBP 11.15 on news that it had agreed to spend GBP 1.4 billion (USD 2.8 billion/ EUR 2.1 billion) in cash for New River to gain full control over Vyvanse, which both firms co-developed. The drug could emerge as a blockbuster with potential annual sales of USD 1 billion in the US. Vyvanse has been filed with the FDA and a ruling is expected within days.

Vyvanse was originally in-licensed from New River in 2005 and was then known as NRP104. Shire has gained full control over Vyvanse, as it needs a successor to Adderall XR (amphetamine/ dextroamphetamine extended-release), its biggest-selling ADHD drug, which soon loses patent protection. Shire will try to transfer many patients on Adderall XR over to Vyvanse. Barr, the US generic pharmaceutical firm, is planning to start producing a generic version of Adderall XR in Q2 2009.

Shire is the biggest manufacturer of ADHD medicinal products in the US, while Eli Lilly is the European leader. Shire plans to introduce Vyvanse on the European ADHD market, which is currently quite small, but parents in this market have been unwilling to have their children, who make up the majority of ADHD sufferers, the current market treatments, because they contain amphetamines.

The New River deal has been financed through a private share placing of GBP 460 million (USD 903.5 million/ EUR 683.7 million), which raised GBP 50 million (USD 98.2 million/ EUR 74.3 million) more than anticipated, as well as a new GBP 1.2 billion (USD 2.4 billion/ EUR 1.8 billion) debt facility totalling GBP 1.6 billion (USD 3.1 billion/ EUR 2.4 billion) in total.

Shire has plenty of cash and available borrowing lines to continue to make more astute acquisitions. The company announced FY06 net income of USD 278.2 million against a USD 578.4 million loss in FY05 on a 12 per cent rise in revenues to USD 1.8 billion.

Stem Cell Sciences clinches deal with Merck

Shares in Stem Cell Sciences moved up to GBP 0.48 after it clinched a deal with Merck. The company has licensed its mouse neural stem-cell technology to the US pharma, which plans to use it in its research for new medicines. The deal includes a license fee and milestone payments.

AstraZeneca axes 700 jobs at Macclesfield and announces new R &D plant.

The search for cost cutting continues at AstraZeneca (AZ), which is cutting 700 jobs at its Macclesfield plant in the interests of boosting efficiency and cost effectiveness. In February 2007, it announced 3,000 job losses world-wide over the next three years.

The plant, which employs 2,500 people, is phasing out its manufacturing operations. The news knocked the share price down GBP 0.13 to rest at GBP 29.33. Every cloud has a silver lining, however, as AZ softened the blow by announcing plans for a new research and development laboratory at the plant costing GBP 63.5 million (USD 124.7 million/ EUR 94.4 million), which will open in 2009.

Alizyme needs a partner for three late stage drugs

Alizyme posted a pre-tax loss of GBP 19 million for FY06 on turnover of GBP 1.1 million, compared with a loss of GBP 17.6 million on zero turnover in FY05. Alizyme has three late-stage products, in which it has been trying to interest big pharma companies: renzapride (BRL 24924), for irritable bowel syndrome; cetilistat (ATL-962) for obesity; and colonic drug delivery drug, Colal-Pred (prednisolone delayed release), for ulcerative colitis. The only deal so far is for cetilistat with Japanese number one pharmaceutical company, Takeda, and the City is looking for more deals for the drugs with big pharmaceutical companies and reckons Alizyme badly needs partners. Any partners may have been deterred by the regulatory uncertainty over the scope of phase III trials needed for cetilistat following delays to France-headquartered Sanofi-Aventisí drug Acomplia, however.

Antisoma holding licensing discussions for lung cancer drug

UK biotechnology company, Antisoma, has announced a loss of GBP 7.5 million on sales of GBP 334,000 for FY06, compared with a loss of GBP 9.1 million on sales of GBP 1.3 million for FY05.

Antisoma is in licensing discussions with several pharmaceutical firms for its lung cancer drug, AS1404, and should announce a deal by the end of summer. Phase II trials on the drug have been good. Average survival of patients receiving the drug along with chemotherapy was 14 months, compared with 8.8 months for patients on chemotherapy alone. The results show one of the best increases in survival in a lung cancer study. If the same trial data is revealed from trials on prostate cancer, this will greatly boost the market for the drug.

GW Pharma clinches potentially lucrative US deal for Sativex

GW Pharmaceuticals saw its share price rise, as it ended market speculation by clinching a long-term strategic alliance for its cannabinoid oral spray to treat multiple sclerosis. The agreement has been made with Otsuka Pharmaceuticals to develop and market GWís Sativex lead product in the US.

Pharma reacts to OFT proposals cut medicines cost to the NHS

Pharma companies attacked proposals by the Office of Fair Trading to cut the cost of medicines to the National Health Service. They warned that pharmaceutical R&D could migrate from the UK.

The OFT asked the government to bin most of the ways through which drugs are priced under the Pharmaceutical Price Regulation scheme. This is a voluntary scheme set up by the government and the Association of the British Pharmaceutical Industry to control drug pricing. The current scheme runs until 2010.

According to the OFT the NHS spends GBP 8 billion (USD 15.7 billion/ EUR 11.9 billion) annually on branded medicines and is paying too much, particularly for blood pressure and cholesterol-lowing drugs. It calculates that a change in pricing could generate an extra GBP 500 million (USD 981.8 million/ EUR 742.8 million) a year to the NHS to spend on other treatments.

The OFT called for pricing to be linked to a medicineís therapeutic benefit. The Association of the British Pharmaceutical Industry (ABPI) strongly refuted suggestions that the NHS is paying too much for its drugs, but added it would consider the OFTís proposals.

Proteome gets another GBP 2 million from its boss

UK proteomics company, Proteome Sciences, is getting an injection of GBP 2 million (USD 3.9 million) from its boss, Christopher Pearce. Proteome now owes him GBP 4 million (USD 7.9 million/ EUR 5.9 million) in total and reckons it now has enough cash to finish development of its TMT technology, which enables researchers to analyse proteins.

Ark gets green light for Vitor to move to phase III trials

Vitor, Arkís small molecule drug for cancer related muscle-wasting condition cachexia, is to enter phase III trials after clearance from US and European regulators. Trials start in H2 2007 and Vitor has been given a Fast Track rating by the FDA.

GSK to trial Tykerb for head and neck cancer

GlaxoSmithKline, the UKís largest drug company and global number two, has revealed its plans to trial Tykerb (lapatinib), the anti-breast cancer drug, on patients with head and neck cancer. The latter kills 40,000 people every year in Europe alone. Early studies have been encouraging, according to a company spokesperson.

Malcolm Craig is one of the UKís most respected investment commentators.

28th February 2007

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