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Malcolm's Market Eye, 28 April to 4 May 2007

The UK stockmarket wound up April on a downward trend as punters were quick to take profits, with many moving early to beat the 'sell in May and go away, return on St Leger day' City adage

The UK stockmarket wound up April on a downward trend as punters were quick to take profits, with many moving early to beat the ësell in May and go away, return on St Leger dayí City adage based on the countryís old agricultural cycle.

Landowners and farmers sold shares to raise cash each May for crop planting and young stock ñ and the stockmarket fell back as the supply of shares coming on to the market exceeded demand.

By St Leger day the profits were taken from the harvest and cattle sales and the cash invested back in the stock market, with demand comfortably topping share supply. The old adage has been proved right as often as it has been proved wrong.

The last day of April saw the market rallying again, fuelled by hopes of bigger and better bids coming down the pipeline, as private equity financiers probe into even the biggest British companies for hidden value (mainly in undervalued property) which they can unlock and make a comfortable profit with little risk.

The pharma sector continued its strong upturn, as it attracted institutional investors and punters looking for a safe, defensive sector and choosing pharmaceuticals on the basis that illness, like taxes, will be always with us.

The fact that pharmaceutical and biotech companies are set to produce increased bids and deals activity, with the market betting that AstraZeneca (which still has a shortage of drugs in its short term pipeline) could bid for Shire Pharmaceuticals, may also have something to do with the flurry of investments. We will continue to see more biotechs with promising drugs in development being scooped up by the big pharmaceutical groups, as the latter fight for more market share.

Bionostics drops towards penny share bargain basement
Bionostics, the medical diagnostics specialist, fell back toward its low point of GBP 0.18 a share on the news of a H1, pre-tax loss of GBP 490,000. The market was surprised at the bad news, as it made a profit of GBP 536,000 last time. Finance Director, Simon Dighton, resigned in order to trim back costs.

Good news on asthma drug for SkyePharma
Another penny share, SkyePharma, moved up to the GBP 0.23 a share mark on cheerful news as to the fortunes of its flagship asthma drug, Flutiform (fluticasone and formoterol), which proved a powerful antidote to the increasing losses recorded for FY06.

Vectura achieves success with VR004 for erectile dysfunction
Vectura is moving up from the nursery slope of the Alternative Investment Market to the fully quoted market which should improve liquidity in Vecturaís shares.

The market was also pleased to learn that Vectura, the inhaled therapies developer, reported positive news from its erectile dysfunction product VR004 (apomorphine).  Nearly two thirds of those taking part in the mid-stage clinical trials stressed that the drug took from only one minute to five minutes to work, compared with half an hour for competitor, Viagra (sildenafil). The market took the view that the positive data will boost Vecturaís chances of clinching a licensing deal.

York Pharma scoops up Rosanto Pharmaceuticals ñ an astute move
York Pharma, the dermatology specialist, announced a pre-tax loss of GBP 3.2m on zero sales for the half year to 31 March 2007 against a loss of GBP 2m on zero sales for the previous year.

York is growing organically and is selling into the USD 10.6bn dermatology market and via acquisition, having recently scooped up Rosanto Pharmaceuticals for GBP 2m. It has also raised over GBP 5m to finance the new products acquired with the deal.

The most promising drug coming to York through its Rosanto Pharmaceuticals purchase is for psoriasis which is soon to start phase I trials. There is also an anti-viral drug for respiratory disease and a new cancer treatment.

In Yorkís own pipeline it has Abasol (abafungin), an antifungal drug for vaginal thrush, nail infection onycomycosis and skin infections. Abasol could be a blockbuster, as its target markets are worth USD 2.2bn, and a licensing deal could be arranged by the end of 2007.

Neutra Health brokers deal with Brunel Healthcare
Neutra Health, the vitamin and supplements store chain clinched an attractive deal with Brunel Healthcare to continue to make private label products until the summer of 2010.

Entelos attracts new deals with computer generated drug models
Entelos has an unusual business, but is close to moving into the black from that business. The business in question being Entelosí computer generated models to make effective predictions on the impact of new drugs on human patients.

Big pharmaceutical companies are taking a natural interest, as this facility reduces their R&D costs and is a much less costly way to find out whether a new drug will prove a success or failure. Also computer modelling has none of the negative vibes given off by testing on animals.

Entelos posted a pre-tax loss of USD 800,000 for FY06 on turnover of USD 21.6m, compared with a loss of USD 13.8m on turnover of USD 2.8m in FY05. On an adjusted basis, Entelos made a small profit of USD 200,000 in FY06. Evolution Securities, the broker, is looking of a pre-tax loss USD 2m in FY07 and a profit of USD 1m in FY08.

Entelos looks for long term collaborative deals with major pharmaceutical companies. It has recently finalised a deal with Organon in rheumatoid arthritis, while it is looking into a number of therapeutic areas for Johnson & Johnson.

Malcolm Craig, author of 14 books on successful investment, is one of the UKís most respected investment commentators

2nd May 2007


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