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Malcolm's Market Eye, 9 to 15 June 2007

The UK stock market has become a much more volatile place to be as it awaited the almost certain imposition of another interest rate rise needed to get the UK inflation rate under the government's two per cent mandate to the Bank of England

The UK stock market has become a much more volatile place to be as it awaited the almost certain imposition of another interest rate rise needed to get the UK inflation rate under the governmentís two per cent mandate to the Bank of England.

We have just seen the worst period of trading for the FTSE 250 Index, which measures the performance of second rank shares since May 2002, with the Index falling five per cent over five days.

One significant pointer to the nervousness in the equity market is that yields on the benchmark 10-year gilt rose to 5.4 per cent ñ the highest for nine years. Other stock markets have been rattled by worries about rising interest rates throughout Europe and the US.

The market pundits reckon UK and other stockmarkets around the world could be due for a five per cent or 10 per cent correction. However, the prospect of more big bids keeps punters buying into shares to get windfall gains if the bids materialise. The FTSE 100 Index, which fell 172 points last week, recovered its nerve and on 11 June posted a strong recovery of 62 points to 6,567.5.

The pharmaceutical sector continues to offer a defensive ploy against the vagaries of the general stockmarket, but has not remained unscathed over the continuing saga of GlaxoSmithKline (GSK) and Avandia (roseglitazone). The market has been alerted that the pharmaceutical sector is especially prone to bad publicity.

The marketís willingness to discount any uncertainty by chopping back a share price even for a major pharma was demonstrated when AstraZeneca (AZ) released the news that its chief financial officer, Jon Symonds, was leaving the company to join investment bank Goldman Sachs. AZís share price fell GBP0.23 to GBP26.25.

Viracept recalled over contamination fears
Viracept (nelfinavir), an HIV drug made by Roche was recalled after it was discovered it had been contaminated with a carcinogenic substance. The Medicines and Healthcare Products Regulatory Agency urged patients taking the anti-retroviral drug to contact their doctor immediately.

The recall, throughout Europe, was made when Roche discovered the contamination at a Swiss factory and contacted the European Medicines Agency (EMEA). Roche affirmed 550 patients take the drug in the UK, normally in combination with other anti-retrovirals. A detailed analysis of the affected tablets in some batches of Viracept 250mg showed they contained higher than normal levels of methane sulfonic acid ethylester.

Arkís Scavidin cancer treatment produces positive results
Ark Therapeuticsí share price is on the rise after its gene-based cancer treatment, Scavidin, delivered positive results in preclinical studies. The results suggest that Scavidin could reduce the growth of tumours and may assist in concentrating intravenous doses of chemotherapy drug Ytrium ñ and consequently a lower dose of the latter could prove more effective.

Protherics clinches more deals and conducts nine clinical trials
Protherics delivered a loss of GBP 3.6m on sales of GBP 31.1m for the year to end March 2007 as against a loss of GBP 9.6m on sales of GBP 17.7m in the previous year.
More deals have been clinched and nine clinical trials are being conducted.

Protherics bought up MacroMed and in-licensed intellectual property from Glenveigh and Advancell to double Prothericsí portfolio of cancer drugs. There is licensing interest in Prothericsí early stage blood pressure vaccine. Another potential winner is a drug for pre-eclampsia, a type of severe high blood pressure in pregnant women. Data on the product is due in the first half of next year.

Chemotherapy overdose remedy Voraxaze (glucarpidase) has been given Fast Track Designation by the FDA and could be approved by 2009. Production of Cytofab has been increased. Broker Numis Securities is expecting a loss of GBP 0.052 per share in the current year and a move into profit with earnings per share of GBP 0.011 in 2009.

Futura Medical may be seeking new partner for MED2002
Futura Medical delivered a loss of GBP 2m on sales of GBP 301,000 for the year to December 2006 as against a loss of GBP 2.2m on sales of GBP 1.7m in the previous year. Canaccord, the broker, is looking for higher losses in 2007 before revenues flow in to reduce losses in 2008. It also anticipates cash balances to halve this year from GBP 3.8m.

Futura Medical saw its share price plummet 30 per cent back in May 2007. The fall resulted from GSK parting company with Futura over a collaboration agreement on its gel for erectile dysfunction, MED2002. Futura is thought to be seeking a new partner in order to run phase III trials on MED2002.

Futuraís hopes are also pinned on CSD500 which is a condom to help men maintain an erection. Futura is seeking to get the EU regulatorís go ahead for sales to being in the first half of next year. SSL, the condom maker, has global distribution rights in return for a royalty. Cash balances are reckoned by the market to be enough, even if CSD500 comes late to the market. Futura is also developing a lubricating female condom.

New Avandia study brings some relief to embattled GSK
GSK has seen its share price tumble, with GBP 12bn wiped off the companyís share price after research in the US pointed out that Avandia, its diabetes drug, was linked to an increased risk of heart attacks in patients taking the drug.

Now an interim study by the New England Journal of Medicine (NEMJ) and financed by GSK has said there is no difference in the risk of heart disease between Avandia and other diabetes treatments.

The new research throws doubts on claims by Dr Steven Nissen who had written in the previous monthís issue that Avandia was linked to a 43 per cent increase in heart attacks.

The new study is based on 4,400 patients with type 2 diabetes and shows Avandia is not notably different from similar drugs in causing heart attacks and a range of cardiovascular problems.

The new study does indeed find Avandia users are significantly more likely to suffer congestive heart failure, a condition where cardiac muscle is less able to pump blood through the body.

There are now four different studies that demonstrate that there are no differences between Avandia and the other treatments, according to CEO Jean-Pierre Garnier. He urged patients taking the drug to watch the science and not the politics.

Malcolm Craig, a freelance financial journalist and author of 14 books on all aspects of successful investment, is one of the UKís most respected investment commentators.

14th June 2007

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