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Malcolm's Market Eye: 13 to 19 October

The UK stockmarket climbs back to levels not seen since the start of the global credit crunch triggered by the collapse of the US sub prime mortgage market

The UK stockmarket has climbed back to levels not seen since the start of the global credit crunch triggered by the collapse of the US sub prime mortgage market.

The FTSE 100 Index nearly hit a seven year high point, but was then unsettled by a steep slide on Wall Street, and fell back to 6,644.

Chancellor Darlingís pre-Budget report boosted the stockmarket with his promise to hold down government spending growth to 4.8 per cent a year from 2007/ 2008 to 2010/ 2011. This is below the likely growth in Gross Domestic Product and proved good news for investors.

Investors will now have to pay the flat rate of capital gains tax at 18 per cent, which offers a big saving for higher rate taxpayers who currently have to pay 40 per cent CGT, falling to a minimum of 24 per cent after 10 years due to taper relief.

The biotechnology industry also got a boost from the pre-Budget report. Investment in R&D will almost double to GBP 6bn by 2010, with around GBP 1.7bn to be spent on healthcare.

Lord Sainsbury, the former science minister, published a report, calling for increased spending on high-tech research in Britain.

GSK boosts cancer drug portfolio
GlaxoSmithKline (GSK) may pay up to GBP 500m for the rights to an experimental cancer drug. STA-4783 is being developed by Synta Pharmaceuticals and is showing good results in early trials.

GSK is paying GBP 40m upfront to acquire and develop the drug and will make subsequent payments, if the new drug meets key clinical milestones and certain sales targets.

While the new drug is being developed to attack melanoma, it could be used to treat other types of cancer. GSK now has a wide portfolio of oncology programmes, numbering 10 in all, which are in the final stages of testing on patients.

STA-4783, when used in conjunction with chemotherapy, has doubled the life expectancy of melanoma patients, compared with the use of chemotherapy alone.

GSK has dropped a number of products from its portfolio: ten products from phase I, nine from phase II and one, Ariflo, from the final phase of patient trials. It still has 30 drugs, medicines and vaccines in late stage development. Several new compounds have been fast tracked into initial clinical testing.

Sareum moves quietly ahead
Pharmaceutical company Sareum has posted a loss of GBP 722,000 for the year to end June 2007 on turnover of GBP 2.5m. This compares with a loss of GBP 752,000 on sales of GBP 1.5m in the previous year. Broker Seymour Pierce forecasts a fall in losses to GBP 500,000 on a post-tax credit basis.

The fee-for-service drug discovery operation pushed group turnover by two thirds to GBP 2.5m and losses decreased. Sales were up as deals are getting bigger in scale, with the average fee being around GBP 600,000, for example analysing target protein structures using X-ray crystallography.

Sareum has five cancer drug discovery programmes in progress and all are at the pre ñclinical stage. The potential block buster is an inhibitor which works well against Checkpoint Kinase I. This is a key component of a biochemical pathway limiting the effectiveness of traditional cancer treatments, including chemotherapy.

SSL fills in the breach in developing Med 2002 for erectile dysfunction
Futura Medical saw a big drop in its share price in the spring of 2007 when GSK pulled out of a collaborative deal to develop Futuraís Med2002 gel for the treatment of erectile dysfunction.

Now SSL International, the condom maker, has moved in with a new agreement on the gel which gives Futura milestone payments of up to GBP 18m as well as a royalty on future worldwide sales.

The clinical development programme for MED 2002 could take two years to finish and could cost GBP 3.7m, of which Futura will have to contribute just over one third. MED 2002 will be the first non-prescription treatment for men with erectile dysfunction ñ one in two men over 45 suffer from the problem.

SSL markets a number of Futuraís products including the CSD 5000 condom which, once it receives EU regulatory approval, will earn Futura its first royalty income.

Allergy Therapeutics: good news in the EU, bad news in the USA
Allergy Therapeutics delivered a pre-tax loss of GBP 26.3m on sales of GBP 25.7m for the year to end June 2007, compared with a loss of GBP 6.2m on sales of GBP 23.6m in 2006.

The lead product is Pollinex Quattro for grass allergies, European sales showed a bounce of 23 per cent to GBP 9.5m. In the US, the FDA halted trials of the vaccine after a patient was hit by a rare neurological side effect. This will delay the possible US launch by a year, possibly to 2010.

The net cash pile of GBP 3.5m is in need of topping up, which is likely to happen when Allergy finds a suitable partner.

Tepnel booming in new cutting edge factory
Tepnel Life Sciences delivered a pre-tax profit of GBP 498,000 on revenue of GBP 9m in the half year to end June 2007. This compares with a loss of GBP 920,000 on revenue of GBP 8.2m in the same period in the previous year.

Tepnel is a biotech specialising in molecular diagnostics and research products and services.

The molecular diagnostic side of the business tests blood samples for organ transplant compatibility, measuring the chances of rejection. In the latest half year sales streaked ahead by GBP 483,000 to GBP 5.2m.

The research products and services side of the Tepnel business deals with, for example, the extraction of DNA from blood samples along with sales of immunological products.

The company is growing organically and also by means of astute acquisitions, having recently bought Wildlife DNA Services and Food DNA Services. The former is used by the police to validate DNA at a crime location.

Customs and Excise use Food DNA Services to check on imports of food. The company is keeping costs tightly under control and benefits should flow from Tepnel when it resites to a high tech testing complex in Livingston, near Glasgow.

Broker Seymour Pierce analysts forecast FY07 sales up GBP 2.3m to reach GBP 18.5m, as well as pre-tax profits of GBP 875,000.

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

17th October 2007

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