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Malcolm's Market Eye: 17 to 23 November

Stock markets went into freefall in the US and the EU after worries intensified about further credit losses of financial companies and worse than expected US housing data

Stock markets went into freefall in the US and Europe after worries intensified about further credit losses of financial companies and worse than expected US housing data.

The FTSE 100, that widely quoted benchmark of the UK stock marketís health, took a hit of 170 points on Black Monday 19 November. It fell back to a level lower than it started the year.

There are worries that Citigroup and UBS will have to make write-downs of billions of pounds, while Swiss Re, the biggest insurer on the globe took a hit of GBP 524m from the US housing mortgage market meltdown.

In the City the credit crunch intensified after the banks raised their wholesale lending rates to the highest level in two months ñ to just less than 6.45 per cent.

The UK stock market had also taken an earlier blow from Bank of England Governor Mervyn King who warns that there is a serious risk of a collapse in global stock markets. He pointed to the heavy financial blows, such as the run on Northern Rock bank ñ the first in over a century ñ along with the credit crunch which could topple more banks.

So far the UK stock market has taken all this on board but has still remained resilient until Black Monday. Now the future looks highly uncertain. He said the possibility of share price falls is one of the biggest risks facing the world economy.

The Bank of England has firmly indicated it plans to cut interest rates as  many as three times over the next two years to protect Britainís economy in the wake of the credit crunch ñ but may be prevented from so doing by rising inflation.

Rising interest rates are contributing to a squeeze on spending. The coming Christmas will offer thin pickings for High Street retailers. Market analysts reckon the UK stock market will deliver dividends to investors barely more than interest on cash deposits for the next three years.

House prices are falling and history dictates lower house prices also means lower consumer spending. There is a smell of recession in the air along with the autumn leaf bonfires.

The pharmaceutical sector continue to offer a relatively safe haven as a trusted and tried defensive sector in times of market volatility and with continued speculation on bids emerging from the sector to provide possible windfall gains.

The pharma sector should continue to follow the fortunes (or lack of them) of the main market, but still at a premium to the average stock reflecting the defensive qualities of pharmaceuticals and also buoyed up by possible bids and good news on drugs either on the market or passing through the R& D pipeline.

GSK: better than hoped for ëblack boxí warning for Avandia
GlaxoSmithKline (GSK) had a shot in the arm for its diabetes drug Avandia (roseglitazone), which had been linked to heart attacks following a study by a heart specialist published in a US medical journal.

Avandia is to carry ëblack boxí warnings on its labels in the USA, the US watchdog has ruled, detailing the potential side-effects, including the possible link with an increased risk of heart attacks.

The FDA said there was not enough evidence to say whether Avandia was more harmful than other drugs.

The wording on the black box is not as serious as it could have been, and Avandia could see a recovery in sales, which hit a record GBP 1.6bn in FY06.

Acambis clinches deal on West Nile vaccine with sanofi-aventis
Acambis, the vaccine specialist, saw a rise in its share price after sanofi-aventis, the French pharmaceutical giant, clinched an exclusive deal with Acambis to develop and sell its West Nile vaccine.

Acambis will get GBP 4.8m as a front end payment and will get milestone payments of up to USD 70m if the vaccine is given the green light for sale in the US market.

BTG delivers 794 per cent rise in profits
Pharmaceutical and biotechnology company BTG delivered an incredible 794 per cent rise in pre-tax profits for H1 FY07 to GBP 15.2m on sales ahead 118 per cent at GBP 272m.

BTG has a cash pile of GBP 46.6m as back up financial muscle. The company spent GBP 4.8m on R&D encompassing a clinical trial for Varisolve, a promising injectable foam treatment for varicose veins.

Varisolveís US phase II safety trial should be completed in H1 FY08.

It is also into a phase II study on a new treatment for head lice and the development of treatments for migraine, multiple sclerosis and migraine. Other late stage products are licensed out to US-based Tolerx and Genzyme.

Most of BTGís profits in H1 FY07 came from royalties from its technology products. BTG was previously a UK government research and development company.

Malcolm Craig, author of many books on all aspects of successful investment, is a freelance journalist and one of the most respected investment commentators in the UK

22nd November 2007

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