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Malcolm's Market Eye: 19 to 25 May 2007

The market is in its usual state of avarice and fear resulting from the prospect of mega bids for the biggest companies in the land by trade buyers from overseas

The market is in its usual state of avarice and fear. The avarice factor results from the prospect of more juicy mega bids for the biggest companies in the land by trade buyers from overseas, as well as private equity buyers at home keen to unlock value from undervalued property assets.

The fear factor results from the inexorable rise in UK interest rates towards to six per cent level. While the latest figures show that inflation is heading down toward the benchmark government decreed level of two per cent, house price inflation is still rampant and most pay deals are coming in at over the four per cent level. As a result, the stockmarket continues to trade in a volatile way, rising as hopes of more mega bids wax and falling as hopes of interest rates staying at the current level, or falling, wane.

Naturally in such an uncertain market, defensive sectors like pharmaceuticals offer an attractive safe option for institutional and private punters, and there is also considerable bid interest surrounding bid targets, such as Shire Pharmaceuticals.

The exception to the rule was GlaxoSmithKline (GSK), which took a knock from bad US publicity on its Avandia (roseglitazone) diabetes drug. The GSK share price fall ensured the FT-SE 100 index closed 4.1 points off on 21 May at 6,636.8.

GSK share price plunges as Avandia linked to increased risk of heart attack
GSKís share price dropped five per cent (GBP 4bn) to GBP 13.90 on news that its Avandia anti-diabetes drug may increase the risk of heart attack. The research findings by the Cleveland clinic were published in The New England Journal of Medicine.

Researchers collected the findings of 42 previous studies, discovering that diabetes sufferers, with type 2 diabetes who took Avandia were 43 per cent more likely to suffer a heart attack, while the possibility of a fatal coronary increased by 64 per cent.

The reportís author, Dr Steven Nissen, was the researcher who warned of possibly fatal cardiac event connected with Merck & Coís Vioxx (rofecoxib) several years before it was taken off the market.

In the EU, the medical community has been cautioned not to give Avandia to people with existing coronary conditions. GSK objected to the research findings on the basis they have been derived from incomplete evidence. Avandia has annual sales of GBP 1.6bn.

Acambis reports solid Q1 FY07 results on Japanese encephalitis vaccine
Acambis, the pharmaceutical company, has posted solid first quarter results, with losses up a little at GBP12.3m against GBP11.4m in 2006.

Steady progress is being made with Acambisí Japanese encephalitis vaccine, with trial results demonstrating it is better than the existing trivalent vaccines on the market. The West Nile virus vaccine is in phase II trials.

Acambis is awaiting the FDAís decision over the timing of trials of its pandemic flu.

AZ gets US approval for Seroquel XR
AstraZeneca (AZ), so often criticised for the poverty of its short-term new drug portfolio, has been given the green light by the US regulators for an extended-release version of Seroquel (quetiapine), its schizophrenia drug, which is patent protected until 2017. The news boosted AZís share price slightly.

Seroquel XR is AZís second best-selling drug. It is taken once a day by adults and it will be launched in the US in H2 2007. AZ is planning to seek permission from the FDA for Seroquel (sales were GBP 1.8bn in FY06) to be used for depression in two yearsí time.

The news was welcomed by the market as AZ faces intense pressure from generic attacks on its patented drugs, as well as continued criticism over the companyís lack of new R&D pipeline drugs.

AZ faces generic competition on its first formulation of Seroquel early in 2008 in the USA.AZ bought up MedImmune, the US biotech, to secure its foothold in the vaccines market and bolster its drug pipeline.

AZ also gets research boost for Zolodex
AZís Zolodex hormone therapy, which is designed for attacking prostate cancer in men, has another valuable use in helping pre-menopausal women with breast cancer. Zolodex is known as luteinising hormone-releasing hormone or LHRH.

Around 12,000 British women die every year from breast cancer treatment. The main fear of young women with breast cancer is that chemotherapy will render them infertile and drugs, such as Zolodex, offer a welcome alternative.

The discovery was made by researchers led by Professor Jack Cuzick from the Cancer Research UK Centre for Epidemiology at the Wolfson Institute in London. Data was gathered from 16 trials involving nearly 12,000 pre-menopausal women with early breast cancer and the results were published in The Lancet.

MedImmuneís FluMist vaccine gets FDA green light
The FDA has announced its approval of MedImmuneís FluMist (Influenza Virus Vaccine Live, Intranasal), vaccine for use with pre-school children. FluMist is reckoned to be worth a potential GBP 500m worth of sales each year.

Allergy Therapeutics starts Phase III trials for hayfever vaccine
Allergy Therapeutics saw its share price rise on the news that the company started two phase III trials for its quadravalent hayfever vaccine.

Shire Pharmaceuticals wins US regulatory approval for hyperactivity drug
Shire Pharmaceuticals has obtained a conditional approval from the US regulators for its once-a-day pill to treat hyperactivity and saw its share price rise GBP 0.03 on the news.

United Drug turns in solid interim results
United Drug, the pharmaceutical and biotechnology company, posted a pre-tax profit of EUR 27m on turnover of EUR 770m for the half year to 31 March 2007 against a pre-tax profit of EUR 24.2m on turnover of EUR 708m in the same period of 2006. The MASTA vaccines division and the Endoscopy technical support division turned in robust performances.

The astute acquisition of Pyramed, a UK-based medical-devices distributor also contributed to the bottom line.

The performance was achieved despite the new drug-pricing agreement between the Irish government and drug manufacturers which came into operation in March 2007. Getting stock sold ahead of this agreement boosted cash. United Drug has also bought a Belgian pharmaceutical packaging company, a first step in establishing a national presence.

Malcolm Craig has published 14 books on successful investment strategies and is one of the UKís most respected investment commentators.

23rd May 2007

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