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Malcolm's Market Eye: 31 August to 6 September

The UK stockmarket continues its volatile trading  pattern, with almost daily 100 points 'ups and downs' as the market reacted to good news and bad

The UK stockmarket has continued its volatile trading  pattern, with almost daily 100 points 'ups and downs' as the market reacted to good news and bad. 

The gains we have seen result from hopes that the Federal Reserve Bank will cut interest rates on 18 September 2007. The Bank of England is expected to keep UK interest rates on hold at 5.8 per cent at its next meeting on 6 September 2007.

If the US and UK both cut interest rates, the market will then take fright at the prospect of inflation going out of control. After all, it was as recently as the 1970s that UK inflation soared to 28 per cent (a banana republic level) and UK minimum lending rate hit 15 per cent, with the price of Consols 2.5 per cent at GBP 18, equalling their yield at 18 per cent.

Moving to the present time, the key three month interbank rate - the rate at which banks lend to each other - rose to a nine year high of 6.6 per cent in mid-July 2007, illustrating the pressure for higher UK interest rates.

Break up for GSK?
The pharmaceutical sector was enlivened by the threat that GlaxoSmithKline (GSK) shareholders could call for the drug giant to be broken up, so disgusted were they by the fall in the share price from GBP 20 when Glaxo and Smithkline merged back in 2000 to the current value of GBP 12.97.

Shareholders want boss Jean-Pierre Garnier's replacement (he retires next May) to carry out a massive re-organisation of GSK - possibly even taking the break up option and the return of vast amounts of cash to shareholders. Chris Viehbacher, who runs GSK's US operations, is the market favourite to replace Garnier.

ReGen - share price jumps on zolpidem trials' results.
ReGen Therapeutics' shares jumped by 19 per cent to GBP 0.93 on good news from small scale trials of zolpidem, its neurological drug.

This is aimed to wake up dormant patients with brain damage sustained in accidents.  The trial was not large enough to show whether zolpidem reduced dormancy but it did not increase the degree of patient sedation as against the placebo used in the trial. ReGen has launched Colostrinin, the cognitive product, in Australia. Edison Research forecasts ReGen will break even in 2008.

Ark Therapeutics - still no fast track approval for cancer drug Cerepro
Ark Therapeutics, the gene therapy pharmaceutical company, saw its share price fall a couple of pence after it announced first half losses had risen.

Brain cancer drug Cerepro, which is the world's first gene-based medicine, has not yet won fast track approval from the European regulator, but Ark's three main programmes have passed key trials. Ark announced a pre tax loss of GBP 11.3m for the half year to end June 2007 on turnover of GBP 245,000. This compares with a loss of GBP 9.4m on sales of GBP 148,000 in the same period in the previous year. 

Broker Numis is looking for a FY07 loss of GBP 23.2m against GBP 19.1m in FY06.

Ark has gained patents for its early stage stroke and blood pressure products and this ensured a milestone payment from partner Boehringer Ingelheim and other licensing deals should contribute additional revenue in the future.

Sales from the woundcare division jumped by 65 per cent against last year. Kerraped, a new diabetic foot ulcer product, has been launched into the market.

Ark says phase III studies on Cerepro are on track and next year we should see the first data from these studies. Two other drugs, Vitor, for cancer-caused muscle deterioration and Trinam, a preventative treatment for blood vessel blockages in dialysis patients, both start phase III trials in the autumn. 

AZ's Medimmune reveals positive results Motavizumab trials
AstraZeneca's acquisition of Medimmune for GBP 7.8bn is proving a success. Medimmune has alerted the market to the fact it has achieved positive results from phase III trials of respiratory disease, antibody-based drug Motavizumab.

The drug treats the respiratory syncytial virus which is the main cause of respiratory tract infections. It has reduced the number of patients required to go to hospital by 83 per cent, compared with the placebo used in the trial.

Premier Research - management buyout in the offing?
Premier Research, the clinical trials company, has been approached by some of its management about a management buyout. This news pushed the share price up 13 per cent to GBP 1.12. There is no guarantee a concrete bid will be made.

More news on Shire's Vyvanse
Launched on quite a small scale in the USA in the summer months, Shire's new attention deficit hyperactivity disorder drug, Vyvanse, has gained a 2.4 per cent share of new prescriptions and a 2.2 per cent share of all prescriptions.

School children account for over two thirds of the market and their return to school should boost prescriptions this autumn. The new drug isn't taking sales from Adderall XR, Shire's earlier blockbuster drug with which to treat ADHD, but may be taking market share from rival drugs, such as Concerta, made by Johnson & Johnson.

Malcolm Craig, a financial journalist and author of 14 books on aspects of successful investment, is one of the UK's most respected invested commentators

6th September 2007

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