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Malcolm's Market Eye: 6 to 12 October 2007

A frail set of growth figures for the UK in September showed the damage wrought to the all important financial services sector by the Northern Rock debacle

A frail set of growth figures for the UK in September showed the damage wrought to the all important financial services sector by the Northern Rock debacle. A run on a British bank not seen for over 100 years.

The Bank of England has left interest rates on hold ñ refusing to follow in Americaís wake after the Federal Reserve slashed US interest rates by 0.5 per cent recently to try to resolve the credit crunch. The value of sterling is set to slide according to HSBC as the world wakes up to slowing economic growth in the UK.

Global equities were driven to fresh highs as a result of growing confidence in the outlook for the US economy. The market also reckons the worst of the credit squeeze might be over after some of the worldís biggest banks revealed the extent of the damage to their profits.

The UK stockmarket also took heart from the global equity upturn despite UK interest rates being left unchanged for the time being. The pharmaceutical sector continues to follow the market trend, but with the benefit of its defensive sector premium.

Shares also moved  in response to good or bad news on drugs going through trials, along with  the usual speculation on possible bids being launched in the future by major pharmas for promising biotechs with useful drug portfolios in their  pipelines.

GlaxoSmithKline has ended months of speculation by appointing Andrew Witty, European head of pharmaceuticals, to take over as boss from Jean-Pierre Garnier.

Verona Pharma may have secured go ahead for chronic respiratory drug
Verona Pharma, the life sciences company, is focusing on therapeutic drugs with which to treat asthma, hay- fever and other chronic respiratory ailments. There is speculation that one of its potential winners has been given the green light to go to the market by the regulatory authorities.

Vernalis Chairman buys shares while they are in the bargain basement
Vernalisí (the former British Biotech) shares crashed by 60 per cent recently after the FDA sent a ënon approval letterí for its Frova medicine for migraine related to menstruation. 

Chairman Peter Kellner moved swiftly to buy 252,000 shares at GBP 16.25. The FDA had been expected to approve Frova because it is already taken to treat acute migraine. The regulator has said that more trials are required to prove that the drug is not related to heart problems. 

The market view is that the FDA is highly risk averse particularly since the highly publicised withdrawal in 2004 of Merckís arthritic drug Vioxx (rofecoxib).

Tissue looking to spin off early stage, non-dermal operations into JV
Tissue Science Laboratories announced a pre tax loss of GBP 1.9m on sales of GBP 6.4m for the H1 FY07 against a loss of GBP 1.8m on sales of GBP5.33m in the same period last year.   

The company is expected to announce the spin off, into a joint venture, of its early stage non-dermal side, over the next six months. This encompasses bone, ligament and vascular products and will need cash of GBP 15m pumping into it over the next three years. Tissueís cash pile is only GBP 2.2m and boss Martin Hunt has been talking to a number of companies about the spin off.

The spin off will make business sense as Tissue will then be free to concentrate on its general surgery and dermal tissues business. US general surgery sales grew 68 per cent in the six months to GBP 3.6m. 

US surgeons are ready users (for reasons of cost) of Tissueís pig derived collagen which is used in large artery hernia repair procedures.

Sinclair Pharma appoints Dr Reddyís as US distributor for dermatitis treatment
Sinclair Pharma announced a pre-tax loss of GBP 4m on sales of GBP 23.2m for the year to end June 2007, compared with a loss of GBP 2.8m on sales of GBP11.6m.

The increased loss stemmed from exceptional charges and provisions, along with a GBP 1.1m currency hit as a result of the strong pound.  The second half of the year, by way of contrast, produced a GBP 1.3m cash profit.

Sinclair has appointed Indian-based generic drugs distributor, Dr Reddyís Laboratories, as its exclusive US distributor for its seborrheic dermatitis treatment, Sebclair, and the product should be launched inside a year. Decapinol, its gum disease product, has suffered from a delayed release by Johnson & Johnson of the US but the product could be launched as soon as June 2008.

Advanced Medical advancing on two fronts
Advanced Medical Solutions (AMS) posted a profit of GBP 664,000 on sales of GBP 7.9m for the half year to end June 2007, compared with a loss of GBP 138,000 on sales of GBP 6.5m for the same period in the previous year. 

Cash balances have increased to GBP 5.3m. Broker Landsbanki has increased its full year sales forecast from GBP 16.2m to GBP 16.6m, as against GBP 14.3m in 2006. Profits are expected to rise from GBP 1.3m for the current year to GBP1.7m.

AMS is in the happy position of having GBP 10m of tax losses to offset against future profits over the years ahead.

AMS has two divisions: one is woundcare which sells a number of cheap wound dressings to NHS hospitals and Primary Care Trusts. It also makes specialist silver alginate dressings, sold by distributors, and which are effective for 21 days, so wound dressings donít have to be replaced so frequently. The woundcare division increased sales by 21 per cent to GBP 6.3m.

Wound closures and sealants make up the second division, and posted first half sales up by nearly 30% to GBP1.67m. Advanced Solutions sells LiquiBand, a glue type sealant ñ to A&E hospitals in the UK. 

LiquiBand is on target to get FDA approval next year and, when launched on the market, will compete with Kimberly-Clarkís new surgical skin sealant which reduces wound infections after operations. For 2008 Seymour is looking for profits of GBP 1.6m.

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

11th October 2007


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