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Malcolm's Market Eye: 7 to 13 September

The UK stockmarket is hard hit by the credit market crisis and is in the worst credit squeeze for 20 years, driving up London interbank interest rates to 6.8 per cent, the highest level for nine years

The UK stockmarket was hard hit by the credit market crisis and is in the worst credit squeeze for 20 years, driving up London interbank interest rates to 6.8 per cent, the highest level for nine years.

The interbank interest rate is the one used by commercial banks to lend to each other. The squeeze on money led to the Bank of England promising to inject an extra GBP 4.4bn into the banking system at its Minimum Lending Rate of 5.75 per cent.

The collapse of confidence stemmed from the nosedive in US property prices and high credit risk borrowers defaulting on their mortgages. The FTSE 100 index dropped on the news to a level which wiped out all the gains made during 2007.

The fall sent nervous punters running for the exit to turn shares into cash and encouraged the bold and speculative investors to search for bargains. The UK pharmaceutical sector fell back, but by less than the market's overall fall, as it continues to be perceived as a safe haven in times of turmoil.

Another bull point is that some of the pharmaceutical firms and biotechs are buttressed by continual bid speculation, such as AstraZeneca being in the frame to make an early bid for Shire Pharmaceuticals.

Hikma Pharma posts strong H1 FY07 results
Hikma Pharmaceuticals rose GBP 0.16, despite a falling market after announcing strong H1 FY07 results. The Jordanian based company concentrates on selling generic drugs to the Middle East.

Over two thirds of its drugs are branded generics, which carry a higher price, and the remainder of the drugs sell in niche markets. Hikma is following a strategy of moving away from making copy cat versions of blockbuster drugs when their patents expire, and moving into specialist areas, such as injectables and anti-infectives.

Net profits for H1 FY07 rose 18 per cent to USD 36m, with sales up 45 per cent to USD 225m. Branded drugs sales were up 62 per cent and injectibles soared 77 per cent. Generic drug sales were up a pedestrian nine per cent, which provides good evidence to back Hikma's strategy.

Hikma's main market for generic drugs is the USA where there is a general price squeeze on the sector. The company has applications in the US pipeline for several new medicines.

Acambis gets FDA green light for smallpox vaccine
Acambis, the UK-based pharmaceutical vaccine company, has received welcome news which boosted its share price nine per cent.

The FDA approved the company's new smallpox vaccine ACAM2000. Acambis has designed the product for the US Center for Disease Control (CDC) and will be used if the region suffers a bio-terrorist attack. The market is hoping that Acambis will win a continual manufacturing agreement from the CDC.

Cyprotex posts loss after achieving break-even
Cyprotex has announced a loss of GBP 452,000 for H1 FY07, compared with a loss of GBP 367,000 in the same period of 2006. Revenue rose four per cent to GBP 1.7m.

The market was disappointed at the news, as this pharmaceutical and biotechnology testing company had achieved break-even in Q4 FY06. The company then endured an appalling Q1 FY07.

Disgruntled shareholders tried to get rid of the board of directors by calling an extraordinary general meeting. This was averted, but at a cost of GBP 80,000, and the inevitable uncertainty deterred customers from using Cyprotex's testing services.

The company's biggest customer unexpectedly pulled out of small molecule research and Cyprotex missed its GBP 2m sales target. The storm seems to have been weathered, a big order clinched and Cyprotex has 150 companies signed up for its master service agreements. Of these, six of the top10 pharmaceutical companies have chosen the Cyprotex service, which tests molecular compounds through a totally automated system. This is not only cheaper than the competition, but also faster and is claimed to provide a better analysis of molecular compounds.

Dechra progresses as it penetrates US vet drug market
Dechra Pharma, the animal health pharmaceutical company, announced a 14 per cent increase in pre-tax profits to GBP 12.6m in the year to end June 2007.

The result compares with a pre-tax profit of GBP 11m in 2006. Turnover rose nine per cent to reach GBP 254m. Dechra is making its first inroads to the US market. Broker Dresdner Kleinwort has increased its pre-tax profits estimates for FY08 from GBP 13.8m to GBP 14.4m, rising to GBP 16.2m in FY09.

The pharmaceuticals division increased sales from GBP 13.6m to GBP 16.6m, with operating profit up to GBP 6.2m from GBP 5.8m in FY06. There were strong sales increases for Cushing's disease treatment Vetoryl for dogs, along with Felimazole for overactive thyroid in cats. Vetoryl has won the distinction of becoming the first US drug to be designated for minor use in a major animal species and this should help gain US approval.

The pharmaceutical service division, which supplies veterinary practices, pushed revenues from GBP 212m in 2006 to GBP 230m in 2007. Operating profits jumped 10 per cent to GBP 9.5m. The product pipeline has been buttressed by in-licensing the Pharmaderm portfolio of veterinary licensed products, which has enabled Dechra's US marketing team to test the warmth of the market before the US approvals of Vetoryl and Felimazole lead to the launch of the two drugs on the US market.

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

13th September 2007

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