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Malcolm's Market Eye: 8 to 14 December 2007

The British pound dropped to its lowest level in four years against the Euro and to a six-week low against the US dollar

Giving some relief to big pharmaceutical companies with substantial US dollar and Euro revenues, the British pound dropped to its lowest level in four years against the Euro and to a six week low against the US dollar. As a result, the UK stockmarket has been boosted on hopes of lower interest rates with mining stocks heading the surge.

The Bank of England, under intense pressure, gave way and reduced minimum lending rate to 5.5 per cent ñ the first cut since 2005. It also injected nearly GBP 10bn into the money markets.

The stockmarket fell back a little on the news, as it was hoping for a half point cut ahead, but quickly moved on with bid speculation, with mining stocks providing most of the action.

Money market rates rose on the inter bank market as dealers worried the Bank of England had lost control. So, we will see only modest reductions in mortgage rates (and, in some cases, no cut at all) as lenders try to restore profit margins

The trouble is the Bank is building up problems for itself as inflation is on track to rise higher, while UK borrowers will want more interest rate cuts rather than another round of interest rate hikes. The Organisation for Economic Co-operation and Development warns that Britainís over reliance on the financial sector will mean the global credit crunch will hit the UK hard.

Pharmaceutical sector rallies
In the pharmaceutical sector, AstraZeneca (AZ) at last rallied, the share price having dropped after its GBP 7.8bn purchase of MedImmune, with investors in their collective wisdom deciding it had paid too much.

The deal did bolster AZís drug portfolio, as it gave it a range of flu vaccines, as well as 45 experimental drugs and an antiviral treatment for babies.

GlaxoSmithKline (GSK) also moved ahead as dealers look for Andrew Witty, who moves in as boss in May 2008, taking over from Jean-Pierre Garnier, who they think may have some interesting deals in his particular pipeline.

Other pharmaceutical companies were marked up for their defensive qualities to the investor in times of high volatility.

Curidium Medica clinches deal with Japanís Takeda Research
Curidium Medica, a drug development specialist listed on the Alternative Investment Market (AIM), has clinched a deal with Takeda Research Investment.

Curidium concentrates on personalised medicine, while Takeda Research is the corporate division of Japanís biggest pharmaceutical company. The latter is buying 10.5m shares in Curidium plus warrants. Curidium will use the cash to bolster its research into major depression illnesses.

Amarin buying Ester Neurosciences of Israel
Amarin, the biotechnology company, is purchasing Ester Neurosciences, an Israeli company, for up to GBP 15.8m.

Amarin at the same time announced a fund raising of USD 8.1m and is going to consolidate its shares in a one for 10 reverse share split.

Amarin ran into trouble earlier in 2007 when late stage trials of its leading product, a treatment for Huntingtonís disease, did not live up to expectations. Esterís lead product is for myasthenia gravis, a neuro-muscular disease.

FDA gives Immupharmaís Lupus drug fast track approval
Immupharmaís share price rose a little to GBP 0.65 on dealers hearing that its treatment for chronic rheumatic disorder, Lupus, had been given fast track approval by the FDA.

Broker Panmure Gordon reckons the treatment will plug a gap, as there is no existing treatment for Lupus. If Immupharmaís product makes it to the market, its drug will have blockbuster potential.

Medical Marketing has high hopes for new cancer vaccine
Medical Marketing, the biotechnology company reliant on clinching deals around its research into cancer and HIV treatments, announced a pre-tax loss of GBP 2m on turnover of GBP 63.8m for the half year to end September 2007, compared with a loss of GBP 1.7m on turnover of GBP 51.2m in the same period in the previous year.

Medical Marketing has net cash of GBP 3.9m, which is enough to keep it going for at least the next year.

In the near future, we should hear the results of the study of its vaccine to treat prostate cancer. The treatment under development has limited side effects and works by attacking cancer tumours by means of the use of DNA vaccines. These stimulate the patientís immune system and so increase the antibodies being created.

If the new drug is successful in trials, Medical Marketing should be able to negotiate a deal with a big pharmaceutical company seeking to broaden its drug portfolio to include new therapies for cancer. This would give Medical Marketingís new drug blockbuster status, as the market could be worth GBP 15bn.

Medical Marketing has other vaccines in early stage research, including those to attack lymphoma. It is also exploring the potential uses of ruthenium as a more effective treatment than platinum in chemotherapy.

Premier Research share price drops 40 per cent in a week
Clinical trial company Premier Research saw its shares drop 40 per cent in a week to GBP 0.38 on worries that Premier is near to breaching a debt covenant. Premierís board is still in talks with the management about a possible management buyout.

Phytopharm seeking fresh funds for neuroscience compounds
Phytopharm, the biotech and speciality pharmaceutical operator, posted a loss of GBP 6.3m on turnover of GBP 3.1m for the year to end September 2007, compared with a loss of GBP 6.2m on turnover of GBP 1.9m for the previous year.

New boss Daryl Rees is talking to charitable organisations to get fresh finance for research into the companyís neuroscience compounds: Cogane for Parkinsonís disease and Myogane for motor neurone disease.

The fresh finance should improve the terms of future commercial partnerships. The market expects a deal to be announced in the near future for Cogane. There is also Hoodia, the companyís leading weight trimming compound, which should hit the market in the summer of 2009.

Hoodia is an extract of a cactus plant, which inhibits the appetite and so reduces weight. Unilever is working in partnership on Hoodia and wants to include it in its Slimfast range, which would give Phytopharm a royalty of three per cent of sales of any products that include Hoodia.

If successful this could boost Slimfast sales to over USD 1bn from USD 500m.

Malcolm Craig, author of 14 books on aspects of successful investment, is one of the most respected investment commentators in the UK

13th December 2007

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