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New rise means flat 2007

The shock rise in UK interest rates, by 0.25 per cent to 5.25 per cent, upset the market a little but it soon bounced back and continues moving ahead

The shock rise in UK interest rates, by 0.25 per cent to 5.25 per cent, upset the market a little but it soon bounced back and continues moving ahead. Sterling was propelled to its highest level for nearly seven years.

The Bank of England affirmed that the rise - the third in five months - had been made because 'the risks to inflation are more to the upside'. Another rise in interest rates could be made next month and several City experts reckon that UK interest rates could hit the 6 per cent level during 2007. Then again, it's nothing compared with the 15 per cent imposed by early 1990's Prime Minister John Major, who scuppered his Conservative Party's popularity at the polls for years to come by remarking, if it isn't hurting, it isn't working.

Pharma underperformed in 2006, and 2007 likely to be flat
While the UK stockmarket enjoyed a bull run up to the Christmas and New Year holiday season on hopes of bids and more bids, the big pharmaceutical companies have not joined in the rally. AstraZeneca (AZ) has been sold off over the past few months and broker Bear Sterns believes that this has been overdone. It has upped AZ to outperform and has upgraded the global drugs giant to a price target of 3,330p.

Overall, the pharma sector had an up and down year in 2006 following a strong burst upwards in 2005. Best performer last year was Shire Pharmaceuticals, up 54 per cent over the 12 months. GlaxoSmithKline ran into trouble as investors worried about patent expiries in the pipeline and the increased possibility of generic competition. City analysts don't think pharma will have a good year in 2007 as earnings are forecast to be flat in the main, generic competition is intensifying and, as the Democrats gained control of Congress last year they could increase. The increasing pace of in-licensing products from biotech companies should be maintained.

Skyepharma sells off injectables unit
SkyePharma has sold off its unprofitable injectables operation to Blue Acquisition Corporation, a US-based private company, for up to $82m. SkyePharma is to receive an upfront payment of $20m and up to $62m of milestone payments, plus a percentage of future sales. SkyePharma raised £35m in debt recently.

Protherics goes on fresh buying spree
Biotech drug developer Protherics turned in a profit of £4.69m on a turnover of £11.3m for 2006 as against a loss of £3.7m on turnover of £10.7m in the previous year. The company has bought up new drugs to distribute via its new sales team, which was recruited to promote Voraxaze, a rescue drug for toxic levels of the chemotherapy drug methotrexate. Voraxaze is expected to get the green light from the EU regulator early this year. US development was slowed down as the regulators demanded more information.

Protherics is raising £38m via a placing and open offer to finance its spending spree. New drugs include two new cancer products, one for oesophageal and brain cancer, and another for leukaemia. Protherics is also moving to license intellectual property from Glenveigh Pharmaceuticals for a pre-eclampsia drug.

Positive trial results for Sativex
G W Pharmaceuticals, which uses cannabis as a raw material for its drugs, has affirmed that clinical trials for its neuropathic pain relief drug Sativex had been positive. Sativex showed a statistically significant improvement in trials, versus a placebo. GW's main plan for Sativex is to market it as a medicine for multiple sclerosis. The results of another study on trial patients with diabetic neuropathy were more difficult to interpret as the trial patients showed an abnormally large response to the placebo.

Henderson Morley shares more than double on negotiations
Small pharmaceutical company Henderson Morley saw its share price more than double to 305p after announcing it is in late state negotiations with an AIM-listed life sciences company about a collaboration which may lead to the grant of a licence for another project from its product portfolio.

Market welcomes Cobra profit return
AIM-listed Cobra Biomanufacturing announced a pre tax profit of £210,000 for the year to end September 2006 against a loss of £390,000 last year. Turnover rose from £7.72m to £10.1m. Broker Seymour Pierce expects adjusted pre tax profits of £800,000 in the current year. The market welcomed Cobra's return to profitability after two years of losses.

The biopharmaceutical company had tough times when the plasmid DNA market collapsed and investment capital dried up. Cobra met the challenge by turning to protein-based biopharmaceuticals and to the US market; in its latest year, revenues for North America sizzled ahead by 41 per cent to £8.7m. Turnover on protein products rose around 100 per cent to £6.7m. The forward order book is up 20 per cent to £6m on last year. Cobra has tackled its first phase III-related work.

Shire gets EU green light for Elaprase
Shire Pharmaceuticals saw its share price rise after it won European approval for its enzyme replacement therapy, Elaprase, used to treat patients with Hunter's Syndrome.

New boss at Phytopharm
Phytopharm is seeing a change of chief executive with Richard Dixey relinquishing the role and being succeeded by Daryl Rees, previously the chief operating officer. Piers Morgan has joined the company as chief financial officer. Analysts in the market were unperturbed as the changes were expected after the recent restructuring.

Malcolm Craig is the author of 14 books on different aspects of successful investment. He is one of the country's most respected investment experts.

19th September 2007

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