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Pharma continues to attract investors

Even with the economy in recession mode, the pharmaceutical sector, with high dividend yields, continues to attract institutional and private investors

The UK economy continues in recession mode despite interest rates – as set by the Bank of England at least – being at a 300-year low point. However, the UK may be one of the first countries to start pulling out of the recession as the pound rose against the dollar to $1.64, the highest level since last October, and 20 per cent higher than its low point, hit last January.

The pound soared as a result of the latest manufacturing Purchasing Managers' Index which signalled a better than expected improvement in the sector in May. However the CBI reports that credit conditions remain tough with the 75 companies polled having either seen credit lines cut or requests for new loans rejected over the last three months.

Across the Atlantic, US markets have taken off better than expected with economic news led by the manufacturing sector and relief at General Motors' orderly bankruptcy filing. The Dow Jones Industrial Average index, which tracks the industrial sector, rose by 221 to 8,721.

The UK stockmarket continues trading sideways through the summer, comfortably over the 4,000 mark, as measured by the FTSE 100 Index.

It has been buoyed up by a resurgence in consumer demand in the US along with a slight rise in UK house prices in a market where new mortgages dispensed have dropped to a record low point. The Bank of England's minimum lending rate at 0.5% seems to be having little effect as banks calculate their interest rates by reference to the interbank rate which is appreciably higher.

The pharmaceutical sector continues to attract institutional and private investors seeking safety and attracted by high dividend yields obtainable from the big pharma companies with high cash generation, fat cash balances on their books and – more to the point – dividends that are sustainable. However with the return of risk appetites, companies with defensive qualities such as GlaxoSmithKline are being sold off, with GSK slipping back to £10.24.

Synairgen raises fresh cash for asthma and pulmonary disease research
Synairgen, the drug research company, rose just over 1p to 19p following a share placing at 17p to raise £6.35m – mainly from institutional investors along with some private investors. The cash produced by the discounted placing is to go towards completing Synairgen's two main phase IIa studies in asthma and chronic obstructive pulmonary disease in addition to topping up the company's cash pile. Four of the directors bought shares in the placing.

New finance boss at Novartis
Dealers are watching Novartis closely as Jon Symonds, managing director of the investment bank Goldman Sachs, will take up the role of chief financial officer designate in September. He was held in high esteem when he was finance director at AstraZeneca for some years and the market consensus was that he should have been appointed to the top job.  Dealers are looking for fireworks from Novartis when he joins.

Neuropharm negotiates for collaboration with a pharmaceutical company
Neuropharm, the Alternative Investment Market listed drugs company, is concentrating on neuro-developmental disorders. The share price rose sharply by 52% to 22p on news that the management of the company said the group was in talks with 'a third party pharmaceutical company for a potential collaboration'.

AstraZeneca fights £812m US lawsuit
AstraZeneca is fighting a £812m lawsuit from Verus Pharmaceuticals of the US. The claims are about the development of an asthma treatment. Verus has filed its complaint in the Supreme Court of the State of New York alleging 'fraud, breach of contract and conversion' against AstraZeneca. The latter and its subsidiary Tika are alleged to have disregarded their obligations under three agreements with Verus entered into in 2007 in which Tika were to pursue the research and development of Verus's assets including budesconide, a steroid for the treatment of paediatric asthma, in the United States.

AstraZeneca denies any wrongdoing and said the company had terminated its collaboration with Verus under the terms of the agreements made. AstraZeneca added it had not yet reviewed the complaint and was therefore unable to comment on the allegations. The pharma giant denies any allegation that it acted improperly or illegally in connection with Verus emphasising that claims asserted against AstraZeneca by Verus 'are without merit and AstraZeneca will vigorously defend them.'

Tomatoes generate heart disease preventative drug based on lycopene
Scientists have modified a natural compound found in tomatoes to produce a treatment that can be used to help prevent heart disease and strokes. The product is based on lycopene, a powerful anti-oxidant which blocks the breakdown of fats in the blood and stops the build up of cholesterol and the thickening of arterial walls. A team at Cambridge Theranostics, a biotechnology company linked to Cambridge University, has become the first to devise a formula that allows lycopene to be absorbed by the human body.

Swine flu pandemic likely in autumn
A swine flu pandemic is likely to hit Britain in September or October, with the virus gathering strength as it spreads, according to Professor John Oxford, an expert in virology. Professor Oxford said that even though only 229 cases of swine flu had been confirmed in Britain to date, he is certain that a pandemic will take hold as the autumn beings and children return to school.

The Author
Malcolm Craig is a freelance financial journalist and author

2nd June 2009


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