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Pharma stocks hold steady

Equity investors are finding it hard to resist the lure of pharma stocks as the promise of high dividends and solid cash positions grows

Equity investors are finding it hard to resist the lure of pharma stocks as the promise of high dividends and solid cash positions grows.

The UK economy still looks to be heading for the rocks in a style reminiscent of the Depression of the 1930s, despite the Minimum Lending Rate at the Bank of England being at the lowest level – 0.5 per cent – for 300 years. In fact, the Rate is the lowest since the Bank was founded. Sterling is at near its low point, which is good news for exporters, but bad news for importers contemplating a foreign holiday.

The UK stock market has managed a small rally but it is too early to tell whether this is an example of the 'dead cat bounce' and will fall back steeply again. The FTSE 100 Index has jumped over the 4,000 mark as a mood of optimism swept through dealing rooms.

Pharmaceutical stocks still attract the equity investor seeking income as the shares offer high dividends along with solid cash positions which should guarantee those dividends pay high yields for years to come.

AstraZeneca saw its share price rise after results from a study presented at the American College of Cardiology meeting in Orlando, revealed that Crestor reduces the risk of blood clots in the vein by 43 per cent.

Shire shares jump on GSK deal
Shire has clinched a three-year deal with GlaxoSmithKline's (GSK) marketing division to promote its adult hyperactivity drug Vyvanse in the US, where some 10 million adults in the US suffer from ADHD. The agreement will double the number of salesmen selling the drug and the two companies will share the profits of increased sales. This deal, according to analysts, may block a possible future hole in Shire's revenue base as its blockbuster hyperactivity drug Adderall XR faces patent expiry and increased generic competition. Currently, combined sales of Vyvanse and Adderall XR account for half of Shire's overall revenue.

Market expectations in Vyvanse have been dampened as sales of the drug have underperformed, however, the deal with GSK should fire up growth, as 70,000 more doctors will be exposed to clinical data on the drug. Vyvanse was first sold in the US in July 2007 and can be used to treat children under six. The prescription market for adults is the fastest growing part of the attention deficit hyperactivity disorder market with only one quarter of adult sufferers currently treated compared with 80 per cent of child patients.

New drugs offer hope to Alzheimer's sufferers
There are 11 drugs in clinical trials for the treatment of Alzheimer's disease that could be on the market inside five years – and should be reporting their clinical trial results over the next three years. Drugs and medicines currently dispensed help reduce the symptoms of Alzheimer's disease but cannot prevent the disease from destroying large sections of the brain. The drugs in clinical trials are designed to halt the progress of the disease. Some 700,000 people in the UK have dementia, 60 per cent of which have Alzheimer's disease and if current trends continue the figure could hit 1.4 million by 2039.  

The majority of the new drugs in clinical trials seek to inhibit enzymes involved in making destructive proteins that stick in the brain and trigger off dementia. Other drugs aim to reduce the inflammation that causes dementia. Others stop signalling between brain cells. If the drugs fail in clinical trials, the rise in Alzheimer's sufferers could bankrupt the NHS – the overall cost of dementia is expected to rise from £17bn each year to £50bn. Only 2 per cent of the government's research budget is spent on Alzheimer's – less than a tenth of the amount spent on cancer.

Morning-after-pill supplied via the internet
Women can now buy the morning-after pill over the internet. Customers of Lloyds Pharmacy's online store will be able to buy up to three emergency tablets without consulting a doctor or pharmacist. Lloyds said that the facility will enable women to stockpile the drug at home to use when their normal contraception fails or after they have had unplanned and unprotected sex.

The emergency pill, which is available free from family planning centres and hospital A&E departments, costs £27.99 for a single pack, £51.98 for a double pack and £74.97 for a triple pack. It can be bought online without a prescription, but purchasers, who must be over 18, are required to fill in a simple online form. Lloyds is the first pharmacy chain to offer the emergency pill before women have had unprotected sex.

The Author
Malcolm Craig is a freelance financial journalist and author.

7th April 2009

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