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Powering on

Merger bid rumours fuel the latest surge in European pharma stocks

The stock market powered its way to a fresh near five-year high on the back of continued takeover activity, including intense speculative bid talk, with the blue-chip barometer, the FTSE 100 index, attempting to crash through the 5,800 mark.

Some good corporate results, weakening of oil prices, and US and European stock markets hitting four-and-a-half-year highs have also helped to provide a positive backdrop for the UK market. European stocks climbed higher as a couple of big planned mergers were unveiled in the utility sector.

Takeover speculation is so rampant that rumours of further consolidation within the big pharma sector even sparked market talk that AstraZeneca (AZ) could be the subject of a bid from Novartis, the big Swiss group. This year, speculators have also suggested AstraZeneca as a possible bid target for its rival GlaxoSmithKline (GSK). Analysts, however, generally rate as low the probability that AZ would be a bid target.

Bid speculation tends to send the share price of the target sharply higher even if it is on the wild side, in a market still in a strong bull trend and fuelled by actual takeovers and mergers. AZ's share price, which has been a bit under the weather since the group reported its latest results, staged a 2.1 per cent rise last week compared with a fall of nearly 1 per cent by GSK and the FTSE 100 index, that was largely unchanged. On Monday, AZ's share price rose by a further 1.2 per cent despite going ex-dividend on that day.

News that the US regulatory authorities have approved a generic rival to GSK's nasal allergy spray, Flonase, hurt GSK's share price, nearly wiping out the boost received from a US presentation of positive data on Cervarix, its cervical cancer vaccine. Stockbrokers Collins Stewart thinks that the group has the best pipeline in the industry, both by value and volume and estimates that Cervarix could hit peak annual sales of $4bn.

Meanwhile, Shire Pharmaceuticals' full-year results were well received with product sales up almost a fifth. Moreover, hopes that the company will reach a settlement with Barr Laboratories, which it is suing over a generic version of its key drug for attention deficit hyperactivity disorder, Adderall XR, helped temporarily propel the shares through the 900p level.

Figures from Antisoma showing the cancer drug developer's losses widened dramatically in the six months to end-December did not please the market. Increased research costs and no payments received in this period from Roche, the Swiss group which several years ago signed a sizeable licensing deal with the company covering 10 of its products, were the chief factors behind the more than fourfold jump to losses of £9.1m.

Encouraging preliminary data from phase II trials of AS1404, a vascular disrupting agent being tested in three studies for treating lung, prostate and ovarian cancers, was reported. Antisoma also subsequently announced that its aptamer drug AS1411 has been granted orphan drug status in the EU for the treatment of renal and pancreatic cancers.

New listing Phynova, a developer of drugs from traditional Chinese botanical medicines, made a dramatic debut on AIM when it floated on the market with its shares soaring 72 per cent on their pre-float private placing price. AGI Therapeutics, a drug delivery specialist company focusing on gastro-intestinal treatments, also kicked off stock market life on a most promising note, rising more than 15 per cent to 102p on its debut.

2nd September 2008

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