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Race to recovery

The UK economy is showing recovery after an unanticipated surge in the manufacturing sector ensured the pound rose strongly against the dollar

The UK economy is showing recovery after an unanticipated surge in the manufacturing sector ensured the pound rose strongly against the dollar. A new survey shows that the manufacturing industry is growing again for the first time in more than a year. The Purchasing Manager's Index, a key indicator to the health of the manufacturing sector, produced by Markit Economics, rose to 50.8 points in July. It is the first time it has breached the 50 level, which separates expansion from contraction, since March 2008. Britain looks set to beat its European neighbours in the race to economic recovery. Accountants BDO Stoy Hayward  say that the UK recession is expected to end within three months whereas other Eurozone countries are set to stay in recession until 2010.

Stockmarket rise
The UK stockmarket has been rallying strongly with the FTSE 100 Index kicking in with its best monthly rise for over six years. The reasons being better than expected company earnings announcements and fragile hopes that the worst of the recession is now over. The stockmarket has ridden up on rising oil and mining stocks with commodity prices climbing sharply in July after economic data improved and the dollar slid to its lowest level against sterling in 2009.

The FTSE 100 rose over 11 successive days, climbing 11 per cent, then succumbed to reality as poor trading news hit the natural resources and financial sectors. Since the index was launched in 1984 there has never before been a 12 day unbroken streak of gains and this came close. Pharmaceutical shares continued to offer a defensive home in uncertain times, also catering for the income seeker with their offer of high and sustainable dividends buttressed by massive cash piles. In addition we have seen good earnings reports from the likes of AstraZeneca.

US investigations about drug marketing and pricing practices have forced AstraZeneca, to make £261m of legal provisions to cover potential charges. One legal case concerns the Supreme Court's order to review the marketing of the top selling ulcer treatment, Nexium. This clouded a good set of second quarter results,  boosted by falls in the share prices of generic rivals and an uplift in the sales of Crestor, the cholesterol drug.

This provision has been included in pre-tax profits which are up by 14 per cent in the second quarter to $2.3bn. Half year pre-tax profits were up 27 per cent. David Brennan, the chief executive said the impact of the recession has been less severe than thought. Earnings per share forecasts were increased to between $5.70 and $6.00. Revenue in the quarter was relatively flat at $7.96bn but when currency movements (principally the dollar) were stripped out, sales actually grew by 9 per cent. The driving forces on revenue were the spectacular 33 per cent rise in Crestor sales to $1.1bn and a startling 320 per cent rise in the betablocker, Toprol XL to $298m. Sales of the latter were boosted by generic rivals pulling out of the market. However, this week Watson Pharmaceuticals announced that the FDA has approved its generic version of Toprol XL (metoprolol) and that it plans to begin shipping the product immediately.

AstraZeneca's biologics arm, MedImmune, which already makes the nasal spray vaccine FluMist for seasonal flu, aims to produce 200 million doses of swine flu vaccine with 40 million ready by next March.

Smith & Nephew
Smith & Nephew, the medical technology manufacturer announced a 7.4 per cent fall in second quarter revenue to £562m, caused by the postponing of operations, lower investment by hospitals in visualisation devices and the strength of the dollar. Strip out currency movements and revenues would have been flat. Revenues were hit from younger patients delaying elective procedures because of worries over the safety of their jobs. Smith & Nephew have been focusing its marketing towards those under 60 years old.

Plethora Solutions is in the news as the biotech company announced highly successful results for a final US phase III trial for PSD502, its premature ejaculation spray. It has an exclusive licence agreement with US based Sciele Pharma, a subsidiary of Shionogi Corporation. The market capitalisation of the company is only £9m despite its PSD502 having a potential sales of over £1bn. Plethora is retaining milestone and royalty rights to PSD502 outside of the US. The dossier on this drug will go to the European Union regulators before the end of the year with potential approval in 2011.

4th August 2009


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