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Reaching for the stars

Small cap companies are forging ahead, boasting double-digit share price increases on rumoured bid activity and the promise of positive trial results

The stock market continued to make good progress with the FTSE 100 index fast approaching the 5,500 level, putting it within easy reach of hitting a fresh four-year high.

Falling oil prices, reduced inflationary measures and an increased need for central banks to raise interest rates moved global equities higher. While merger and takeover activity and unchanged interest rates also boosted the UK stock market.

Among the heavyweights, GlaxoSmithKline (GSK) hit a fresh high for the year on the back of strong investor buying and analysts' recommendations. Shire Pharmaceuticals also rose to a new high, even though it confirmed it was being counter-sued by Impax Laboratories, the US group, which plans to launch a generic version of Shire's hyperactivity drug, Adderall XR.

SkyePharma reviews plans

Outside the heavyweight stocks in the sector there was plenty of excitement. SkyePharma, the drug delivery group, saw its depressed share price climb swiftly, up more than 15 per cent, after it disclosed that it had received an unsolicited takeover approach.

Its share price was knocked hard recently after it held a deeply discounted rights offer, which was badly received in some quarters, to fund phase III trials for Flutiform, its asthma treatment. The fall made the company a much more attractive bid target.

SkyePharma has appointed Lehman Brothers to review its strategic plans. The company would not divulge the name of its suitor but said that it had been the subject of interest in recent months from a number of parties within the industry and private equity groups.

Stealing a march

Phytopharm, the developer of treatments derived from plants, stole the show among all small cap companies listed on the market with its share price rocketing 85 per cent last week.

On Monday morning, before a heavy bout of profit-taking took a little shine off what was still a phenomenal performance, the shares had more than doubled in price in less than two weeks.

Investors piled into the shares on hopes that results of phase II clinical trials for its lead product Cogane, a treatment for Alzheimer's and Parkinson's disease, will be positive when published early next month. The company has confirmed that it has already held preliminary talks with potential licensing partners.

On Tuesday morning the shares, however, raced ahead again. The latest sharp rise caught some people off guard after Phytopharm said it had become aware of rumours circulating that it knew the results of its Cogane trials but that in fact it has no such knowledge. The company said it made this statement after receiving advice from the stock exchange authorities.

Phytopharm's incredible share price run needs to be put into a broader perspective. The shares had tumbled to less than a fifth of their high for this year, following the resignation of its broker Cannacord Capital in June. The firm resigned after confirmation that animal rights activists had firebombed the car owned by their finance director.

GW makes progress

Shares in GW Pharmaceutical burnt brightly, jumping around a fifth higher in early Tuesday trade, after revealing that the UK government is to allow the import of its cannabis-based painkiller medicine, Sativex, from Canada.

The medicine will not be licensed for use in the UK but doctors are allowed to prescribe it on a named patient basis. In the UK, the launch of Savitex has been hit by delays with regulators asking for more data before granting a marketing licence.

Research released recently showing that Sativex can relieve the symptoms of rheumatoid arthritis boosted its share price.

This was the first study on the effect of such medicines on the disease. The results, published in Rheumatology, the monthly journal of the British Society of Rheumatology, said the results were statistically significant but that a larger study is needed to investigate in greater detail the effects of this medicine.

Its share price was also firmer after news last week that regulators in Catalonia have agreed to the compassionate use of Sativex in 600 people, such as multiple sclerosis patients. The under-the-tongue spray was approved by the Canadian regulatory authorities in April; the world's first approval of a cannabis-derived medicine.

Rising star

Shares in biotech firm Alizyme came to the fore when they rose strongly, by around 15 per cent, just days after it released positive early-stage US trial data for Cetilistat, its obesity drug.

The study showed that obese patients taking the drug experienced both weight loss and low side effects. Results of phase IIb European trials for obese diabetics will be published in December.

Alizyme's success in finding a licensing partner to take the drug through phase III trials are likely to be dependent on phase IIb trial results.

2nd September 2008

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