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Riding high

GSK and AZ shares get a boost on news that Pfizer is paring down its US salesforce
Stockmarkets worldwide have been unsettled by a sell-off in the dollar, which sent the pound sharply higher, and US manufacturing data predicting a more pronounced economic slowdown than expected.

However, after heading south fast towards the end of last week, the UK stockmarket steadied itself on Monday and started to move higher again with Wall Street in a bullish mood spurred on by a clutch of merger and acquisition deals. The bulls remain confident that, despite the strong run in recent months, the traditional Christmas rally is still on the cards.

There has been plenty of investor interest in the two leading pharma heavyweights, GlaxoSmithKline (GSK) and AstraZeneca (AZ). Share prices at both leading-dollar earners came under pressure in the wake of the dollar sinking to a new 14-year low against the pound.

However, both firms received a boost on the news that rival Pfizer is cutting its US salesforce by 20 per cent. Market commentators pointed out that as a result both GSK and AZ would face reduced sales competition and would probably look to implement their own cost-cutting salesforce programmes.

A stockbroking report from Bernstein Research argued that a merger of AZ and

GSK is less likely now than at any stage over the past couple of years because of impending patent expiries at AZ and the current depressed valuations of GSK shares. Bernstein takes the view that AZ is more likely to make an acquisition than be acquired. The firm believes that the acquisition of Shire Pharmaceuticals could go a long way to solving AZ's pipeline problems. Meanwhile, Shire was boosted by an upgrade to "overweight" by HSBC.

News that Pfizer had ended the development of a key new cholesterol drug,

torcetrapib, sent its share price sharply lower and served as a harsh reminder of the high-cost risks involved in drug development. AZ moved higher though on expectations that its key cholesterol drug, Crestor, will face less competition in the longer term.

Up and away
Shares in the Goldshield Group enjoyed a sharp rise - up nearly 15 per cent - after the generic drugmaker confirmed it is in preliminary discussions about a management buy-out.

Goldshield said that there was no certainty that an offer from the early-stage talks would be forthcoming, though a buyout is seen by some analysts as the best way forward for the company, which is undergoing a major transformation from a UK generics company into a healthcare company opening a chain of nursing homes and clinics in India. In the meantime, Goldshield has warned that it expects its full-year results to fall short of market expectations.

In April, the Serious Fraud Office (SFO) launched criminal proceedings against five drug companies and executives over alleged price fixing with regards to medicines sold to the National Health Service. Goldshield's chief executive, Ajit Patel, and chief operating officer, Kirti Patel, were charged by the SFO with price fixing. The company has since voiced its support for the directors.

Alizyme attracted buying interest on the back of a strong jump by its shares, following news that it has successfully raised fresh funds from a share placing and the departure of chief executive Richard Palmer. Speculators believe the company is a takeover candidate now that Palmer, a co-founder, has left. Tim McCarthy, previously financial controller and secretary, is taking his place and said he was evaluating all options with a completely open mind.

Some observers maintain that Palmer decided to stand down after the company had failed to find development partners, particularly to take Cetilistat, a promising obesity drug, through phase III trials. A lack of deals and concerns over future funding of trials sent the shares spiralling down to three-year lows. Alizyme said that it now has enough funds to continue into the second half of 2008 following the share placing.

Elsewhere, Evolutec featured with its share price slumping by 72 per cent after the biotech company revealed that its hayfever drug, made out of tick saliva, failed in clinical trials.

2nd September 2008

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