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Stormy seas ahead

Volatile market conditions, prompted by the threat of increased inflation, saw investors take refuge in defensive stocks, such as pharmaceuticals

Volatile market conditions, prompted by the threat of increased inflation, saw investors take refuge in defensive stocks, such as pharmaceuticals

Stockmarkets on both sides of the Atlantic continued to lose ground on increasing worries that inflation will hit Western economies hard. The Governor of the Bank of England has warned that stormy waters lie ahead after the stockmarket tumble last month, which he described as a `modest correction'.

The bumpy future results from imbalances built up in asset prices over recent years and the threat of increased inflation.

In the UK, an interest rate rise is likely to be made before the end of 2006, but not just yet. UK interest rates are on hold due to the fall in manufacturing and a weakening housing market. In such volatile conditions investors headed for defensive stocks, including pharmaceuticals.

FDA breaks new ground on bio-generic drugs
The US Food and Drug Administration has broken new ground by approving the first generic version of a biotech drug. The generics arm of Swiss pharma company Novartis has developed a generic copy of Pfizer's human growth hormone Genotropin.

It has been a long battle for Sandoz, which filed omnitrope for US approval back in 2003; the FDA only approved the drug as the result of a court ruling in May. Some analysts believe that the ruling could clear the way for more copycat bio-generic drugs.

NeuTec Pharma soars on bid talks
NeuTec Pharma, the AIM-listed biotech company, saw its share price rise astronomically by 422p to £10.80p after announcing it is in bid talks.

The firm, which has several drugs in last-stage trials, including Aurograb, a treatment for hospital superbug MRSA and no current licensing deals with big pharma companies, is an attractive bid target.

Its most attractive drug, Mycograb - a treatment for invasive candidiasis, a potentially fatal form of thrush - is being examined by the European regulators with a view to the drug being marketed.

While NeuTec has agreed to be taken over by Novartis for £305m, or £10.50p per share, there is also thought to be bid interest from AstraZeneca, Merck, Eli Lilly & Co, Gilead and Pfizer. Hopeful punters reckon a bid war could develop, pushing NeuTec's share price higher still.

Merck gets green light for cervical cancer vaccine
Merck has received US approval for its vaccine, which prevents the sexually transmitted infection that can lead to cervical cancer. The vaccine would be a rival to Ceravix which is being developed by GlaxoSmithKline (GSK). GSK expects the EU regulator's approval in 2007 and plans to set up a £102m vaccine manufacturing plant in Singapore.

GSK clinches osteoarthritis deal with Galapagos
GSK has clinched a deal to develop new drugs for osteoarthritis with Belgian biotech, Galapagos. GSK is paying £94m in front-end fees and milestone payments in a deal that requires Galapagos to use its expertise in the osteoarthritis field to develop new compounds. Under the deal, the UK company will have the option of taking the compound into late-stage trials.

If the drug makes it to market, Galapagos will receive a royalty payment.

Separately, GSK has had the green light from the FDA to market Wellbutrin XL, an antidepressant for sufferers of seasonal affective disorder (SAD). This is the first drug for those suffering from SAD and studies revealed that 84 per cent of patients with SAD who took the drug during the winter months were free from depression by the following Spring, compared with 72 per cent who took placebo pills.

Bayer withdraws from OTC auction
Bayer is thought to have withdrawn from the auction for Pfizer's over-the-counter (OTC) medicines arm. The German firm has been reported as deciding that bidding for the portfolio, which includes non-prescription drugs, Listerine and Sudafed, had become too expensive.

Bayer is already challenged on the cash front as it is buying fellow German firm, Schering AG for £11.3bn.

The withdrawal leaves GSK as the bid leader for Pfizer OTC unit, with an offer of £8.1bn. Rumours suggest that the UK could raise the bid to as much as £16bn. However, GSK chairman Sir Chris Gent says he will buy it `only at the right price.'

Other interested companies include Wyeth, possibly in a joint bid with Colgate-Palmolive, which is thought only to want Listerine, Johnson & Johnson and Reckitt Benckiser which scooped up Boots' OTC business in 2005 for £1.9bn.

Herceptin to be available on the NHS
At a cost of around £100m each year Herceptin, the breast cancer treatment from Roche, is to be made available on the NHS for women newly diagnosed with the disease.

The National Institute for Health and Clinical Excellence (NICE) announced a draft recommendation that Herceptin, which can reduce the risk of the cancer recurring by 50 per cent, should be available to `suitable women' with early-stage breast cancer. Final guidance on prescribing the drug will be announced by NICE next month.

Herceptin is not thought to be suitable for women with heart problems or high blood pressure that is difficult to control, and is not licensed for the small number of women who have not had radiotherapy or chemotherapy.

Bid action
Antisoma saw its shares rise 1.75p to 17.5p after two directors bought 103,434 shares in the company, which prompted chief operating officer, Ursula Ney, to buy 275,000 shares at 18p apiece. There is speculation in the City that a big pharma could launch a bid for Antisoma.

S R Pharma's share price rose slightly after it revealed that the shelf life of some of its drug portfolio has been lengthened as a result of a technological discovery. City dealers reckon S R Pharma is in the bid frame and that a US company is checking out its business potential prior to making a move.

Malcolm Craig is the author of 14 books on different aspects of successful investment ranging from the stockmarket to gold, from overseas property to gilts. He is one of the country's most respected investment commentators.

2nd September 2008

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