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Striking distance

The London stock market remains within striking distance of its recent multi-year high. The pharma and biotech sector, however, is still rattled by regulatory decisions.

Our weekly review of the pharmaceutical stock market


The London stock market remains within striking distance of its recent multi-year high, with the FTSE 100 index continuing to consolidate above the important 5,000 level.

Good support flowed in from the US stock market as it hit a three-and-a-half-year high. Strong US jobs data helped US equities to maintain their upward momentum, offsetting the negative impact of the recent spike in oil prices. Meanwhile, merger and takeover activity both in the UK and US markets is underpinning equity prices. European stock markets also moved to fresh 33-month peaks.

GSK is centre-stage

GlaxoSmithKline (GSK) held centre-stage as it sparkled to break through the £13 mark. Strong institutional demand and analysts' 'buy' recommendations fuelled the stock, before heading sharply lower.

Investors were rattled by the decision of the US Food and Drug Administration (FDA) to halt distribution of GSK's Paxil CR, an antidepressant, and Avandamet, a diabetes treatment, because of concerns about manufacturing quality.

The FDA's move came after the market had adjusted to the view that regulatory risks for pharma groups were decreasing. This was notable in the wake of last week's statement from the FDA that AstraZeneca's cholesterol drug, Crestor, is not more dangerous than competitor treatments.

Generally, analysts were quick to shave their earnings forecasts for GSK. Some believe that the share price fall has been overdone, especially as the products have not been withdrawn from the market.

AstraZeneca out of the doldrums

AstraZeneca managed to lift itself out of the doldrums to advance strongly on the back of the FDA's stance on Crestor. The share price also benefited from Credit Suisse First Boston moving the stock from 'underperform' to 'neutral', lifting its target price from £19.50 to £22.50.

Paxil profit worries

SkyePharma, the drug delivery group, initially suffered severe fall-out from news about Paxil CR. Its shares lost around 15 per cent of their value because the market was worried about the profit implications. SkyePharma earns major royalties, estimated at around 3 per cent on the sales of Paxil CR, from the use of its technology in this drug. The shares, however, recovered some of the lost ground on Monday.

Shire bounces back

Shire Pharmaceuticals has bounced back to full-year profits, buoyed by strong sales growth of Adderall XR, its hyperactivity drug. No earnings forecast for this year emerged from the group's results presentation, mainly due to uncertainties caused by Canadian regulators recently banning the drug. US regulators, however, have upheld Adderall's safety status. Credit Suisse First Boston's decision to up its target to 700p helped lift Shire's share price to near the 600p mark.

ML removes chairman

ML Laboratories featured with a sharp rise following the removal of its executive chairman Stuart Sim. The biotechnology company's share price has collapsed since Mr Sim stepped into the top job in 1997. Rumours of stake-building by a big investor helped grease the latest share price gain.

Annual profits test companies

Pleasing results from Dechra Pharmaceuticals, with interim pre-tax profits up by a quarter, sent the share price of the manufacturer and distributor of pharmaceuticals and veterinary equipment a healthy 4 per cent higher. The market liked the strong rise in the group's sales of its own pharmaceutical products.

The market warmly greeted Axis-Shield's annual-profit figures. The figures showed that the diagnostic testing group had narrowed its losses substantially. However, biotechnology Xenova Group's annual results, with big losses continuing, were poorly received and its share price lost an eighth of its value.

2nd September 2008

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