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Stuck in a rut

UK stocks are struggling to gain momentum as economic uncertainty filters across from the US

The stock market is struggling to make headway, dragged down by weak mining and oil stocks. Many stocks are range bound of late, with the FTSE 100 index stuck between 5,800 and 5,950, and unable to launch a convincing attack on the 6,000 mark despite the US stock market, represented by the Dow Jones Industrial Index, being within easy striking distance of hitting an all-time high.

Investors' nerves have been unduly unsettled on whether noticeably weakening US housing data heralds a hard or soft landing for the world's most important economy. Falling oil prices, and some softer commodity prices, are easing market concerns about the inflation outlook for both here and the US, reducing pressure for interest rates to be raised further.

Merger mania grips industry
The big news for the pharma sector was the German drug group, Merck KGaA's acquisition of the Swiss biotech company, Serono, in a deal worth around Ä10.6bn,

underlining the fact that the pace of consolidation in the sector, particularly in Europe, is heating up. Meanwhile, German chemical and drugs group Altana sold its pharma unit to Nycomed, the Danish group, for Ä4.5bn and there was also a Ä4.4bn bid for Germany's Schwarz Pharma from Belgian UCB, which bought UK biotech Celltech Group a couple of years ago.

Shire the next target?
Merger activity in continental Europe sparked renewed speculation that Shire Pharmaceuticals could get caught up in the new powerful wave of consolidation sweeping through the industry. Collins Stewart is one firm that takes the view that Shire could be the next significant target. Indeed, the firm's analyst, Navid Malik, thinks that the group would fit snugly with some US rivals such as MedImmune and Forest Laboratories.

Trading interest in Shire gathered momentum. Its share price started to move strongly higher in the wake of the Merck acquisition, even though the Canadian Department of Health warned that attention deficit hyperactivity disorder (ADHD) drugs carry the risk of psychiatric side effects - Shire's Adderall XR is the market leader.

GSK shares softer
Interestingly, shares in GlaxoSmithKline (GSK), perceived as a likely acquirer in this new round of consolidation, were significantly softer ahead of Merck's acquisition of Serono on rumours that the UK firm had renewed its interest in purchasing Serono. GSK's share price, however, also came under pressure from Bear Sterns' decision to cut the share from peer perform to under perform. GSK failed to recover ground lost even after the Serono bid rumours were disregarded, and the share price finished last week more than 3 per cent down. On the other hand, AstraZeneca (AZ), which in recent months has been rumoured to be a takeover target, was hardly unchanged, outperforming a weak market last week.

Eyes turn toward Plethora
There was plenty of investor interest in Plethora Pharma Holdings, a specialty pharmaceutical company that focuses on products for the treatment of urological disorders and sexual dysfunction, after reporting a halving in interim losses and major revenue growth. Collins Stewart repeated its buy recommendation and price target of 526p, nearly three times the stock's current price of 178p, up 5.6 per cent after releasing its half-year results.

Asterand results
Asterand, a leading supplier of human tissue and drug discovery services to the pharma industry, unveiled interim results that were reasonably well received. Figures from the group, the product of a merger earlier this year with Pharmagene, make comparisons with the previous year misleading. The group maintained that the businesses have been successfully integrated.

Ardana share placing to fund Emselex launch
Ardana, a pharma group that focuses on reproductive health, announced that it was raising £11m through a share placing. The proceeds are going to be spent on launching Emselex, a treatment for overactive bladders, as well as investment in further development of its growth hormone replacement therapy.

Shares in BTG enjoyed a healthy bounce after Zebra Technologies Corporation exercised its option to the remainder of the medical innovations company's radio frequency identification patent portfolio for a tidy sum. Louise Makin, CEO, said: The divestment is in line with our strategy to exit and realise value from our non-core technology areas whilst expanding and developing our pipeline of medical products.

On the new listings front, A&D Pharma, a leading Romanian pharmaceutical chain, is looking to raise more than £80m on the London Stock Exchange through an initial public offering. In the meantime, ValiRx, a biopharmaceutical company is joining Aim through a reverse takeover of the cash shell, Azure Holdings. ValiRx's products under development largely come through the acquisition of Cronos Therapeutics, a spin off from Imperial College London.

2nd September 2008

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