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Sustainable stocks

Pharma shares continue to provide a safe haven for those looking to invest, as banking cash call wreaks havoc on the FTSE 100

Pharma shares continue to provide a safe haven for those looking to invest, as banking cash call wreaks havoc on the FTSE 100.

The UK stockmarket has fallen to a six-year low after being hit by the biggest ever cash call from a UK public company – HSBC – and the latest enormous bail-out for the US giant AIG insurance group which announced a £44bn loss for the last quarter. The two events underlined the sheer depth of the latest global economic crisis.

The FTSE 100 Index collapsed towards the 3,500 key support level mark on a £12.5bn cash call from HSBC, which is begging for extra capital from its hard-pressed investors. HSBC had been seen as the safe haven in the banking sector making the cash call all the more shocking.

Pharmaceutical shares continued to offer good value as defensive homes for footloose cash. The dividend yields paid by big pharma companies are sky-high compared with cash deposits at banks or building societies that offer niggardly interest rates. And the fat yields from pharma are sustainable.

However, pharma shares lost some of their appeal as it was revealed that US President Barack Obama will move to inject new life into the US economy with a number of measures which will impact Medicare and Medicaid as he cuts payments to medical insurance plans. He is also going to target high drug prices to reduce costs.

Epistem surges on Novartis research deal
Epistem, the biotechnology company, saw its share price surge 30p to 279p on news that it has clinched an excellent R&D deal with Novartis. The Swiss firm is to pay Epistem, which focuses on stem cell development, $4m up front to develop new drugs over the next couple of years. Epistem could get up to $45m from the deal in milestone payments, plus royalties for any drugs developed and marketed under the Novartis agreement.

FDA wants more information on Seroquel XR
The US Food & Drug Administration asked AstraZeneca for more information on Seroquel XR, its treatment for schizophrenia and bipolar disorder. Shares in the firm fell on the news, which while expected is being seen as yet another crater along the AstraZeneca road.

A shot across the pharma bows from pension funds
A group of UK pension funds has warned big pharma companies that future investments could be made only if they are fed more information on the pharmaceutical companies' strategies, expenditure and performance in emerging economies. A report from Pharma Futures, a working group linking pension funds with pharma reps and health experts, explores the opportunities for the industry presented by the emerging markets, which are expected to produce healthy streams of revenue and profit growth over the coming years.

The report calls on the big pharma companies to change their policies towards the emerging markets so that they reflect low income levels, weak health infrastructure and the lack of public funding.

Vidaza launched
A new drug aimed at genetic flaws in blood cancer cells – the first to treat the cause of the disease – has been launched. Vidaza (azacitidine) targets genetic faults in the cells, which are the cause of cancer and can assist the body in producing healthy blood cells. It can be used to treat patients with high-risk myelodysplastic syndrome, chronic myelomonocytic leukaemia or acute myeloid leukaemia. 

Leukaemia Research confirmed that patients who received Vidaza in clinical trials had increased survival rates, and spent less time in hospital. Patients had fewer serious infections and less need for transfusions.

The Author
Malcolm Craig is a freelance financial journalist and author.

4th March 2009


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