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The price is right

Rising commodity prices have reflected growing optimism in the investor market in the run-up to Easter

In the run up to the long Easter weekend, the stock market is showing strong signs of consolidating at close to its recent five-year high, with the blue-chip FTSE100 index continuing to stay above the key 6,000 mark.

Not even higher oil prices on the back of rising geo-political concerns, particularly in Iran and Nigeria, have failed to derail the market's upward momentum. Investor confidence has been boosted by rising commodity prices that reflect growing optimism about increasing global economic growth, boosted by better-than-expected US employment data.

Increasing prices also reflect growing speculative buying by investors (notably hedge funds) confident that prices will rise even higher while supply remains tight. Meanwhile, the Bank of England left interest rates unchanged.

On the pharma front, shares in GlaxoSmithKline (GSK) fell 1.5 per cent, in the face of a downgrade from buy to neutral by UBS. The Swiss broker's view is that positive phase III trial results for Tykerb, GSK's breast cancer drug candidate, which could see it submitted to European and US regulators in the second half of this year, was offset by disappointing data from respiratory drug, Advair. UBS advised clients to switch their holdings into AstraZeneca, which the broker thinks is the most credible takeover candidate among the big European pharma groups.

Shire Pharmaceuticals perked up on news that US regulators approved Daytrana, its skin-patch that is the first and only non-oral medication for the treatment of attention deficit hyperactivity disorder (ADHD).

Elan, the Irish drug developer, enjoyed a good rise after the group said that the latest trials of Tysabri, its multiple sclerosis drug, showed a significant improvement in patients treated by the drug. US regulator, the Food and Drug Administration (FDA), is expected to complete its extended review of Tysabri by June 28. The drug was withdrawn from the market last year due to safety concerns.

The market liked the news from biotech company, Protherics, which released a pre-close trading update. It said that its underlying business continued to perform well over the past financial year and that it would spend £10m on R&D programmes in the current year. The company said it would time further manufacturing investments with the receipts of milestone payments from AstraZeneca, which has bought the rights to its sepsis treatment in an agreement that could be worth up to £195m, in upfront and milestone payments, apart from royalties.

Hikma Pharmaceuticals, the Jordanian drugs group listed in November, shone brightly gaining more than 12 per cent last week. Hard on the heels of the market warming to its recent maiden interim figures, the shares shot up after stockbroker Merrill Lynch raised its price target from 440p to 480p. Merrill also reiterated its buy view and now is even more confident that Hikma will exploit its good growth prospects in the Middle East.

Phytopharm, which develops treatments from plant extracts, enjoyed a good bounce, albeit from a near historic low. This came after it announced that its joint development programme with Unilever for its weight loss product, an extract derived from Hoodia, a Kalahari desert cactus, will progress to phase II clinical trials. In terms of a five-stage agreement, Unilever is committed to paying around £6.5m for the first stage out of a total of around £21m, and Phytopharm will receive a royalty on sales of all products containing the extract.

Biotech and pharmaceutical companies waiting in the wings to float their shares on the stock market received a boost from Renovo's successful debut. Shares in the drug developer jumped by nearly a fifth above their issue price at the close of their first day of trading after raising around £50m through an initial public offering. The good conditional trading price (unconditional trading begins on April 12) was especially pleasing to investors, considering that last May the company abandoned its listing plan because of adverse market conditions. Renovo is using the proceeds raised to develop Juvista, its treatment to prevent scarring, which is expected to start Phase III clinical trials next year.

Improved market conditions for new flotations in the sector, no doubt have encouraged Hutchison China MediTech, a company that develops treatments from traditional Chinese medical practices, to seek a listing.

2nd September 2008

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