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The sky's the limit

Pharma sector delights traders with strong second quarter results, as the stock market hits another three-year high.

The UK stock market has boomed, reaching its highest level for three years. Dealers are convinced there will be an early 0.25 per cent cut in interest rates (to 4.5 per cent) on Thursday August 4 to reverse Britain's economic slowdown. So far the market has risen by more than 60 per cent since its last low point, in 2003.

The FTSE 250 index, which measures the fortunes of smaller cap companies, hit an all-time high of 7617.8, driven by soaring oil share prices. Meanwhile, dealers forecast the FTSE 100 Index will hit 5,350 by year-end. Given the current level of the market (5290.8), this target doesn't give much upward scope, but traders have learned to be guarded as far as their optimism is concerned.

Yet, the pharma sector was particularly buoyant, outperforming the market's overall rise, as traders anticipated their second quarter trading statements. The wisdom of the marketplace proved right as AstraZeneca, GlaxoSmithKline (GSK) and Shire Pharmaceuticals posted better than expected figures.

AstraZeneca delights the market

AstraZeneca (AZ) rose over two days by a hefty 210p (to 2,559p) as dealers digested the record second quarter profits and news that David Brennan, head of the group's US operations, will take over from Sir Tom McKillop as chief executive in January 2006.

Nomura upgraded the shares from neutral to buy, as AZ easily outperformed City analysts' predictions with a second quarter profit of £967m, up from £595m on the same reporting period last year. Sales of the company's cholesterol drug, Crestor, rocketed 50 per cent to £180m, while sales of its heartburn drug, Nexium, rose 33 per cent to £685m.

Stronger pipeline at GSK

GSK posted an 8 per cent increase in profits to £1.7bn, pushing the share price up by 12p. The market was encouraged to learn that the company's late-stage drug pipeline, which was recently thought of as one of the weakest in the pharma sector, is now much improved. The company has nine products entering phase III clinical trials over the next year. Sales of asthma treatment, Advair, increased by 22 per cent to £725m.

Potential blockbuster drugs in the pipeline include Cervarix, a vaccine to treat cervical cancer, which is estimated will produce sales of £2bn a year by 2010. There is also a new HIV/AIDS treatment that `can block entry of the virus into every cell of the body' according to GSK boss, Jean-Pierre Garnier.

Shire also outperforms expectations

Shire Pharmaceuticals also outperformed City expectations for the second quarter - although the share price remained unchanged - as revenues increased by 32 per cent (to £243m) and bottom-line earnings rose from £19m to £66m. Adderall, the company's attention deficit hyperactivity disorder drug, showed a strong sales surge. Revenue growth in 2005 will be in `low double digits', but at the high end of the range of its previous forecasts.

Shire has completed its $1.6bn purchase of Transkaryotic Therapies. Shareholders had resisted the deal but were persuaded by positive trial data on a treatment for the rare hereditary disease, Hunter syndrome.

Modest sales at Teva

Teva Pharmaceuticals has posted modest second quarter growth, with sales of its branded multiple sclerosis treatment compensating for poor sales of generic drugs in the US. Net income rose 5 per cent in the second quarter to $241m, as sales increased 4 per cent (to $1.23bn) in line with expectations.

News that Teva's figures were buoyed by sales of a branded drug comes just one week after the Israeli firm regained its position as the number one generics seller after agreeing to acquire US rival Ivax for $7.4bn.

The deal is the biggest ever cross-border transaction by an Israeli company and opens up Ivax' valuable respiratory and inhaler businesses to Teva - along with the rights to make copycat versions of Pfizer's Zoloft, a treatment for depression and Merck's prostate drug, Proscar.

Akers introduces tri-cholesterol test in US

AIM-listed Akers Biosciences saw its share price rise after it announced plans to introduce its tri-cholesterol test to the US in the third quarter of this year - earlier than dealers had anticipated. Some 50 hospitals are thought to be using Akers' heparin testing kit, generating combined sales of $7.5m yearly.

Acambis trials hospital superbugs vaccine

Acambis has commenced trials for a vaccine against the superbug, Clostridium difficile, which infected more than 43,000 people in UK hospitals last year, up 23 per cent from the previous year.

The Author
Malcolm Craig is the author of 14 books on varying aspects of investment, and is one of the
UK's leading investment commentators.

2nd September 2008

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