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Top profits

Impressive revenue at UK pharma firms continues to ensure the sector's attractiveness to investors

The stockmarket scribblers are not just worried about the shock rise in Chinese interest rates, but also of a prospective rise in UK interest rates. It is only a few weeks since there was general anticipation of UK rates falling, which is one of the reasons why the stockmarket rose over the 6,100 level as measured by the FT-SE 100 index, that universally quoted bellwether of the stockmarket's fortunes. Higher UK interest rates could arrive this week to help prevent inflation ballooning out of control. Sky-high energy costs could lead to a round robin increase in prices throughout the economy, which in turn could lead to higher wage demands. All this at a time when industry has slumped and consumers have cut back sharply on spending and increased saving - pushing UK growth to its weakest level since the early 1990s.

Times of uncertainty ensure pharma stocks, with all their traditional defensive qualities, are more attractive than the average and institutional and private cash continues to flow into the sector. Profits at the big pharmacos are booming: GlaxoSmithKline's (GSK) profits soared in its last quarter while those of AstraZeneca (AZ) also forged ahead. Meanwhile, Shire posted better than expected profit figures. To add to the mix, takeover speculation continues with no pharmaco seemingly too big to escape being nominated in the City wine bars as a possible target.

GSK - 27 per cent jump in first quarter pre-tax profits
GSK pleased the market with a 27 per cent rise in first quarter pre-tax profits to £2.2bn, on sales up 15 per cent at £5.8 bn. One key drug driving the growth is Advair/Seretide for asthma, with sales up 12 per cent to £816m. New drugs coming up for sale include Alli (the over-the counter lower dose version of GSK's anti-obesity drug, Xenical). GSK is pressing for Alli to be sold without prescription in the US and then wants to sell it OTC in Europe.

The drug stops the body from taking in a third of the fat in meals. The US FDA has asked for additional research on the drug.

Other drugs in the pipeline include cervical cancer vaccine Cervarix, which is due to be registered in the US by the end of 2006 - having already been registered in Europe. GSK hopes to win the race to get the first vaccine for cervical cancer - the second biggest cause of cancer in women - on the market. Merck and sanofi-aventis are co-operating in a joint venture to produce their own vaccine.

GSK also has Tykerb, a breast cancer medicine, due to be released in 2007.

AstraZeneca clinches deal with Abraxis over cancer treatment Abraxane
AZ is continuing its policy of using its $6bn cash pile to buy growth with the latest deal being a $200m purchase of the right for five and a half years to co-promote Abraxis Bioscience's breast cancer treatment Abraxane in the US. The drug could greatly reduce the side effects of chemotherapy. AZ will pay Abraxis for co-promotion rights and provide sales representatives to support Abraxane, as well as financing 50 per cent of the promotional programme.

The new product fits in well with the company's other cancer products. AZ's first priority is to improve its drug pipeline in the mid-term. AZ reported first quarter profits up 38 per cent to ?2bn on sales up 8 per cent to $6.2bn. The Abraxis deal means AZ will sell its US anaesthetic and analgesic business to Abraxis for $350m. The combined sales of AZ's five key drugs - Nexium for heartburn, Seroquel, the antipsychotic treatment, Crestor for cholesterol, Arimidex for cancer and Symbicort, the asthma inhaler - shot ahead 25 per cent. R&D spending in the quarter rose 9 per cent.

AZ has been given the green light by the US Food and Drug Administration (FDA) to market its heartburn drug Nexium to children aged 12 to 17. Nexium is the world's fifth-biggest selling drug, with annual sales of $4.6bn. The share price rose to $55.59 in New York on the news.

Shire posts 28 per cent rise in latest quarter sales
Shire, the UK's third largest pharma company, saw a rise in its share price as it revealed sales for the three months to end March 2006 up by 28 per cent to $346m; total revenues increased 23 per cent to $411m. Pre-tax profits increased from $70.8m in the same period last year to $99.4m. The engine for growth lies in solid sales of Adderall XR, its attention deficit drug.

And the competition from generic pharmas to produce a low price copycat version of the drug has been kicked in to touch with the FDA confirming it will take more time to study a Citizen's Petition filed by Shire, pointing out to the regulator what it reckons are safety concerns with some of the prospective generic versions of Adderall XR.

Shire's new drug Elaprase, used to combat the genetic disorder, Hunter Syndrome, is scheduled for launch later this year.

Icahn builds stake in ImClone to help repel bidders
Biotech firm, ImClone, the maker of cancer treatment Erbitux, is the latest target of billionaire entrepreneur Carl Icahn, who has built up a10 per cent stake in the company. He is in discussions with ImClone over the appointment of a new director and creating a poison pill in the company's structure to defend it against any hostile takeover bid. ImClone has hired investment bank Lazard to look over strategic alternatives for the future.

Positive results from Transgene's cervical cancer vaccine trials
Transgene, the biotechnology company, has announced positive results for its vaccine against cervical cancer. There is speculation that Transgene could link up with GSK. The vaccine has worked on half the women with pre-cancerous lesions. Cervical cancer attacks 270,000 women yearly and is the second biggest type of women's cancer. The market for vaccines against it may be ?2.3bn a year. GSK and Merck have vaccines aimed at vaccinating women who have not been infected. GSK has Cervarix - which it hopes to have on the market in 2007 - and Merck has Gardasil which is registered in both the US and Europe.

Phytopharm soars as it appoints new broker
Phytopharm posted a sharp gain of 11.75p to take its share price to 67p on news that Teather & Greenwood has been appointed as joint financial adviser and stockbroker.

Malcolm Craig is the author of 14 books on different aspects of successful investment, from gilts to gold, from shares to overseas property. He is one of the country's most respected investment commentators.

2nd September 2008

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