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Troubled waters

The UK economy is in deep trouble, as it looks likely that the recession could drift into depression

The UK economy is in deep trouble, as it looks likely that the recession could drift into depression. We last saw deflation in the 1930s when the value of money actually rose. The recent injection of billions of pounds by Chancellor Darling appears to have had little effect and the banks certainly are not relaxing their much stricter lending policy or passing on interest rate cuts in full to mortgage borrowers or small companies seeking overdrafts and loans. In fact, they appear to be ignoring the Bank of England's minimum lending rate cut to 2 per cent.

Any hint of risk, and the banks back off while they use the government cash to bolster their balance sheets. Sooner rather than later the government may have to act completely to nationalise the UK's banks.

We could see the limpid clamp of civil service bureaucracy over the banks, directing money not to where it will make the biggest profit, but to where the government thinks it should go. Million pound salaries, bonuses and share schemes will vanish as the highly-paid investment bankers desert the City for greener climes – either going abroad to other financial centres such as Frankfurt, or turning to another business, such as garden maintenance to improve their quality of life.

Reflecting this gloomy scenario, the pound suffered its biggest one-day fall since Black Wednesday in 1992 – with sterling hitting a low $1.48.

The stockmarket also plunged, with the FTSE 100 Index hitting a low of 4,065 points. The market has shed over 2,000 points since its last high and we can officially declare we are firmly in the grip of a bear market. Pharmaceutical companies moved higher as a European Union anti-trust enquiry into generic competition provided few surprises. The European Commission has accused pharmaceutical companies of impeding the entry of generic drugs to the market, denying the public access to cheaper medicines. No companies were mentioned in the preliminary report and massive fines look a distant prospect.

Nicolie Kroes, the European Commissioner for Competition concluded her 10-month report by rather weakly saying the present system 'does not work as well as it should' and had cost 17 member states £2.5bn between 2000 and 2007.  Dealers are still buying into pharmaceutical shares as they continue to offer an attractive, defensive investment home.

United Drug is forging ahead despite the gathering storm clouds of recession
United Drug posted a 5 per cent increase in pre-tax profits of €58.6m on sales; 6 per cent ahead at €1.68bn for the year-to-end September. Boss Liam Fitzgerald warns that life is getting tougher a result of the government's own budgets being under pressure leading to spending in hospitals being curbed. However, he is still looking forward to double-digit profit growth boosted by fees for service contracts instead of using working capital. The latter figure is down 5 per cent for the last year.

The robust rise in profits was due to excellent results from United Drug's wholesale business, sales and marketing services and the supply chain operation.

Investment bank, Goldman Sachs, is looking to United Drug to produce a 14 per cent rise in underlying pre-tax profits to €78.5m in the current year, climbing to €85m in 2010.

Biocompatibles jumps on good news from its stem cell therapy, used for severe strokes
Biocompatibles saw its share price jump as the market learned that the first stroke patient treated with its experimental stem cell therapy demonstrated no side effects after surgery. The patient is the first of 20 people to be treated in the current round of trials. Biocompatibles is working hard to show their therapy is safe for use by male and female patients who have suffered severe strokes.

Regan Therapeutics reports good results on colostinin for Alzheimer's Disease
Regen Therapeutics saw its share price rise after results of a study on colostrinin, which, when given to Alzheimer's disease patients has produced a stabilising influence on their brain functions. The drug is already being sold in Australia, the US and Canada as CognisSure - a nutrition supplement 'to support healthy brain ageing and cognition in humans.'

Futura Medical gets green light for lead product
Futura Medical, the pharmaceuticals and biotechnology company, has seen its share price double following an announcement that it has obtained 'positive regulatory opinion' for its lead product, a male protection rubber that helps maintain erections. Futura is confident it will gain the CE mark, the conformity mark on products sold in the European Economic Area, within a fortnight.

NICE to make a U-turn on kidney cancer drugs
It is anticipated that NICE, who approve drugs and medicines for use in the NHS, is poised to make an abrupt U-turn over its ban on kidney cancer drugs. NICE is expected to give the green light to the drugs early in 2009.  Around 3,650 patients in the UK suffer from advanced kidney cancer.

Last August, NICE banned four drugs for advanced kidney cancer – Sutent, Nexavar, Avastin and Torisel, from being dispensed to NHS patients stating their high cost, which is some £67,000 per patient annually, was too high. NICE is now reconsidering the drugs since research in the US demonstrated that Sutent was more effective than previously thought. NICE is to draw up new guidance on all four treatments although much depends on NICE clinching a hefty discount on the drugs.

The Author
Malcolm Craig is a freelance financial journalist and author

8th December 2008


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