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Under a cloud

Litigation is looming over the pharma industry following claims by US authorities that companies have inflated drug prices.

Litigation is looming over the pharma industry following claims by US authorities that companies have inflated drug prices.

The UK stock market is still in the shadow of the global credit crunch with wholesale money market rates at 5.77 per cent - the highest since January 7, 2008. Little of the benefit of the last rate cut - to 5.25 per cent - has been passed on to borrowers, mortgage holders and other struggling sectors of the UK scene. 

The stock market continues to trade under the key 6,000 benchmark of FTSE 100 index and although it has managed some hefty rallies, it has suffered equally hefty falls.

Oil prices have reached record levels with a price tag of $104 per barrel. Increasing commodity prices will limit the Bank of England's room for further rate cuts if it wants to meet its government decreed inflation target of less than 2.5 per cent. Britain is not alone in seeing a rise in inflation, which is at a seven-year high of 3.5 per cent in OECD countries.

Pharma dogged by litigation

The pharmaceutical sector continues to be dogged by litigation; the latest victim is AstraZeneca (AZ), which was hit with a $215m fine by the US state of Alabama. The US authorities claim that the company inflated drug prices charged to the Medicaid programme, a system of state aid for those too poor to afford expensive drugs.

A further 70 pharmaceutical companies, including Novartis and GlaxoSmithKline (GSK) are due for trial in Alabama in April on related allegations. The state claims that in 2005 the pharma companies overstated the average wholesale price of drugs used to calculate Medicaid re-imbursement rates to pharmacies.

In the UK stock market pharmaceuticals are still seen as a desirable defensive sector for punters seeking a safe bolthole for their money in times of uncertainty. One black cloud over the sector is the claim that many leading antidepressants work no better than a placebo for cases of mild depression, according to a meta-analysis conducted by the University of Hull.

GSK and Eli Lilly, the makers of Seroxat and Prozac, respectively, stand to loose business through a resulting downturn if such medications are limited to the treatment of severe depression.

Antisoma's shares soar

Punters fought to get Antisoma shares as the latest results were announced, upping the share price by 18 per cent.  The biotech company delivered a pre-tax profit of £4.12m on sales of £16.5m in the half-year ending December 2007 against a loss of £7.49m on sales of £300,000 in the same period in the previous year.

Antisoma is due a £12.6m milestone payment from Novartis in the near future as the Swiss pharma giant aims to start a phase III study into Antisoma's leading drug, AS404  (a lung cancer treatment) in the next few weeks. The milestone payment will increase Antisoma's treasure chest of cash to £60m. With cash assets equal to almost half its market price tag, the company is a tempting prospect for a bidder looking for cash and a promising drug portfolio. Antisoma has four drugs going through clinical trials.

We can expect to see Antisoma declare some promising results in 2008, including phase II data for its leukaemia treatment AS1411. There will also be median survival data for its prostate cancer treatment. Nomura expects full year revenue of £44.5m for 2008 against £8m in 2007. 

Sinclair moving towards the black

Sinclair Pharma has reported a loss of £910,000 on sales up 15 per cent at £10.4m for the half-year ending December 2007. This compares with a pre-tax loss of £2.54m on sales of £9.1m in the previous year.

The company share price has halved over the past year due Sinclair's setback over the introduction to the US market of its Decapinol dental hygiene product. If green lighted, the launch of Decapinol in the US could produce a milestone payment from Johnson & Johnson, its US partner.

Sinclair's order book is healthy at around £5m but in the City's opinion it should be three times this amount if it is to move into the black by the end of 2008. The company is planning to move into profit in 2008 on the back of six more product registrations as well as a number of launches and new deals

The Author
Malcolm Craig is a freelance financial journalist and one of the country's most respected investment commentators.

12th March 2008


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