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Concerns about consumer spending slowing down and a volatile Wall Street buffeted by a weakening economic outlook pushed the market lower. The FTSE 100 index briefly sank below the key 4,800 mark

Concerns about consumer spending slowing down and a volatile Wall Street buffeted by a weakening economic outlook pushed the market lower. The FTSE 100 index briefly sank below the key 4,800 mark, although it staged a decent recovery on Tuesday morning after the long weekend.

Leading pharma stocks shone brightly, however, as GlaxoSmithKline (GSK) stole the limelight with its share price surging more than 7 per cent (through the £13 level) to hit a new high for the year. It was the star FTSE 100 stock last week.

Good quarterly figures from both GSK and AstraZeneca (AZ), as well as positive developments encouraged investors to pour even more money into the pharmaceutical and biotechnology sector, whose recent positive re-rating gained further strong momentum. Powered by the impressive rise in GSK, pharma/biotech was easily the best performing sector last week, posting a gain of nearly 5 per cent while the market measured by the FTSE All-Share index fell 1.5 per cent.

Investors responded favourably to news of GSK's deal with US regulators to resume manufacturing Paxil CR, an antidepressant, at its Puerto Rica plant in the summer. Production was halted in March because US regulators found manufacturing problems. Yet the matter has been sorted out considerably quicker and at a substantially lower cost than analysts expected.

Figures that showed pre-tax profits up by nearly a fifth, thanks partly to significant overhead savings, and sales up 5 per cent in the first quarter were also warmly received. Sales of Seretide, GSK's asthma treatment, and Avandia, its diabetes drug, both posted a more than 20 per cent rise. The firm also announced an agreement to acquire US vaccine maker, Corixa, for $300m.

AstraZeneca high

AZ's shares rose to a new high for the year after it revealed a jump of more than a third in first quarter pre-tax profit, boosted by a good sales and a cost cutting drive, beating market expectations. Revenues from Crestor, its cholesterol drug, Seroquel, a schizophrenia treatment, and Arimidex, a lung cancer drug, were up strongly.

Shire Pharmaceuticals perked up a bit after its chief executive, Matt Emmens, maintained at a roadshow for institutional investors that the $1.6bn acquisition of Transkaryotic Therapies, an ailing US biotech group, will be beneficial for Shire.

Meanwhile, shares in Elan, the Irish drugs group, soared 36 per cent, albeit from a low base, last week. The group's chief executive, Kelly Martin, said he expects Tysabri, a multiple sclerosis treatment, to return to the market sometime. Elan's share price collapsed after Tysabri was withdrawn voluntarily from the market earlier this year.

Among the mid-cap stocks, SkyePharma featured with its share price gaining a hefty near 8 per cent over the past week after positive announcements from this drug reformulation group.

Firstly, it revealed that a deal with an unnamed big global pharma group for Flutiform, an asthma drug that has completed phase II trials, is close to being concluded. SkyePharma would receive double-digit royalties and $160m to cover clinical development costs including milestone payments if the deal is ratified.

By the end of the decade Flutiform could have annual sales of $1bn, maintained Michael Ashton, SkyePharm's chief executive.

Secondly, GSK has agreed to increase the royalties it pays the group on Paxil CR which was developed using SkyePharma's technology. Moreover, GSK has agreed to pay royalties to SkyePharma for the period this drug was off the market because of manufacturing problems in Puerto Rica.

Biotech firm, Alizyme, remained strongly on a downward path after recently announcing a more than £30m rights offer. In heavy trade, the shares fell to well below their rights offer price of 100p, even though it is underwritten, to sink briefly below the 90p mark before climbing back to 91p.

Yaron Bull a market maker at Evolution thinks that the share price has fallen sharply mainly because it is a difficult time to raise money in a weak stock market.

Speculation continued to envelope Oxford BioMedica as the rumour mills, once again, swung into full motion suggesting that the biotech could receive a takeover bid from US groups Genentech or Johnson & Johnson at 50p per share. Analysts tend to dismiss the latest takeover gossip, although the shares at 30.5p were close to their high for the year on Tuesday morning.

2nd September 2008

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