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Bright backdrop

Favourable conditions in overseas markets continue to bring colour to the UK stock market

The stock market continued on its impressive run to fresh multi-year highs, fuelled by plenty of merger and takeover activity and speculation. Now the leading blue-chip barometer, the FTSE100 index, is within easy striking distance of the 5,800 marker.

The UK market has been buoyed by a strong showing by major European stock markets as well as Japan hitting new four to five year peaks. Meanwhile Wall Street is gathering further upward momentum, after a good new year rally petered out, providing yet more of a bright backdrop for the UK market. Markets are a little nervous, however, about higher oil prices and the handover of the Fed chairmanship to Ben Bernake from the long-serving highly regarded Alan Greenspan.

On the global front, merger and acquisition activity in the health industry looks to be heating up with Guidant, the US heart device maker, agreeing to be bought by Boston Scientific, whose takeover bid topped Johnson & Johnson's offer. Meanwhile, press reports suggest that GlaxoSmithKline (GSK) yet again has its sights firmly set on Serono, the Swiss biotech group which failed to find a purchaser prepared to cough up $15bn to acquire it after an auction last month.

GSK's shares fell noticeably on the reports that it was seriously considering buying Serono after the auction flop. Its shares gave up much of the previous trading day's 2 per cent gain enjoyed mainly because Deutsche Bank lifted its target price on the stock to £15.70 from £15.20. In the market, concerns chiefly focused on likely earnings dilution if Serono were acquired for cash or perceptions that Serono has a relatively weak drug pipeline. That apart, analysts are generally looking for good figures when GSK is expected to unveil full year figures on February 8.

This week AstraZeneca, whose share price has recently been knocked hard by a recent US court overturning the patents that protected Toprol XL, a high blood pressure treatment, kicks off the results reporting season for the big UK listed pharma groups. The market is keen to hear from its new chief executive David Brennan about how future growth is going to be generated through rebuilding the diminishing pipeline by acquisitions and product licensing deals. Analysts expect fourth-quarter operating profits to rise to around $7bn on sales of $6.2bn and full year earnings per share to climb by more than 30 per cent to around $2.90.

Confirmation from Cambridge Antibody Technology (CAT) that worldwide sales of Humira, a treatment for rheumatoid arthritis, amounted to $1.4bn last year, making it the first product from the UK biotechnology industry to achieve blockbuster status, was warmly received. Abbott Laboratories, which owns worldwide rights to Humira and pays CAT royalties, said it expects sales this year to exceed $1.9bn.

Shareholders in Asterand, previously known as Pharmagene, which has seen its shares in the human tissue and research services company wither, were able to celebrate news that it had secured a deal to license analgesic compounds to BTG, the medical innovations company. BTG is paying Asterand an undisclosed down payment as well as success-based development milestones and royalties.

Shares in Ardana responded favourably in early trade after the pharmaceutical company that focuses on human reproductive health announced that agreement had been reached with the US regulatory authorities on the next steps in the development of its replacement testosterone cream. Ardana expects to commence phase III pivotal registration trials in the first half of this year and to achieve its previously announced launch target of end 2007. The testosterone replacement market in Europe and the US is estimated at $600m.

On the new listings AIM front, where a wave of biotech and healthcare companies are thought to be putting the final touches to their plans for a flotation, Intercytex, a Cambridge-based company that is pioneering a hair cloning treatment is raising £15m through a placing ahead of a listing. In the meantime, XCounter, which makes digital X-ray machines, is set to list on February 1, after completion of a major fund raising exercise.

2nd September 2008


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