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Fast flourish

FTSE on course for 6,000 level as takeover talk urges investors to continue boom period

The UK stockmarket pushed the FTSE 100 index through the key 5,900 level - a five-year high - as investors raced to buy telecoms and financial shares. Seasoned observers reckon the Footsie will move through 6,000 within weeks. The takeover boom looks set to continue as companies with big cash balances or unused borrowing facilities compete to buy up other companies while the going is good and share prices are set to rise even further.

The pharmaceutical sector continues to attract speculation on possible bids, with talk of AstraZeneca scooping up Serono, while new entrants continue to crowd into the sector. One interesting arrival is Synoptix Group, a spin out from the University of Leeds, which is coming to the Alternative Investment Market (AIM) this month. Synoptix is raising £6 million to finance development of its drugs. These include drugs to fight dermatological diseases, such as acne, as well as the MRSA super bug. Other newcomers who saw their share prices rise on first-day dealings are pharma company AGI Therapeutics and Phynova Group, which develops pharmaceuticals sourced from Chinese botanical drugs. AGI Therapeutics is an Irish pharma company, which joined both AIM and the IEX market of the Irish Stock Exchange. AGI concentrates on gastrointestinal treatments using reformulations of existing drugs and has six drug compounds all at the phase II trial stage.

AstraZeneca to bid for Serono?
AstraZeneca (AZ) came under the speculative spotlight as analysts gossiped that the Anglo-Swedish drug firm could be discussing a bid for Serono, the biggest biotechnology company in Europe. The City scribblers reckon that the deal would make sense given the synergy benefits and AZ's record in cutting costs. GlaxoSmithKline has also been pinpointed as a possible bidder for Serono.

AZ's shares fell back on the speculation, and also on the news that it has ended a contract with PDI, the US drug sales support company. PDI admitted that revenues would be sharply cut back by up to $70 million. PDI shares fell back by 12 per cent.

Meanwhile AZ itself is being touted as a possible bid target with Novartis as the favoured predator - speculation that pushed the AZ share price back up again. This rumour was based on the news that one dealer in the options market had paid £58,500 for the right to buy 1.3 million AZ shares until March 17 at £30. The only way the AZ shares would hit £30 inside two weeks is if a bid were to be launched - AZ reported its full-year results last month.

Shire launches patent lawsuit against Teva in the US
Shire Pharmaceuticals has filed a lawsuit against rival Teva Pharmaceuticals in the US for the alleged infringement of two of Shire's patents linked to Adderall, its attention deficit drug.

Pfizer's Celebrex - heart attack risk
Pfizer's Celebrex is used to treat acute pain for conditions such as arthritis. A recent study has linked Celebrex with a doubling of the risk of heart attacks. In the latest research, which compared patients taking Celebrex against taking a placebo, the drug was associated with a 2.26-fold rise in heart attacks. The study involved 4,422 patients who took the drug for six weeks. Celebrex is a COX-2 inhibitor for the treatment of severe pain, which avoids stomach bleeding associated with aspirin and ibuprofen. Pfizer is undertaking a new long-term trial of Celebrex. Doctors can continue to prescribe Celebrex but are advised to use the smallest dose necessary for the treatment, to avoid prescribing it over the long term and not to prescribe the drug at all for patients at risk of cardiovascular disease.

SkyePharma board saga rumbles on
The SkyePharma saga rumbles on with Bob Thian (the candidate favoured by the rebel shareholders led by North Atlantic Value) seeking election to the board. The dissident shareholders have written to all SkyePharma shareholders claiming that millions of pounds have been wasted by the board in buying big headquarters in London's Mayfair and investing in companies which subsequently failed. SkyePharma has rejected the allegations. Both SkyePharma and the rebel shareholders have hired specialist firms to lobby shareholders.

US research develops AF267B to attack causes of Alzheimer's disease
Torrey Pines Therapeutics, based in San Diego, is carrying out clinical studies on 64 people to test whether an experimental drug compound, AF267B, is safe to use on patients suffering from Alzheimer's disease. The drug compound has been developed by the University of California and the Israel Institute for Biological Research, whose research was published in the journal Neuron. There are drugs being prescribed to treat the symptoms of Alzheimer's but AF 267B is the first drug compound which may attack the underlying cause of the disease, affecting half a million people in Britain. The drug compound is thought to attack both the plaque lesions and brain tangles which kill off nerve cells and stop the brain networks that enable people to perform tasks requiring memory.

Dechra moves into the US veterinary market
Dechra Pharma, the veterinary drugs supplier, posted pre-tax profits of £5.18 million for the half-year to 31 December, up 9 per cent on the same half in the previous year. Sales were up 12 per cent at £116 million. Dechra, which is investing heavily in new products and new markets (the US, Australia and Canada), won EU approval for Vetoryl, which treats Cushing's disease in dogs. Dechra is also moving ahead on licensing Vetoryl and Felimazole, the cat thyroid drug in the US. Dechra has also set up a marketing operation in the US where the market is 10 times the size of that of the UK and has successfully launched Thyroxyl, the dog thyroid drug.

The wholesaling and laboratory service side of the business pushed operating profits ahead by 9 per cent to £4.3 million, and accounted for nearly three-quarters of group profits. Evolution Securities, the broker, is looking for profits of £10.8 million for the full current year against £9.7 million in the previous year.

Alliance Unichem bucks tough European drug market conditions
Alliance Unichem, the pharmaceutical wholesaler and retailer, which is merging with Boots, delivered pre-tax profits 10 per cent ahead at £279 million for the year to end December 2005. Turnover rose 3 per cent to £9.17 billion. Alliance managed to buck tough trading conditions in the European healthcare market, which has been hit by government pressure on drug prices and official encouragement for generic drug producers. Alliance has a generic business itself - Almus.

Operating profits were up 71 per cent to £261 million. Wholesale revenues in the UK fell by nearly 3 per cent to £1.8 billion. This resulted from the 7 per cent cut in drug prices last January by the Department of Health. Operating profits rose by 18.5 per cent in the retail division to £113 million, boosted by improvements to profit margins.

Malcolm Craig is the author of 14 books covering aspects of investment ranging from shares to bonds and gilts to gold. He is one of the UK's most respected investment commentators.

2nd September 2008


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