Huge plunge

The stock market's steep slide gathered pace as selling pressure intensified with a big plunge by the blue-chip FTSE100 index wiping out all this year's gains.

Global equity markets were also in fast retreat, especially some of the emerging markets whose leading indices posted massive losses as investors looked to cut their exposure to more risky markets. Concerns about rising

inflation in the wake of soaring commodity prices, higher interest rates (especially in the US where strong consumer price data could result in the

Federal Reserve continuing its rate hiking cycle) and slowing global economic growth are driving the equity sell off by investors.

Some equity strategists suggest that the sell-off presents a good buying opportunity, such as in the London market, rather than a signal that a major bear trend is underway. Fundamentals remain sound, nothing has changed, earnings and economic growth are good and inflation under control, they argue.

A decent rally, however, was finally underway on Tuesday morning, after Monday's sharp tumble. But, of course, it remains to be seen whether this will prove to be a dead cat bounce with investors still very nervous and sentiment so fragile.

The pharmaceutical and biotech sector lived up to its reputation of being a defensive safe haven in troubled times if last week's performance is anything to go by. In a week where the FTSE 100 lost 4.3 percent, its worst fall in more than three years, the pharma and biotech sector was only down 1 percent compared with a 15.1 percent fall for mining, and emerged the third best sector performer.

GlaxoSmithKline (GSK) led the way in a sector that is weighted heavily towards big cap stocks. Encouraging data about COREG CR, its controlled-release beta blocker, which reduced blood pressure over a full 24-hour dosing interval, and positive noises about the group's prospects from stock broker Morgan Stanley helped support its share price. Data presented at the American Society for Hypertension showed that COREG CR was well-tolerated and reduced blood pressure in patients with essential hypertension. The US regulatory authorities are currently reviewing the new drug application for COREG CR.

GSK's shareholders were also surprised and pleased to learn that Jean-Pierre Garnier, its chief executive, has agreed to extend his stay at the helm by six months until May 2008. He was due to retire in October next year and the extension provides further time for the group to find a successor. There have been concerns in some quarters of the City about its senior management composition following the sudden announcement of the premature departure of head of research and development, Tadataka Yamada, who leaves on June 1.

The other two big cap stocks in the sector enjoyed some share price support for different reasons. AstraZeneca (AZ) benefited from the resumption of its multibillion pound share buyback programme following the initial purchase of 1.5 million shares. Shire announced that it filed a lawsuit in the District of New Jersey in the US against Corepharm to prevent the US company from making a generic version of Carbatrol, its epilepsy treatment.

Acambis shone for a change to lift itself off a five-year low with a good rise after news that the US government indicated that it would award the vaccine maker a sole smallpox vaccine contract. The US Federal Business

Opportunities website stated that government intends to issue Acambis a contract that would replenish its vaccine stockpile originally made by Acambis.

Some more positive news flowed from SkyePharma, the drug developer that recently faced a shareholder revolt. It has struck an agreement with First Horizon Pharmaceutical Corporation for the US specialty pharmaceuticals company to develop a novel improved controlled release version of Sular, an antihypertensive, which is First Horizon's leading product. SkyePharma will receive a mid-single digit royalty on net sales of Sular and a total of up to $5m in milestone payments.

Among the smaller cap stocks, Phytopharm swam against the relatively mild downward trend of the sector, to post a useful gain after news that Invesco Perpetual had marginally increased its holdings in the drug developer of treatments from plant extracts.

Alizyme came under the spotlight as speculators hoped that the drug developer would become the next biotech takeover target in the wake of last Monday's bid for Cambridge Antibody Technology (CAT) by AZ. Stockbrokers Evolution Securities fingered Alizyme, which has a large cash pile and three late-stage products under development that as yet have not been licensed, as the best target in the sector.

The shares of some AIM listed stocks in the sector, that are perceived as risky, were dumped by investors keen to reduce their risk profile in a market where there is generally a flight towards the defensive, quality, big cap stocks. In the absence of any new developments, GW Pharmaceuticals, the maker of drugs derived from cannabis, stood out with a loss of around a quarter of its value in only the past six days of trading.