Malcolm's Market Eye, 12 to 18 May 2007

Bids and bid speculation proliferate as interest rates rise
Bids and deals, rumour and speculation among punters aiming to get windfall gains continued to keep the market buoyant. Across the board, the UK stockmarket continues to be highly volatile, but it almost hit the magic 6,600 level as measured by that universally quoted barometer of the marketís fortunes, the FTSE 100 Index.

We have also seen the much expected 0.25 per cent hike in UK interest rates to 5.5 per cent (a six-year high) to combat inflation, which has crept up over the four per cent mark ensuring the Bank of England had to take action under its remit from the UK government.

House price inflation and high consumer spending continue deep rooted, although the Bank of England has forecast that consumer price inflation should fall below two per cent before the end of 2007.

In the short-term, with three out of four new pay deals currently breaching the four per cent mark, we can expect another interest rate rise possibly as soon as next month. Over-valued sterling continues to hit exporters and companies with large US Dollar exposure. In times of turbulence, investors head for defensive sectors, such as pharmaceuticals which is one of the most attractive because illness, like taxes, will always be with us.

The pharmaceutical sector held its own against the periodic market setbacks as punters moved into the Big Pharma stocks and into Shire Pharmaceuticals on hopes of an upcoming take-over bid from AstraZeneca.

Futuraís share price slumps as GSK pulls out of erectile dysfunction deal
Futura Medical saw its share price slump back GBP 0.18 to GBP 0.43 as the market reacted to the news that GlaxoSmithKline (GSK) has withdrawn from a deal to help Futura produce MED2002, a pharmaceutical treatment for male impotence which could be sold OTC.

GSK has returned the rights over the treatment to Futura after an internal review. Futura should reach the market in 2011, and the GSK withdrawal was not the result of any clinical problems over MED2002.

Phytopharmís losses shrink as Hoodia reaches critical stage
Phytopharm announced a pre-tax loss of GBP 2.9m on turnover of GBP 1.6m for the half-year to end February 2007, compared with a pre-tax loss of GBP 3.6m on sales of GBP 880,000 in 2006. Edison Investment Research expects a full-year loss of GBP 4.3m.

The shrinking losses stem from Phytopharmís deal with Unilever to bring Phytopharmís Hoodia weight loss treatment to market. Hoodia is now in clinical trials. As a result of reaching this critical stage Unilever has paid GBP 1.6m to Phytopharm as a stage payment.

Another drug, Phytopia, is aimed at restoring dog skin health and Phytopharm is co-operating with Schering-Plough over this product, with the latter firm paying over GBP 100,000 under the terms of the deal. Phytopia was introduced to the UK market in 2006 and recently went on sale in France and Italy.

Oxford Biomedica reveal breakthrough in treatment of hepatitis C
Oxford Biomedica is a biotech which focuses on avian transgenics. Latest news from this gene-therapy company is that it, together with partners the Roslin Institute and Viragen, have broken new ground enabling them to make human therapeutic proteins.

Oxford Biomedicaís proprietary technology is its LentiVector gene-delivery system, which produces transgenic hens with eggs containing the target protein. From the latter therapeutic protein interferon alpha-2A can be made for eventual use in the treatment of hepatitis C and other clinical disorders.

Alliance Boots demonstrates results of merger
Alliance Boots, the health retailer and wholesaler, which is being bid for by US private equity firm KKR, made a pre-tax profit of GBP 455m for FY06, up 30 per cent on the previous year, while turnover streaked ahead 129 per cent to GBP 11.5bn. Broker Seymour Pierce is looking for pre-tax profits of GBP 685m for FY08, rising to GBP 730m in FY09.

The reason for the huge increase in sales is because of the merger with Boots and the results show a full year of sales for the former Boots business along with eight months of trading for the former Alliance UniChem company. The 2006 results, however, only show the Boots trading figures. The accountants have saved the analysts a job by showing the results from continuing operations as if Alliance and Boots had always operated together. Given this scenario sales rose four per cent to GBP 14.6bn.

Malcolm Craig, a financial journalist and author of 14 books on different aspects of successful investment, is one of the UKís most respected investment commentators.