Malcolm's Market Eye, 16 to 22 June 2007

Stockmarkets around the world are tightening their belts as the world economy drifts toward an inflation threat not seen since the 1960s, according to Legal & General.

Lombard Street Research criticised the Bank of England for not raising interest rates again and predicted the Bank will have to tighten interest rates even more forcibly if Britain is to head off the grim prospect of stagflation, a state where economic growth remains zero while the cost of living soars.

Consumers continue to spend heavily at retailers in the High Streets of the land, using their credit and debit cards to buy TVs and big ticket items like kitchens. The Office of National Statistics pointed out that May 2007 retail sales were 0.4 per cent higher than in April, far stronger than expected despite the wet weather.

As a result bond yields have rocketed to a seven year high as punters buy while the going is good. Ignoring all the bad news, the UK stockmarket scaled a new seven year peak before profit taking set in as punters concentrated on picking out the next mega-bid target.

The pharmaceutical sector was enlivened by GlaxoSmithKline (GSK) calling on the British government to plan for a possible outbreak of pandemic H5N1 bird flu and threatening that the drug majors may not be able to respond quickly enough with enough supplies of bird flu vaccine.

GSK is winning brownie points by giving 50m doses of its bird flu vaccine to the World Health Organisation which will channel it to poor countries if a pandemic takes place.

The British government is stocking up on Tamiflu (oseltamivir), made by Roche of Switzerland, but there are calls for the government to stockpile a drug specifically aimed at bird flu. GSK is also meeting with the Gavi Alliance, an operation which raises cash to vaccinate children in poor countries, winning more plaudits by saying that if a deal is clinched it would be at a price close to the cost base.

New drugs from GSK combat bad publicity on Avandia
To counter the bad publicity over Avandia (roseglitazone), GSK announced the good news that it will launch five new cancer inoculations, drugs and medicines by 2010. One is Cervarix, the inoculation against cervical cancer, which is a potential mega money spinner for GSK. There is also Rezonic (casopitant), which reduces sickness resulting from chemotherapy.

GSK faces class action suit over Avandia in the USA
The GlaxoSmithKline (GSK)/ Avandia saga shows no sign of stopping. After research in the USA pointed out that Avandia, GSKís diabetes drug, was linked to an increased risk of heart attacks in patients taking the drug there has been a plethora of other reports saying Avandia carries no more risk of heart problems than any other diabetes drug.

Shareholders have launched a class action lawsuit in the US claiming GSK has made false statements about the safety of Avandia and thereby transgressed against the Securities and Exchange Act.

Legal eagles Kaplan Fox & Kilsheimer have filed a court claim that GSK failed to reveal that it had carried out an analysis of previous data that showed Avandia increased the risk of heart attacks. The law firm has filed a class action suit ñ dreaded by big companies in the USA as they may lead, if successful, to damages in the US dollar billions being paid out.

sanofi-aventis set back in US over Zimulti
sanofi-aventis suffered a set-back over its slimming pill Zimulti (rimonabant) after a US safety panel held up the red light against the drug getting the marketing go ahead. Zimulti is believed to be linked to depression in some patients.

Letrozole successfully fights ovarian cancer
A breast cancer drug made by Novartis could prolong the lives of uterine cancer sufferers by up to three years.

Researchers from Edinburgh University, funded by Cancer Research, have successfully used hormone therapy to fight ovarian cancer. They used letrozole (femara) to prevent the female sex hormone oestrogen from increasing cancer tumour growth.

Using letrozole to reduce oestrogen supply prevented cancer tumour growth for six months in 25 per cent of the women cancer sufferers tested. It also reduced the necessity of starting chemotherapy in a third of the women whose tumours were most reliant on oestrogen.

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