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Malcolm's Market Eye, 28 February to 7 March 2007

Stockmarkets around the world slumped as the former head of the US Federal Reserve warned that the US economy could slide into recession by the end of 2007 or early in 2008...

Stockmarket slump could continue toward a 10 per cent correction
Stockmarkets around the world slumped as Alan Greenspan, multi-millionaire, jazz musician and former head of the US Federal Reserve, warned that the worldís largest economy could slide into recession by the end of 2007 or early in 2008.

TheUS economy has been expanding since 2001, but there are strong signals that the current economic cycle is coming to an end. The global market, worried by the gathering financial, economic and geo-political storm clouds, was triggered into a slide by the biggest flight out of shares in China for a decade.

Small investors in the UK have been heading for the exit by selling their shares while the going is good ñ a mood which is widespread across Western Europe. The UK stockmarket saw a four-day long freefall with the FTSE 100 Index, the most widely quoted barometer of the stockmarketís health, dropping to 6,058.

Market historian, David Schwarz, said of the shares fall: "Since 1980, there have been 64 periods of decline of more than five percent. There is nothing very special about this. Even during an average bull market, after four or five months, there tends to be a five per cent correction."

Other City experts are looking for a market drop of ten per cent, which, they reckon, will present a cheap buying opportunity for investors.

The pharmaceutical sector also fell back, but by less than other sectors, as it is seen as a safe haven in volatile times. The sector was also underpinned by a steady flow of deals and financial results which were better than the market had been anticipating. Should the stock market hit the FTSE 100 level of 5,453 as predicted, we may expect to see not only private investors bottom-fishing for bargains, but also a fresh flurry of bids while share prices are low enough to offer bargains.

Allergy Therapeuticsí loss up tenfold and seeking GBP 30 million for Pollinex
Allergy Therapeuticsí share price slipped a little when it announced a first half operating loss of GBP 8 million against GBP 800,000 in the same period last year. Allergy has two potential blockbuster treatments for hay fever in late stage trials and intends to borrow from the banks to get GBP 30 million (EUR 44.1 million/ USD 57.8 million) to finance further trials of its lead hay fever drug, Pollinex.

Pfizer/UniChem drugs distribution deal in the UK gets green light
Pfizer, which accounts for ten per cent of the drugs market, supplying GPS, hospitals and pharmacists in Britain, has cut a controversial deal with UniChem, the drugs wholesaler. The deal gives UniChem the exclusive rights to distribute Pfizerís drugs in the UK. The deal was attacked as anticompetitive by eight wholesalers, including AAH Pharmaceuticals, which sought an injunction against the deal, but were turned down. UniChem, the wholesale division of Alliance Boots, will become the only supplier of drugs made by Pfizer and will distribute to pharmacists, hospitals and dispensing doctors.

Pfizer has switched its distribution arrangements over worries about counterfeit medicines. For example, there were three separate occasions when counterfeit Lipitor (atorvastatin), the worldís best selling anti-cholesterol drug, appeared on the market.

Other wholesalers also argue that the deal will mean massive upsets to the drug distribution market, as UniChem will now supply all 15,000 customers. Other pundits argue the deal is an attempt by Pfizer to combat parallel trading in Europe, where drugs bought for less in countries such as Spain and Greece are sold onto the UK at higher prices.

Abcam shows strong sales and boosts Cambridge manufacturing facility
Abcam, the online antibody retailer, posted pre-tax profits up 20 per cent at GBP 2.39 million for the half year to 31 December 2006 on a 34 per cent increased in turnover to reach GBP 11.1 million.

Sales were strong and Abcam has clinched two more distribution deals which will introduce at least 3,500 antibodies over five years. Numis Securities, the broker, is looking for full-year pre tax profits of GBP 5.1 million against GBP 4.9 million in 2006.

Abcamís in-house manufacturing division in Cambridge will be boosted by another GBP 4 million to finance the build of a new production operation by June 2007. The company took a currency hit from the weak status of the US dollar; otherwise revenues would have risen by nearly 40 per cent. The Japanese market is currently being tapped through distributor deals.

Solid progress from Britainís only quoted veterinary drugs supplier
Dechra Pharmaceuticals, which specialises in veterinary drugs, posted a pre-tax profit of GBP 5.9 million on turnover of GBP 126 million for the half year to 31 December 2006, compared with a pre-tax profit of GBP 5.2 million on sales of GBP 116 million for the same period in 2005.

Operating profits for the UKís only quoted veterinary drug supplier were boosted 12 per cent to GBP 6.5 million, as a result of high demand for two new vet drugs, Vetoryl for Cushingís disease in dogs, and Felimazole for overactive thyroid in cats, which pushed sales up 30 per cent. Global revenues for Vetoryl soared 62 per cent to GBP 23 million, while sales of Felimazole jumped 35 per cent to rest at GBP 1.5 million. The two drugs are now selling in Europe and will be on the USA market by 2008.

NICE allows osteoporosis drug for women over 70 with additional medical problems
The National Institute for Health and Clinical Excellence (NICE) has given draft advice that alendronate made by Merck Sharp & Dohme, which treats osteoporosis, can be prescribed for women over the age of 70 who are also overweight and have low bone density.

Both conditions increase the chances of broken bones, but women over 75 with the same health problems can be prescribed alendronate without a bone density check. The National Osteoporosis Society said that alendronate costs GBP 0.27 (EUR 0.40/ USD 0.52) a day, compared with the GBP 12,000 (EUR 17,630/ USD 23,120), which is the average cost of mending a broken hip.

The NICE recommendation has taken five years to complete, during which osteoporosis drugs have been prescribed to women over 65, but many have not been treated while doctors awaited the NICE recommendation.

Malcolm Craig is one of the countryís most respected investment commentators.

7th March 2007


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