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Malcolm's Market Eye, 4 to 11 April 2007

The UK stockmarket was boosted by the prospect of more giant takeover bids, such as one from Danish chemicals company, Akzo Nobel for ICI, along with a stronger Wall Street helped by a drop in the oil price, as tensions eased after Iran returned British military hostages

The UK stockmarket was boosted by the prospect of more giant takeover bids, such as a possible bid from Danish chemicals company, Akzo Nobel for ICI, along with a stronger Wall Street which was helped by a drop in the oil price, as tensions eased after Iran returned British military hostages.

In the pharmaceutical sector the consumer watchdogs sent a ripple of interest through the industry as the Office of Fair Trading (OFT) started an investigation into the way drugs are distributed throughout the UK.

The reason for the OFT probe lies in the 500 complaints about the exclusive deal clinched between US pharma giant, Pfizer, and the UKís Alliance Boots. Pfizer, which supplies 11 per cent of British medicines, has ended its distribution system of using a variety of wholesales to channel drugs to pharmacists and hospitals in favour of an exclusive deal leaving Alliance Boots the sole distributor.

The probe will initially concentrate on the medicine distribution market. It could widen, if evidence is found of anti-competitive behaviour.

Meanwhile, the Wellcome Trust medical charity is understood to have teamed up with Guy Handsí Terra Firma private equity group to launch a competitive bid for Alliance Boots. The latter is on the receiving end of a bid from private equity group KKR, spearheaded by Stefano Pessina, Alliance Boots deputy chairman.

Napo Pharmaceuticals continues crofelemer for diarrhoea in cholera patients
Napo Pharmaceuticals, the Californian drug developer which came to the fully quoted stockmarket in July 2006, announced a pre-tax loss of USD 11.2m on turnover of USD 1.2m for FY06, compared with a loss of USD 3.3m on sales of USD 9,000.

Napo has developed a plant-based medicine, crofelemer, which is under development as a treatment for diarrhoea in cholera patients. A phase III trial in HIV-linked diarrhoea is being conducted currently and results are expected in 2008. The market is worth USD 350m annually.

Napo Pharmaceuticalís partner, Trine Pharmaceuticals, has started phase IIb studies on crofelemer on patients with irritable bowel syndrome. Napo is also developing NP500 as a diabetes treatment.

CeNeS close to clinching deal for morphine replacement product M6G
CeNeS Pharmaceuticals announced a pre-tax loss of GBP 10.5m on sales of GBP 53,000 in the year to end December 2006 as against a loss of GBP 7.4m on sales of GBP 55,000 in the previous year. Broker Canaccord Adams expects a loss per share of GBP 2.24 for 2007.

CeNeS Pharmaceuticals is pushing ahead as fast as possible to clinch a licensing deal for its morphine replacement product M6G. CeNeS has net cash of GBP 6.3m to support it until it does so.

Results from phase III studies of M6G are that the drug produces less chronic side effects in patients than morphine. Side effects from the latter include breathing problems, along with vomiting and nausea. The results of the tests, however, like the curateís egg ëare good in partsí. M6G showed itself superior to morphine in reducing pain in post-operative patients. The drug failed its second target of diminishing nausea and vomiting by 25 per cent.

Phoqusí hydrocortisone tablet Chronocort successful in phase I trials
Phoqus , the tablet ñbased drug delivery technology specialist which carried out a GBP 3m fund raising last October, produced a loss of GBP 5.14m on turnover of GBP 170,000 for the year to end December 2006 as against a loss of GBP 5.1m on sales of GBP 270,000 in the previous year.

There is interest in the companyís electrostatic powder-coating technology and it has successfully seen its hydrocortisone tablet Chronocort through phase I trials. The trial used the companyís proprietary modified drug-release platform, Qtrol, which brought the technology to the attention of the industry.

If Chronocort succeeds in getting through a second phase of the trials, Phoqus will be able to sell the out-licensing rights and the tablet could be launched in 2009. Phoqus has also announced its first collaborative project to move into clinical trials. The worldwide modified drug-release market is estimated at over USD 20bn.

S R Pharmaís RNAi technology clinches USD 95m deal with Pfizer
S R Pharma, the gene-silencing technology company, made a pre tax loss of GBP 3.94m on turnover of GBP 2.0m for FY06, as against a loss of GBP 3.63m on sales of GBP 540,000 in FY05. The company is changing its name to Silence Therapeutics.

S R Pharma has developed the RNAi; technology which silences gene-causing genes. As a result of its technology SR Pharma has clinched a deal with Pfizer worth up to USD 95m plus royalties.

Quark Biotech, S R Pharmaís partner, has taken the latterís product for age-related macular eye degeneration into phase I trials and is expected to start phase I studies of its kidney injury product. S R Pharmaís cancer drug should start trials in 2007.

Pro-Strakan break even forecast in 2009
UK drug developer, ProStrakan, announced a loss of GBP 17.3m on sales of GBP 38.5m for FY06 against a pre-tax loss of GBP 18.2m on turnover of GBP 31.6m in the previous year. Broker Nomura Code expects a loss per share of GBP 0.13 for FY07 against a GBP 0.15 loss in FY06.

The company is planning to file its chemotherapy anti-nausea patch Sancuso with US and EU regulators in 2007. Already filed with the EU regulator are Rapinyl for cancer pain and Droperidol for post-operative nausea. The company has also launched testosterone gel Tostran and Rectogesic for anal fissure treatment.

Osteoporosis treatment, Adcal, boosted its market share to nearly 37 per cent, while like for like product sales were up 23 per cent to GBP 33.6m. A GBP 50m debt facility has been arranged and ProStrakan says it is targeting break even in 2009.

CEO, Wilson Totten, says his company is now following a strategy of in-licensing products rather than carrying out expensive discovery projects itself.

Malcolm Craig, author of books on aspects of successful investment, is one of the countryís most respected investment commentators.

11th April 2007


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