Malcolm's Market Eye, 8 to 14 March 2007

TheUK stockmarket has recovered some lost ground after its recent sharp fall. Although some pundits were predicting a much bigger correction this has not happened yet as investors took courage from the Bank of Englandís decision not to increase interest rates, although another rise is only a matter of time.

The market is still being kept lively as a result of bids and deals. Investors are nervous of risk and while the end of the bull market is not thought likely, they are looking to cash rich companies and to shares offering safe dividends. In this risk-averse climate, pharmaceutical companies continue to offer a natural refuge.

Pessinaís GBP 9.7bn bid for Alliance Boots rejected as "inadequate"

Ripples spread out to the pharmaceutical sector as a result of the surprise private equity offer for Alliance Boots from Stefano Pessina and Kohlberg Kravis Roberts ñ a private equity firm which is also part of a consortium poised to bid for Sainsbury. The price on offer is GBP 10.00 per share, putting a price tag of GBP 9.7bn (EUR 14.2bn/ USD 18.8bn) on Alliance Boots. Sir Nigel Rudd, Chairman of Alliance Boots, rejected the bid as inadequate. City wisdom is that the bidder could return with a higher offer.

The shares jumped to GBP 10.00 on hopes of a white knight bidder riding to rescue and willing to offer more than Pessina. Waiting in the wings are Celesio, the European distributor, the US distributors Target and CVS along with Superdrugís owner, Hutchison Whampoa.

Only eight months ago Mr Pessina, Bootsí deputy chairman and its largest shareholder, merged his Alliance Unichem business with Boots, forecasting the merger would take four years to implement. The combined business operates 2,600 pharmacies in the UK and distributes drugs to 125,000 outlets in 14 countries, and is of key interest to those working in the pharmaceutical and biotech sectors.

Neuropharmís share price rises on first dayís trading

AIM newcomer, Neuropharm, was placed at GBP 1.27 and found plenty of punters willing to buy its shares, driving them up to GBP 1.39 on the first day of trading.  Neuropharm is a speciality drugs group concentrating on the development of drugs for the treatment of CNS disorders. It is conducting a collaborative scheme focusing on developing technology for the screening of potential candidates for drugs for the treatment of Alzheimerís disease.

Acambis CEO exits along with 40 staff
Acambis, the vaccine maker, is having a makeover with a change of management and is shedding 40 employees in a cost-cutting operation. The share price rose six per cent on the news. Peter Fellner, previously the boss of Celltech, Britainís largest biotech company before it was sold to UCB of Belgium, was appointed chairman of Acambis in October 2006 as a result of pressure from investors dissatisfied with Acambisí progress.

Acambisí CEO, Gordon Cameron, will be replaced on 1 June 2007 by Ian Garland, previously finance director of Arrow Therapeutics, which sold itself to AstraZeneca in February 2007. Job cuts will also take place at the US operation to cut costs by 20 per cent over the next two years. Acambis lost a key contract to supply smallpox vaccine to the US government in 2006. Peter Fellner is on the look out for acquisitions and willing to spend up to GBP 100m (EUR 146.5m/ USD 193.5m), or even more if necessary.

Allergy Therapeutics in a "watershed year"
Allergy Therapeutics, the allergy drug developer, posted a loss of GBP 7.6m on turnover of GBP 16.5m for the half year to 31 December 2006, compared with a loss of GBP 540,000 on sales of GBP 14.2m in the same period in the previous year. CEO, Keith Carter, reckons Allergy is in a "watershed year" with its hay fever cure getting close to the market, its grass-allergy vaccination is now in phase III studies, while its ragweed allergy injection is also getting ready for sale now that US regulators have made ëpositive noisesí over the drug.

Management will have to decide whether to clinch a US licensing deal or try the high-cost route of going it alone in the US. The vaccines could all hit world market by 2009. Allergyís vaccine has been in use (through four injections) without any adverse reactions in Europe for some time. Sales in the region were up 19 per cent in the half year, boosted by a 23 per cent rise in vaccine sales to patients. The problem facing Allergy is that trials will cost another GBP 30m and the company will have to raise the necessary cash through additional debt.

The allergy market enjoys sales of USD 12bn (EUR 9.1bn/ GBP 6.2bn) a year, so Allergy Therapeutics has a big market to aim for as effective allergies on the US market are in short supply. Allergy sufferers currently only have access to anti-histamines or jabs which desensitise them to allergens.

GSK cuts back mid-stage pipeline

GlaxoSmithKline (GSK) saw its shares slip after cutting 11 products from its mid-stage pipeline.  Those cut include a thrombosis drug, four cancer products and a diabetes product. Morgan Stanley, the investment bank, reckons this will erase GBP 673m (EUR 986m/ USD 1.3bn) from the UK number oneís 2013 projected revenue. There is some brighter news, however: GSK believes its bird ëflu vaccine could be effective against a number of different bird flu strains.

Hangover cure on horizon

The possibility of a hangover cure featured in the pages of The Journal of Neuroscience on research by Markus Heilig at the US National Institute on Alcohol Abuse and Alcoholism. The research was carried out on alcohol-dependent animals and showed that MTIP, a newly-discovered compound, stops binge-drinking, prevents relapses and reduces the effects of hangovers.

The study was conducted with US pharmaceutical firm, Eli Lilly, and concentrated on a brain chemical termed corticotropin-releasing (CRF) factor which is believed to trigger relapse in rats addicted to alcohol. Markus Heilig showed that MTIP blocked the activity of CRF in stressful situations without affecting its activity under ordinary circumstances. Alcohol-habituated rats injected with MTIP stopped taking excessive amounts of alcohol. The compound may also prove an aid to the treatment of depression or anxiety disorders.

Malcolm Craig is one of the UKís most respected investment commentators