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Malcolm's Market Eye, December 15 to December 21, 2007

The economic situation is all quite reminiscent of the early 1990s when the grim, unbending Tories decided that sterling should shadow the mighty Deutschemark at DM 3 to GBP 1

Itís all quite reminiscent of the early 1990s when the grim, unbending Tories, led by John Major, aided by his Chancellor Norman Lamont, decided that sterling should shadow the mighty Deutschemark at DM 3 to GBP 1.

At what cost? Interest rates soared to 15 per cent and were held at this level for 18 months with John Major remarking if it isnít hurting, it isnít working. House prices crashed, millions of home owners were left in negative equity (with the mortgage being greater than the market price of the property securing it) and thousands of businesses went bust.

Currency speculators like Soros made by billions by betting on a sure thing ñ that sterling would fall. And fall it did, bringing about the economy recovery of which we are now seeing the tail end.

This time round the Bank of England, acting in concert with other world banks, is trying to shore up the global supply of credit. Market forces will prove them wrong as they make billions of hard currencies available to commercial banks, bailing out the latter from the bad banking practices they have fallen into, such as lending money to borrowers who canít afford a mortgage or the 1.8 million Britons now struggling to pay interest on theirs.

In Britain, a record number of families is now having to pay over one fifth of their salaries in debt repayment ñ higher than it was in 1991. UK mortgage rates have soared as attractive fixed price mortgages, handed out so freely a couple of years back at minuscule rates of interest, move to variable rates two or three times as high.

Not even the worldís central banks can defy market forces for long in order to prop up the housing market in the USA and Britain along with the cash needed by the worldís commercial banks, with inflation rising, the oil price and food prices hitting new records and recession in the USA spilling into other developed economies. During 2008 we will see market forces make a mockery of central bank interference.

The UK stockmarket continues its roller coaster ride with sudden deep drops followed by equally precipitous rises, as investors continue to ignore fundamentals and pursue rumours of the latest bid about to be launched, chase up the mining and commodity stocks where prices are rising fastest, and lodge parts of their portfolios in safe, defensive stocks such as pharmaceuticals on the premise that illness, like taxes, is always with us.

2008 promises to be an interesting year ñ a Happy New Year to you, and a prosperous one too.

GSK hits delay problem in US with Cervarix
GlaxoSmithKline (GSK) has hit trouble in the US, which saw its share price fall by GBP 0.21 to rest at GBP 13.02.

Cervarix, a potential block buster vaccine for cervical cancer, has run into a delay problem with the US drug regulators. The vaccine has been handed over to an offshoot of the FDA until GSK scientists answer a number of questions about the product.

This is a major boost to Merck & Coís Gardasil, the main competitor to Cervarix, which has been given the green light in the US and will be used to immunise large numbers of women every year.

Gardasil is already seeing sales of GBP 738m a year. The go slow tactics by the FDA could delay the launch of Cervarix in the US, which had been scheduled for September 2008. This means it would miss the key tenders for purchase by the US health authorities.

Cervarix has been approved in 45 countries including the 27 EU member countries.

Novartis to cut jobs worldwide
Novartis has confirmed that it is slashing 2,500 jobs around the globe over the next two years to produce annual savings of USD 1.6bn by 2010.

There is speculation that Novartis will cut its 4,500 strong work force in the UK. Most of the staff in the region is based at Novartisí pharmaceuticals offices at Frimley in Surrey and at the R&D centre at Horsham in Surrey.

Novartis is adapting to new sales method around the world and also copying its rivals who are a reducing staff numbers by a combined total of 34,000.

The main casualty will be the massive number of sales staff. Novartis wants to reduce job numbers as a result of staff leaving naturally but doesnít rule out redundancies.

ReNeuron awaits FDA decision on stroke stem cell treatment
ReNeuron posted a pre-tax loss of GBP 3.1m on sales of GBP 4,000 for the half year to end 30 September 2007, compared with a loss of GBP 3.3m on sales of GBP 42,000 in the same period in the previous year.

ReNeuron has recently scooped up the assets of AmCyte for GBP 1.9m to give it more ways to create revenue from its technology.

ReNeuron is fighting to become the first company to be carrying out clinical-stage research for stem cell treatment for a major neurological disorder. Soon it will hear from the USFDA, as to whether it has gained approval to test its main product, REN001, on human patients. REN001 uses stem cell technology to treat strokes.

Tests on rats have demonstrated REN001 can reverse the effects of a stroke when key dosage levels are reached. The market is worried about the companyís rate of cash burn, as ReNeuron is some two years away from clinical testing which would, if its treatment is shown to work, enable Reneuron to clinch a major deal.

The company, which has cash of GBP 5.7m, has the Saudi Arabian fund Saad Investments as a 30 per cent shareholder standing in the wings.

Reckitt buys Adams Respiratory with the marketís approval
Reckitt Benckiser has buttressed its medical division by buying Adams Respiratory Therapeutics of the US for GBP 1.1bn.

Adamsí biggest seller is Mucinex, a drug for easing lung congestion. Reckitt bought Bootsí OTC medical business for GBP 2bn a couple of years ago and is aiming to roll out Adams Respiratory medicines around the globe.

The deal will also make it easier to sell Reckittís existing brands into the US. The market liked the look of the deal and the companyís share price rose GBP 0.59 to GBP 29.83.

Malcolm Craig, a freelance financial journalist and author, is one of the UKís most highly regarded investment commentators.

20th December 2007


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