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Malcolm's Market Eye, January 30, 2006

The UK stock market has brushed off an alarming rise in inflation and the highly publicised threat of two further interest rate hikes to come.

One more interest rate hike possible
The UK stock market has brushed off an alarming rise in inflation and the highly publicised threat of two further interest rate hikes to come. The cheerful mood in the stock market was caused by governor of the Bank of England, Mervyn King, who hinted that interest rates might be near their peak. Surging high-street sales predict one further increase in the base rate.

Dealers also turned a blind eye to the near USD 2.00 to GBP 1.00 overvalued exchange rate, which is hitting British exports. The current rate is a far cry from the situation in the 1970s, when GBP 1.00 was worth almost USD 1.00, and the then Chancellor, Denis Healey, had to go to the IMF with cap in hand.

The pharmaceutical sector is still suffering from investor concerns about patent exposure, but the buoyant feeling in the stock market is that with a flow of positive news and product launches, pharma stocks remain a strong buy.

Pfizer cuts back sales forces
US pharmaceutical giant, Pfizer, is fighting an influx of competition from cheap, generic, copycat drugs and has responded by cutting back its cost base to try to lift profitability, reducing its European sales force by one fifth. The move will hit its Walton Oaks base in Surrey, England, hardest. The R&D staff at Sandwich, who work on pain, allergy and respiratory treatments, should be largely unaffected.

New number 1 global pharma?
Bid talks continue to excite the market with the latest rumour that sanofi-aventis, the French drug maker, and Bristol-Myers Squibb (BMS) of the US are in talks to create an GBP 89 billion (USD 174.9 billion/ EUR 135 billion) pharma giant, which would displace Pfizer as the worldís largest pharmaceutical firm. Analysts have said that the Paris-based group would have to pay around EUR 50 billion (USD 64.8 billion/ GBP 33 billion) to secure control, a premium of 20-25 per cent on the price given on 27 January. Considering Pfizerís recent 10 per cent cut in its workforce, however, maybe bigger is not always better.

GSK under fire for Seroxat deaths
The UKís largest pharma company, GlaxoSmithKline (GSK), has taken a hit from the Panorama current affairs programme on possible side-effects regarding its antidepressant serotonin reuptake inhibitor drug, Seroxat (paroxetine). GSK is being sued in the US by families of youngsters who committed suicide while on the drug.

Biotech bigwig returns
On the biotech front, despite the poor showing by many newcomers to the market in 2006 after their flotations, there is speculation that Danish firm, Santaris Pharma, will float. This would mark the return of Keith McCullagh, the biotechnology entrepreneur behind British Biotech. McCullagh resigned as CEO of British Biotech in 1998 after a number of problems, which reduced the companyís share price by 90 per cent.

GSK vaccine contract pleases traders
Dealers were relieved to learn that GSK has won a GBP 30 million (USD 58.9 million/ EUR 45.5 million) contract to supply the US with pandemic bird flu vaccines. No time like the present, especially as a number of geese in Hungary have tested positive for the deadly H5N1 strain of bird flu, marking the first confirmed infection in the EU since August 2006. Japan has also announced a third outbreak of avian influenza on a poultry farm.

Allergy Therapeutics grass allergy drug starts phase III trial
Allergy Therapeutics saw a near 10 per cent rise in its share price to GBP 1.12 (USD 2.20/ EUR 1.70) as dealers tuned in to the news that the first patient has been given a vaccine dose in the pivotal phase III grass allergy trial. The trial is being conducted at 96 centres in four countries using 1,000 people. If the tests prove successful the vaccine could be filed early next year.

Hikma Pharmaceuticals downgraded
Multinational pharmaceutical group, Hikma Pharmaceuticals, has suffered a sharp drop in its share price as Citigroup downgraded the stock from ëHoldí to ëSellí, with a new target price of GBP 3.50 (USD 6.88/ EUR 5.31) against the previous target price of GBP 4.10 (USD 8.10/ EUR 6.22). A Citigroup spokesperson commented: With three earnings disappointments in six months, the risks have risen.

GSK to push Cervarix against Merckís Gardasil
GSK is preparing to do battle with US-based rival Merck & Co. The reason? GSK wants to prove without a doubt that its injectable vaccine for cervical cancer is superior to that of Merck & Co. GSKís vaccine, Cervarix, is competing against Merck & Coís Gardasil, the market leader. The latter treatment is currently with the US FDA for approval.

Over a period of 12 months the phase III trial will compare the immune responses of female patients vaccinated with Cervarix with those injected with Gardasil.

The delay by GSK over Cervarix, which was announced in the firmís Q3 FY06 results, has pitched GSKís share price into continuing underperformance. Good news on Cervarix, which is predicted to generate sales of GBP 354 million (USD 695.5 million/ EUR 536.9 million) by 2010, will boost GSKís share price.

BTG reveals encouraging results from Plevitrexed
UK-based BTG has pleased the market by announcing good results from a clinical study of its early stage, small molecule thymidylate synthase inhibitor, Plevitrexed, for ovarian, pancreatic and gastric cancer. The company declared the product works as well as other drugs already on the market, but has fewer side effects. BTG is seeking a partner to finance development of the drug.

Shire sells North American rights for HIV drug to Avexa
UK pharmaceutical firm, Shire Pharmaceuticals, has sold the rights to its early-stage HIV drug SPD 754 to Australian biotechnology and research development company, Avexa. Results from phase IIb studies of SPD 754 are expected over the next eight weeks. USD 10 million (GBP 5.1 million/ EUR 7.7 million) is being paid by Avexa in front end fees plus eight million of Avexa shares. In return, Shire hands over the North American rights to the product. If the drug sells well, Shire will receive additional milestone payments and royalties.

P53 gene switch on shrinks tumours
Researchers at the Massachusetts Institute of Technology (MIT) have succeeded in halting lymph, liver and connective tissue cancers in mice by switching on the p53 gene. Developing tumours were reduced by at least 40 per cent and in some cases disappeared. The research focused on the possible prospects for cancer treatment in humans. In over half of human cancers the p53 gene does not work, leaving the body open to the development of cancer tumours.  The normal role of p53 is to protect the body against cancer by triggering DNA repair mechanisms and stopping cells with damaged DNA from dividing. If the cell is unable to repair itself, p53 signals a phenomenon called apoptosis, or cell death.

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

30th January 2007


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