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Malcolm's Market Eye: 11 to 17 August

The normally quiet days of August have been enlivened by sharp falls in share prices, bringing back memories of past bear markets, while arousing fears of further falls in the stockmarket, a collapse in the bond market, record bankruptcies and a possible house price crash

The normally quiet days of August have been enlivened by sharp falls in share prices, bringing back memories of past bear markets, while arousing fears of further falls in the stockmarket, a collapse in the bond market, record bankruptcies and a possible house price crash.

The UK stockmarket was first hit hard by a warning from Bank of England governor Mervyn King that we are likely to see another increase in interest rates to per cent this year in order to keep the UK inflation rate on its two per cent target over the next two years. King also warned banks not to look to the Bank of England to bail them out of over-lending problems with interest rate cuts.

The next blow came from Americaís mortgage meltdown as a result of the weakness in the US sub-prime mortgage market, the global credit crunch and hedge fund collapses. All contributed to panic selling followed by rebounds as opportunistic investors chose to go bottom fishing for oversold shares. Stockmarkets around the world, including those of the US and of the UK, have lost much of the gains made this year.

The FTSE 100 saw its biggest one day fall in more than four years last Friday and the outlook is highly volatile. At the beginning of the week the market bounced back by over 100 points as more liquidity ñ GBP 60bn ñ was pumped into the financial system to buttress confidence.

The pharmaceutical sector suffered along with the rest of the market, with bad publicity on two blockbuster drugs from both GlaxoSmithKline (GSK) and AstraZeneca. The sector, which has performed poorly over the last twelve months, continues to drag its heels, despite being a traditional defensive sector in which to invest, except where a bid, or rumours of a bid, surface.

US block for sale of GSKís higher strength Advair Diskus for smokerís lung
GSKís share price dropped slightly after it disclosed that the US FDA has stopped the sale of a higher strength version of its Advair Diskus (fluticasone and salmeterol inhalation powder), an inhaled medication for treatment of chronic obstructive pulmonary disease, also known as smokerís lung.

The product racked up world wide sales of GBP 3bn in FY06 and had GSK been given the green light to sell its higher strength version this would have given a welcome boost to slowing sales.

AstraZeneca affected by bad publicity over Nexium
Over GBP 1.2bn was slashed off AstraZenecaís (AZ) market price tag after Nexium (esomeprazole), its antacid blockbuster drug (FY06 global sales of GBP 2.5bn), fell victim to adverse publicity.

One of two small studies investigating the long term effects of Nexium suggested there was an increased risk of heart problems for patients taking the drug.

Investors, mindful of the GSK situation with Avandia (roseglitazone), the diabetes treatment which has also been linked to possible heart attacks,  raced for the door to exit from AZ shares before the adverse small problem could escalate into a major upset.

The FDA moved swiftly to back Nexiumís safety with an AZ spokesperson stating: Our preliminary conclusion is that the observed difference in risk of heart attacks and other heart-related problems seen in early analysts of the two studies is not a true effect.

Solvay hit by drug patent expiry
Solvay, the Belgian pharmaceuticals group, saw its share price fall six per cent to rest at EUR 108.67 after a drug patent expiry hit earnings. Q2 FY07 net income fell 22 per cent to EUR 183m and the company was also hit by currency fluctuations.

Futura Medical shares rise on positive news on CSD500
Punters piled into the shares of Futura Medical, as the share price rose by GBP 0.075 to reach GBP 59.25. The pharmaceutical company disclosed positive results from a user study of CSD 500, its new product to help men maintain a full erection when wearing a condom.

GW Pharmaís Sativex approved for cancer treatment in Canada
GW Pharmaceuticals saw a small rise in its share price of GBP 0.035 to GBP 73.50 after the Canadian regulators approved its cannabis derived drug Sativex to treat cancer patients.
Taihua hit by 9.1m share sale
Taihua, the biopharmaceutical company, saw its share price fall back to GBP 23.25 as the market learned that major shareholder Hong Zhou had sold 9.1m shares at GBP 0.22 each.

CeNes clinches deal in Japan with Ono Pharmaceuticals
The share price of CeNes rose to GBP 4.25 on the disclosure that Japan-headquartered Ono Pharmaceuticals had gained the exclusive rights from CeNes in Japan to develop and market CNS-7056, a fast-acting sedative. Ono will pay upfront and milestone payments plus royalties on sales of CNS-7056.

Breakthrough on diabetes with high-dose vitamin B1 supplement
A vitamin supplement which could produce a breakthrough for diabetes patients has been reported by the journal Diabetologia. Scientists at the Warwick Medical School discovered that the kidneys of diabetes patients flush out vitamin B1 (thlamine) 15 times more quickly than normal kidneys.

The team is working on a high-dose vitamin B supplement to reduce the risk of patients developing heart problems. Diabetics have a vitamin B1 deficiency from getting rid of B1 from the body too quickly, which creates problems for the circulatory system. Heart attack and stroke risks are increased and these account for over three quarter of diabetes deaths.

Malcolm Craig, a freelance financial journalist and the author of 14 published books on aspects of successful investment, is one of the nationís most respected investment commentators.

16th August 2007


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