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Malcolm's Market Eye: 14 to 20 July 2007

The UK stockmarket continued during the rainy summer in cheerful mood albeit with some sharp falls as sellers emerge to take their profits from time to time

The UK stockmarket continued during the rainy summer in cheerful mood albeit with some sharp falls as sellers emerge to take their profits from time to time.

Some City experts reckon it will end up the year at an all-time peak of 7,000 as measured by that universally quoted bellwether of the stockmarket's health, the FTSE 100 index. The all time record is still at a level seen way back on the last trading day of 1999 when the index hit 6,930.

Gossip and rumour on possible mega-bids, particularly by private equity houses, continue to propel the market ahead. Wall Street also gave the London market encouragement as it raced over the 13,700 level for the first time. This was due to robust retail sales figures reassuring punters that consumers are still spending, despite record debt levels threatening to push the US economy off course.

Actual and prospective interest rate increases in Britain put enough bear pressure on the market to create bouts of profit taking on upturns. The British Retail Consortium reported that retail sales rose 5.1 per cent in the year to June, up from four per cent in May: figures which make another rise in UK interest rates probable.

Another worrying factor is that the price of oil streaked through an 11 month high, threatening to break through its all time record of USD 78.65 per barrel reached last August.

Big Pharma battles with NICE
The UK pharmaceutical sector was dominated by the attack by 20 large drug manufacturers on the National Institute for Health and Clinical Excellence (NICE), the authority which decides how much the National Health Service (NHS) will pay from its GBP 12bn annual drug budget.

The manufacturers, submitting their views to the House of Commons health select committee, called the system a back door way to ration medicines in the UK. The Committee is investigating NICE after drug manufacturers and patient groups criticised its rejection of Velcade (bortezomib), a J&J drug for bone marrow cancer and Aricept (donepezil), an Alzheimer's disease treatment made by Japan's Eisai.

MP's may try to force NICE to revise its cost per quality - an adjusted life year index, used to compare the value of one treatment against another, upwards. However this would run contrary to the government's drive to reduce health spending.

AZ and GSK recover
On the stockmarket AstraZeneca (AZ) is finding favour for the first time in two years as Morgan Stanley moved from equal weight to overweight on the share, setting a GBP 31.50 target against the GBP 27.70 market share price.

GlaxoSmithKline's (GSK) share price advanced to GBP 13.10 on an upgrade from brokerage house J P Morgan. The latter has upped its target share price from GBP 12.25 to GBP 13.50, despite deducting the effect of Avandia (roseglitazone), the troubled diabetes drug linked to potential heart attack risks, from earnings forecasts.

The pharmaceutical business accounts for over half of GSK's value and vaccines are responsible for nearly 30 per cent, with consumer product sales making up the balance.

Antisoma slumps as ovarian cancer treatment AS404 proves unsuccessful
Antisoma lost one fifth of its market value after the biotechnology company announced that its lead drug, ASA404, had proved unsuccessful in mid-stage trials in treating ovarian cancer.

Antisoma's share price recovered most of its losses after boss Glyn Edwards argued that the market had over-reacted to the data announced by Antisoma and its Swiss partner Novartis. He also drew attention to the fact that difficult-to-treat ovarian cancer is only a minor part of ASA404's function.

ASA404 has demonstrated that it is highly effective in dealing with lung cancer and could well emerge as an effective treatment on other solid cancer tumours. If successful the drug will generate GBP 400m worth of future royalties and milestone payments.

Alliance Pharma falls back on supply problems
Another big faller was Alliance Pharma, whose shares slid six per cent after warning the market that supply problems had hit sales for the latest six months to end June 30 2007. Alliance sells drugs for Parkinson's and heart, diseases and for gum disorders. Half year sales should come in at GBP 7.8m. Sales were hit to the tune of GBP 1m by the supply problems. This, plus one off re-organisation costs of GBP 200,000, will mean a half year loss for Alliance

Allergy Therapeutics hay fever vaccine trial halted by FDA
Allergy Therapeutics saw its share price plummet by 22 per cent after the FDA halted a trial of its hay fever vaccine in the US. The company said it was collaborating fully with the FDA to discover why a trial patient had succumbed to numbness.

Dechra makes bullish trading statement
Dechra Pharmaceuticals, the veterinary drugs maker, was welcomed by the market by making a better than expected trading statement. FY07 revenues will be nine per cent ahead of FY06 with good EU sales of Vetoryl (trilostane) for Cushing's disease in dogs.

US approval may be gained next year for Vetoryl and Felimazole (thiamazole) which treats overactive thyroid in cats. Broker Brewin Dolphin increased earnings per share forecasts by 2.4 per cent to GBP 16.80.

Cobra moves into profit
Cobra Bio Manufacturing posted a profit of GBP 97,000 on sales of GBP 5.4m for H1 FY07. The results compare with a loss of GBP 407,000 on sales of GBP 4.3m in H1 FY06. A big uplift in sales shows Cobra is back on track.

The company is doing well in providing a comprehensive range of gene cloning services, backed up by its laboratories in Keele and Oxford. In the latest half year, virus-related revenues increased by over 100 per cent to GBP 1.6m, while protein sales remained level at GBP 3m and DNA sales were steady at GBP 600,000.

Cobra announced in early May 2007 a deal with GSK and the International Aids Vaccine Initiative to process two HIV vaccine candidates for evaluation in clinical trials. In three weeks Cobra had completed half the evaluation, but after an internal project review the two clients terminated the trials. Broker Seymour Pierce forecasts a loss of GBP 1m on sales of GBP 9.4m.

The Author
Malcolm Craig, a freelance financial journalist and author of 14 books on many aspects of successful investment, is one of the UK's most respected investment commentators.

18th July 2007


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