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Malcolm's Market Eye: 20 to 26 October 2007

The UK stockmarket, after approaching a seven year high, was hit by the fall in the banking sector after the Bank of America unnerved the US stockmarket by saying that it had suffered a hit to profitability during the credit crunch

The UK stockmarket, after approaching a seven year high, was hit by the fall in the banking sector after the Bank of America unnerved the US stockmarket by saying that it had suffered a hit to profitability (more than most analysts were expecting) during the credit crunch.

The International Monetary Fund warned that the global credit crunch could last for months, even if the Bank of England took drastic action to pump vitally needed cash into the economy. This is obviously bad news for borrowers with poor credit ratings. More worrying is that the International Monetary Fund (IMF) says that the national housing market is grossly overvalued and is also due for a sharp fall.

Having survived a repeat of the October 1987 stockmarket crash, the market is uneasy that the US dollar will crash, the oil price has hit USD 90 a barrel and the Energy Watch Group warns that world wide supplies of oil will halve by 2030 as major fields runs dry. Investors are dashing for safety and the US dollar recovered some lost ground as US investors liquidated their foreign bond and shareholdings.

In the UK, investors were unnerved by a report from the think tank Policy Exchange that the UK's economic resurgence over the last 15 years had been powered by record levels of household debt and a public spending spree.

The pharmaceutical sector tracked the market in its oscillations, although with a premium bolstering Big Pharma's share prices reflecting their value, as a safe defensive sector in times of uncertainty. Dealers are also factoring in the cost cutting plans by pharmacos anxious to cut expenditure and boost profits.

For example, AstraZeneca (AZ) is to move some of its ingredient production to China as it sets out to outsource all of its drug and medicine ingredients over the next five to ten years. AZ has already signalled 3,300 job cuts in the UK, in line with Merck cutting back one of its five manufacturing sites in Europe and Pfizer dropping from 89 to 60 plants.

Product quality and safety in China remains a concern, however. The FDA is meeting with the Chinese State Food and Drug Administration (SFDA) to check on the safety of drug ingredients made in the region.

Curidium Medica major deal possible
Curidium Medica, a penny share pharmaceutical company, saw its share price rise to GBP 0.04 after speculation in the market of a possible deal with a major pharmaceuticals group.

Antisoma share price falls on bad news for prostate cancer treatment
Antisoma saw its share price fall nearly nine per cent as it reported poor results on the effectiveness of its hormone refractory prostate cancer treatment now in phase II trials. Dealers speculate that partner Novartis may not agree to finance phase III trials. Antisoma is also dependant on good results for its late stage lung cancer treatment.

Promising 'baby bio' Epistem moves ahead on cancer drugs
Epistem, the pharmaceuticals and biotechnology company, delivered a loss of GBP 1.2m on sales up 51 per cent to reach GBP 1.4m for the year to end June 2007, compared with a loss of GBP1m on sales of GBP 900,000 in the previous year.  

Epistem makes most of its revenue from its contract research division but is looking to a major boost to revenues when it successfully develops and licences its own cancer treatments.

Epistem is focusing on treating the lining of the small intestine which reacts the most to chemotherapy and radiation treatment. So far, Epistem has tested 25 of the 250 therapeutic treatments in its portfolio and has discovered that two are effective in stimulating and inhibiting adult stem cells.

The company has its EpiStem biomarker business which can detect drug created gene changes from a single human hair. It has also clinched its first out-licensing deal for a molecule to treat mucositis, which is an adverse side effect from chemotherapy.

The latest news is that sales are up 30 per cent on those in the same time period of 2006.  FY07 sales should reach GBP 2m, while operating profits from contract research should hit GBP 600,000. The figures include most of the GBP 367,500 contract with the US National Institute of Health (NiH) to test treatments for radiation sickness after a nuclear terrorist attack.

Abcam clinches sale deal over 2,700 antibodies
Abcam, the online antibody company, has bought the rights to 2,700 antibodies from a leader producer. They will be sold under its own brand. Abcam now sells approaching 36,000 antibodies on line.

FDA gives green light to Shire's Fosrenal
The FDA has given the green light to extending the use of phosphate binding drugs, including Shire's Fosrenal. The drugs are given to patients getting kidney dialysis. 

The US agency is also to discuss extending their use to the pre- pre-dialysis population which is a much bigger market. Broker Landsbanki expects sales of Fosrenal to hit GBP 42m in FY07. Sales would rise by one third if the FDA gives the go ahead to extend Fosrenal to the pre-dialysis market.

Biofusion increased loss but future looks bright
Biofusion, the biotech company, announced a loss of GBP 3.2m on sales up 25 per cent to reach GBP 319,000 for the year to end July 2007. This compares with a loss of GBP 2.1m on sales of GBP 256,000 for the previous year. The increased loss was the result of higher operating costs and losses from its investment companies. 

On a brighter note, Biofusion has clinched a 10-year partnership deal with Cardiff University, with the intention of creating revenue from departmental intellectual property. It is similar to the deal the company agreed with Sheffield University. Biofusion has also successfully sold off three investments out of the existing 24 it has in research companies.

Dealers believe, however, that Biofusion is consuming too much cash, although it has a cash pile of GBP 7.3m, and needs to sell off more of its investments. This could prove difficult as many of the company's drugs are at pre-clinical and therefore pre-human testing, which never really attracts risk-averse buyers.

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

25th October 2007


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