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Malcolm's Market Eye: 27 March to 3 April 2007

The UK stockmarket saw profit taking ahead of Easter as investors cut their share positions at the end of Q1 2007

The UK stockmarket saw profit taking ahead of Easter as investors cut their share positions at the end of Q1 2007, while Q2 has started with a modest rise.

Domestic political tensions are increasing with Iran over the British military hostages which advise investment caution. An extra bearish note is that another interest rate rise is highly probable, with the Bank of England set to make the fourth rise in the next couple of months. Any such hike would make the recession we are threatened with even worse, as household savings fall.

The CBI attributed the possible hike in interest to consumer spending rocketing in March, with high street sales climbing at the fastest rate for two years. The activity coincided with an unexpected jump in mortgage lending in February.

Across the Atlantic, Ben Benranke, the chairman of the US Federal Reserve, has poured cold water on hopes for an early cut in US interest rates, warning that inflation is an even bigger risk to the US economy than the US housing slump.

Pharmaceutical sector jolted by a new lawsuit for Shire
The UK pharmaceutical sector was knocked by a new lawsuit filed against Shire Pharmaceuticals, a high probability bid target, over its purchase of Transkaryotic Therapies (TKT) back in 2005.

Court papers show that a few TKT investors allege irregularities in the acquisition process. A Shire spokesperson said: "The actions are without merit and the company plans to defend itself vigorously."

The launch of Shireís new ADHD drug, Vyvanse (lisdexamfetamine), is due in Q2 2007.

Alliance Boots opens up books to Stefano Pessinaís GBP 10.40 a share bid
On the bids front, private equity group KKR has offered GBP 10.1bn for Alliance Boots. This second, higher offer of GBP 10.40 a share (up from GBP 10 a share) has persuaded the companyís board to reopen its books to the bidder.

Stefano Pessina, who heads up the bid from KKR, is also deputy chairman of Alliance Boots. The latest trading update from the latterís CEO, Richard Baker, predicts a three per cent underlying sales growth for the current year.

Boots plans 300 job cuts, while 900 Moss and UniChem pharmacies are to be converted to the Boots fascia and 35 stores are to be relocated.

Pessina has stepped down from the Alliance Boots board, while he and KKR continue with their bid. In the wings is Alliance Bootsí arch-competitor across Europe, German firm Celesio, which owns the Lloyds pharmacy chain.

Celesio is believed to be about to launch a competitive bid for Alliance Boots in concert with a number of private equity groups. Market experts reckon that the UK competition authorities would not permit Celesio to own all of Alliance Boots, as it would control over 30 per cent of the UK pharmacy market.

Minster Pharmaceuticals appoints Jerry Karabelas to its board
Minster Pharmaceuticals, which is in advanced trials on a preventative drug initially developed by SmithKlineBeecham for migraine, has appointed Jerry Karabelas, the ex-SmithKlineBeecham executive director, to Minsterís Board.

Sinclair Pharma close to delivering maiden profits
Sinclair Pharma posted a pre-tax loss of GBP 2.54m on sales of GBP 9.11m in H2 2006 against a loss of GBP 1.6m on sales of GBP 3.7m. Sales moved ahead well as a result of strong take up for steroidal dermatitis treatment, Atopiclair, which increased 130 per cent to GBP 1.3m during the period.

Sales were also boosted by the recent Ashbourne and CSD purchases. The company should deliver a profit for the full year, which would be its first. City analysts are expected operating profits of around GBP 400,000.

Sinclair is promoting itself from AIM to the fully listed market this month and plans to list itself on Euronext to help it make acquisitions (the first possibility being in Germany) in mainland Europe easier.

Dendreon gets green light for Provenge cancer vaccine
Dendreon, the biotech company, saw its share price rise from USD 9.00 to USD 14.00 on news that an advisory panel to the FDA has given the green light to Provenge, its experimental therapeutic cancer vaccine. Trials have provided the positive results, which reveal that Provenge is effective in retarding the development of cancer cells.

China Meditech links up with Merck & Co and Procter & Gamble
Hutchison China MediTech, the Chinese botanical medicines specialist listed on AIM has a small chain of upmarket Chinese medicine boutiques in London, which were recently boosted from five to 12 outlets). The company posted a pre tax loss of USD 8.63m on sales of USD 575m for FY06 against a pre tax loss of USD 6.23m on sales of USD 379m in FY05.

The drug development arm of the business agreed collaborative deals with Procter & Gamble and with Merck. It will report trial results from these deals in its third quarter.

China Meditech is a subsidiary of Hutchison Wampoa and sells traditional Chinese medicines to the Chinese traditional medicines market, which is worth some USD 13bn (EUR 9.7bn/ GBP 6.6bn). At the same time it is developing botanical drugs to an early stage for Western customers.

The company wants to scoop up more traditional Chinese medicine companies to add to its portfolio. The healthcare market in China delivered robust growth and the company expects future sales growth at the 15 to 20 per cent level.

Hikma Pharma boosted by strong branded generic drug sales in Middle East and North Africa
Jordan-based Hikma Pharmaceuticals, which makes branded and generic pharmaceuticals, made a pre-tax profit of USD 75.6m in FY06 (up 17 per cent) on sales of USD 317m, which were up 21 per cent on FY05. Operating profits rose 9 per cent to reach USD 75.2m.

The main business lies in selling branded generic drugs into Middle Eastern and North African countries and has expanded 40 per cent to be worth USD 130m (EUR 97.4m/ GBP 65.9m). Hikma is actively seeking more acquisitions in the Middle East and North Africa.

The Algerian market produced healthy growth and Hikma has increased its market share in both Algeria and Saudi Arabia. A record year is expected in FY07, with sales expected to accelerate by more than 30 per cent.

Growth is being boosted by the purchase of Ribosepharm, the anti-cancer drug specialist which operates in a niche product sector. Sales in the US were down slightly due to aggressive price cutting by competitors.

Malcolm Craig is one of the UK ís most respected investment commentators and is author of books on successful investment.

4th April 2007


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