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Malcolm's Market Eye: 7 to 13 July 2007

The increase in UK interest rates by one quarter of one per cent to a six year high of 5.75 per cent has brought cries of dismay from home owners on variable rate mortgages and exporters having to compete on the international market in the face of a US2: GBP1 rate

The widely heralded increase in UK interest rates by one quarter of one per cent to a six year high of 5.75 per cent has brought cries of dismay from home owners on variable rate mortgages and exporters having to compete on the international market in the face of a US2: GBP1 rate.Market pundits reckon, as do I, that we will see another rise in UK interest rates to six per cent over the next few months. All a far cry from the 15 per cent interest rate regime held for 18 months in the 1990s by the then Premier John Major and his Chancellor, Norman Lamont, but a serious deterrent to spending and investing, nonetheless.

John Major replied back then to criticism of the high interest rate regime imposed by the stern, unbending Tories, causing a massive wave of bankruptcies and hurling three million mortgage holders into the negative equity trap: if it isnít hurting, it isnít working.

The negative equity trap means that home owners had mortgages bigger than the market prices of their homes after property prices crashed. We may well hear the same words from Premier Brown.

The stockmarket dropped back in reaction to the news before recovering its nerve and punters continued hunting the next mega bid candidate. The FT-SE 100 Index has just broken through the key 6,700 support level, but looks vulnerable to any unanticipated bad news.

Pharmaceutical sector affected by private investor selling but still a safe haven
The pharmaceutical sector has been affected by the general malaise, which has caused private investors to be bearish about shares over the past nine months.

Net selling of all shares by private investors, according to registrar Capita, has had an unbroken run since September 2006 with GBP 6.9bn worth of shares sold by the end of May 2007. Investors had been buying into defensive sectors such as pharmaceuticals, but have not added to their holdings in any sector in April or May. 

John Roundhill, of Capita, commented: Some professional investors are turning bearish.

While the pharma sector has been relatively buoyant, the exception has been GlaxoSmithKline (GSK), whose shares fell further last week after fresh worries about Avandia (roseglitazone), the diabetes drug, were voiced. GSK is already counter-attacking claims that Avandia carries a greater heart attack risk than competing drugs. Now a study in US publication Diabetes Care has suggested that Avandia could reduce bone mineral density in men.

Northwest Therapeutics gets Swiss green light for brain cancer vaccine
Northwest Therapeutics saw its share price rise by 38p to 140p on news that the company has received the green light in Switzerland, along with marketing approval for its DCVax vaccine for treatment of brain cancer patients.

DCVax should be available to patients in Q4 2007. The approval of DCVax comes six months ahead of schedule and is being hailed in the market as a major breakthrough for immunotherapy in cancer.

Some blue sky for Proteome Sciences?
Proteome Sciences, the proteins manufacturer, delivered a pre-tax loss of GBP 6.8m on turnover of GBP 68.5m for FY06 compared with a pre-tax loss of GBP 7.4m on sales of GBP 16.2m in FY05.In FY07, broker Evolution Securities provisionally anticipates a loss per share of GBP 4.82 compared with a loss of GBP 4.85 in FY06.

Proteome's CEO, Christopher Pearce, has loaned his own company GBP 6m, which is just as well as shareholder funds have leaked away to only just short of GBP 2m, compared with nearly GBP 8m a year ago.

The loan gives Proteome enough vital cash with which to continue doing business. The company is experiencing some positive news in the shape of patent wins in the EU and another patent win due in the US. Proteome has clinched a research deal with BioMerieux, which provided a useful endorsement to its capabilities.

The wins should enable Proteome to negotiate useful licence fees from its larger competitors in proteomic research. The management takes the view that existing research deals will naturally transmute themselves into commercial deals later in the year. Revenues from the ProteoShop products should have mushroomed in the first half of the current year.

Medical Marketing - close to clinching a licensing deal, or maybe two
Medical Marketing, the pharmaceutical company, announced a loss of GBP4.05 m on turnover of GBP 104m for FY06 compared with a loss of GBP 2.8m on turnover of GBP 200m for the year before. The company has net cash of GBP 5.8m and its cash burn increased last year from GBP 2.5m to GBP 3.6m.

R&D spending was up GBP 1m at GBP 2.2m. While Medical Marketing has a robust portfolio of early stage drugs, buyers are looking forward to any hint that Medical Marketing might be close to clinching a licensing deal with a large pharmaceutical company.

The good news it is talking to the top ten drug companies and has drugs to interest them, so a beneficial deal should be announced in the near future.

Medical Marketing is developing vaccines against lymphoma and prostate cancer, by using a small amount of tetanus toxin to stimulate the immune system against foreign proteins.

As an alternative to platinum-based drugs, it is using ruthenium, which is a rare metal. For thirty years platinum drugs have provided a raw material for cancer chemotherapy.  Medical Marketing claims ruthenium is more effective than platinum and causes less toxic side effects.

Medical Marketing is also researching ribozymes, which is a type of enzyme which quickens chemical changes. Medical Marketing is focusing the ribozymes to 'silence' chemical messages which allow HIV to invade cells.

Results from a late stage pre-clinical trial announced in June 2007 showed that one application of ribozymes could stem the invasion of HIV for over 35 days. This provides hope that a pool of HIV-resistant cells can be created.

ReNeuron - first with neural stem cell treatment for post stroke patients
ReNeuron, the biotech company, delivered a pre tax loss of GBP 5.7m on turnover of GBP 49,000 for the year to end March 2007 against a loss of GBP 6.9m on sales of GBP) 9,000 in the previous year.

ReNeuron is a UK leader in stem cell research with its lead product being RENDOI, which is the first clinical stage neural stem cell treatment for a major neurological disorder - a stroke often caused by a blood clot in part of the brain.

The market for ReNeuron's treatment is large with some 12m stroke survivors in Japan, the US and the EU, with nearly one third needing continual nursing care.

ReNeuron is developing stem cells to treat other diseases, including Parkinson's. It has been given a grant from the Michael J Fox Foundation for its work. ReNeuron is also focusing on inherited Huntingdon's disease and type 1 diabetes needing daily insulin injections, which can lead to further complications.

ReNeuron reckons its product will be first to clinical trials and has filed its first

Investigational New Drug application with the FDA. It is currently on hold while more information is supplied, which includes a long-term safety profile in a specialised rodent stroke model. Full data for the product should go to the FDA by the end of 2007.

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


11th July 2007


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