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Merger mania hits

The markets are awash with speculation of further M&A activity with mid-sized companies touted as the most likely bid targets

The slump in the price of oil to below $60 a barrel on the world markets, coupled with fears that the US economy is set to enter recession, has caused investors to re-evaluate the prospects for shares, while the stockmarket continues trading just under the 6,000 level as measured by the FTSE 100 Index.

The biggest share price hike was seen at Shire Pharmaceuticals, which received a boost as a knock-on effect of UCB of Belgium buying Germany's Schwarz Pharma for £4.4bn.

News of the deal led market-makers to speculate on possible further bids in the sector, which has already seen a flurry of M&A activity in recent months, kick-started by Bayer's tie-up with Schering, followed by news that Merck KGaA has swallowed Serono and Altana is set to become part of Nycomed. Shire Pharmaceuticals, which focuses on biological drugs, is a City favourite for the next bid.

The wisdom of the marketplace suggests that buyers are not looking for companies with low price tags, but for mid-sized companies with good drug portfolios.

On the big bid front Swiss biotech Serono is now under investigation by the Swiss Stock Exchange for a possible violation of listing rules. Serono shares were temporarily suspended because it failed to announce news of the Merck KGaA bid in a statement to the exchange.

Ups and downs
Antisoma saw a sharp rise of 4.5p in its share price to 19.5p after announcing good results from a phase II trial of AS 1404, its lung cancer drug.

AS 1404 was tested in combination with chemotherapy and the phase II results showed that the drug extended lung cancer patients' life by an extra five months, as measured against using chemotherapy alone.

Intercytex, the cell therapy company, delivered a loss of £4m in the first half of the year ended June 30 2006, against a loss of £3.36m in the same reporting period in 2005, with turnover zooming up from nil to £82.6m.

The company uses human cells for its skin and hair replacement products - a market that Intercytex believes is worth some $6bn in sales.

Intercytex currently has a venous leg ulcer treatment in phase III trials and expects to release further information about the developmental product in the second half of 2007. The company has a healthy pipeline with a number of products ready to enter phase I or phase II clinical trials: its skin replacement product is about to enter phase I trials, while an anti-wrinkle product, which could be ready for market in 2008, a diabetic foot ulcer drug and a treatment for baldness are all about to go into phase II trials.

Sinclair Pharma, the dermatology company, announced a pre-tax loss of £2.75m for the year ended June 30 2006, against £1.76m in 2005 with sales shooting ahead 66 per cent to £11.6m.

While Sinclair is risk averse and buys in late-stage products that have run into difficulties, it has gained a solid foothold in Europe by buying C S Dermatology - an astute acquisition, which has pushed sales ahead and should deliver pre-tax profits for the firm this year. Dermatitis cream Atopiclair is enjoying rapid sales and the company is expected to experience a sales boost from the US launch of mouthwash Decapinol by Sinclair's partner Johnson & Johnson later this year.

Fledgling contracts
Vastox, the AIM-listed drug discovery company, has posted a pre-tax loss of £1.3m for the six months ended June 30 2006, against a loss of £130,000 last year, while sales soared by 133 per cent to £469m. Edison Research expects full-year losses of £2.6m from a £1.15m loss in 2005.

Vastox uses zebra fish and fruit fly technology to test new drug compounds to establish their toxicity. The company is scooping up plenty of new pilot contracts and is also carrying out a stem-cell screening programme, funded by the Department of Trade and Industry.

In addition, Vastox makes its own drugs, which are early-stage trials, and aims to license most of them out before human trials take place.

In February, £10m was raised via a placing to provide the necessary cash for Vastox to launch its muscular dystrophy product, Duchenne.

Rationing of influenza jabs
The nation's doctors are preparing to ration this winter's flu jabs over the next eight weeks, on news that supplies will be delayed following problems at the laboratories of vaccine makers earlier in the year.

The glitch was caused by a switch of vaccines after the first flu jab of choice, Wisconsin 161, failed to grow - a problem shared by all vaccine makers. The second strain, 161 B, was successful but production is now well behind schedule. By November last year, GP surgeries had taken delivery of 10.5 million doses of flu vaccine; this year, forecasts suggest that compared with the same period in 2005, surgeries will be 1.5 million doses short. The suppliers have to meet a government order for 15.2m doses and it is expected they will do so by late December

The author
Malcolm Craig is the author of 14 books on different aspects of successful investment ranging from the stockmarket to gold, from overseas property to gilts.

2nd September 2008


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