Mixed fortunes

The stock market is showing plenty of strength as the benchmark index pushed through to a three-month high with the FTSE 100 index consolidating well above the 5,000 mark.

Bulls believe the market has sufficient momentum to hit a fresh high for the year, which is easily within striking distance, and then go on to challenge its summit of three years ago. Support for the drive upwards is coming from lower bond yields and increasing expectations that the base lending rate has peaked, with a cut on the cards over the next few months.

GlaxoSmithKline, a recent star performer, suffered a bout of minor weakness. This probably had more to do with profit-taking after a good run swept stock to a fresh 12-month high and the odd downgrade by analysts, rather than its interest in acquiring Boots Healthcare International. Six trade buyers, including other global big pharma groups, are reported to have contacted Boots to ask for information about the impending sale of its over-the-counter drug maker, which includes products such as Nurofen.

Shire Pharmaceuticals, however, stood out among the big pharma stocks with a healthy rise after some analysts adopted a favourable view on the outlook for its shares. Citigroup, somewhat against the trend, decided that the proposed acquisition of Transkaryotic Therapies (TKT) was a "smart strategic shift" that would boost substantially the value of Shire shares. The firm expects its key drug, Adderall, a hyperactivity treatment, to face generic competition in 2006, but thanks to the boost from the impending acquisition of TKT, has set a price target of 725p for next 12 to 18 months.

Shire was also given a lift by a positive comment from Lehman Brothers, which subsequently helped push shares still higher to above 600p level. It repeated its "overweight" stance highlighting the prospects for the firm's Hunter's syndrome treatment.

Meanwhile, Elan's share price was knocked by news that a possible fifth law suit for Tysabri, the multiple sclerosis treatment developed by the Irish pharmaceuticals group and its US partner Biogen, was reported to the US regulators after another patient suffered a brain infection. Tysabri was withdrawn in February after two patients contracted a rare brain disease. A couple of weeks ago, the shares recovered some lost ground on hopes that this drug would return to market.

Buyer beware
Investors in small, pioneering pharmaceutical and biotechnology companies were given another reminder of the dangers of investing in these stocks. Shares in GW Pharmaceuticals dived, more than halving in price, after the company confirmed that it lost an appeal with regulators that would have allowed it to market its cannabis-based treatment, Savitex, without undertaking further trials. The delay in the launch of Savitex in the UK and cost of further trials suggest the possible need for a fundraising exercise, which added pressure on its crashing share price.

Provalis saw its share price hit a new low after the international medical and pharmaceuticals company warned that it would report a higher than forecast operating loss because of problems with its diabetes diagnostic product. Analysts at Nomura cut their rating from neutral to reduce after the delay of its key product launch was announced.

Looking good
In contrast, shares in biotechnology company Proteome Sciences burnt brightly, nearly doubling from their low point of 54p last month, as speculators piled in on the hopes that a major deal for its technology will be announced shortly. Rumours abound that it will strike a deal with US group Applied Biosystems,for the use of Proteome's TMT tags technology. In addition, several licensing deals covering other technologies, such as Proteome's stroke HTS screening technology, are in the offing.

ProStrakan, the biotechnology company, has priced its shares for flotation at 100p each after its investment banker, Morgan Stanley, cut the valuation for this share for the fifth time. The company, which is developing treatments to cure acne and osteoporosis, is now valued at around £140m compared with a figure of more than double this that was suggested when Morgan Stanley was first hired by ProStrakan.