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Pharma remains resilient

The market is getting nervous thanks to reduced consumer spending and high oil prices but pharma is managing to stand its ground

The stock market has retreated from its near four-year peak as a result of UK inflation rising above government guidelines, which means any further interest rate cut will be delayed.

With oil prices hitting more than $70 a barrel, the stock market has become understandably nervous about the knock-on effects of sky-high energy costs. The market is coming round to the fact that the global economy could face a testing time as a result of reduced consumer spending power, with company profits taking a hit.

Yet the pharma sector has remained resilient despite the overall fallback on the stock market, and has continued its steady stream of news on bids, drug approvals, and deal clinching.

Shire Pharmaceuticals shares rose 11.5p to 686p as the market welcomed the news that the company has been given the green light to re-introduce Adderall XR, its treatment for hyperactivity, in Canada after a lengthy six month ban. The company has now included a warning on Adderall XR leaflets that those suffering from heart problems should not take the drug.

GlaxoSmithKline (GSK), Pfizer and Novartis are understood to be among six bidders making the shortlist to buy Boots' £1.2bn over-the-counter healthcare business, Boots Healthcare International (BHI).

BHI, which boasts leading brands such as Clearasil, Nurofen and Strepsils, was put up for sale back in April. Boots is known to prefer a trade buyer which could reduce costs after buying BHI.

York Pharma, a skin care products company, saw a sharp rise in its share price to 123p after broker Collins Stewart issued a 'buy' recommendation along with a 342p share price target.

Under threat

The Department of Health (DoH) has come under fire after taking delivery of 800,000 doses of Tamiflu, the antiviral drug that fights H5N1, the deadly strain of bird flu that has caused the death of 60 people in south east Asia and decimated poultry in the region. Avian flu is estimated to have the potential to kill up to 50 million people around the world.

Critics have rounded on the DoH because, although it is stockpiling 14.6 million doses of Tamiflu, many of them will not be received until the end of next year, leaving the UK vulnerable to a pandemic.

The World Health Organisation is increasing its defences against bird flu by stockpiling enough doses of Tamiflu to treat three million people.

Two experts employed by Candian bank BMO Nesbitt Burns have warned that an outbreak of Asian bird flu could result in an economic collapse akin to that of the Depression of the 1930s. Sherry Cooper and Donald Coxe warn of a collapse in demand for housing and cars in the Organisation of Economic Cooperation and Development nations that would be followed by a collapse in base metals and steel prices.

U-turn for Merck?

US pharma giant Merck is thinking about settling some of the Vioxx cases filed against it, after a widow in Texas was awarded damages of £141m following the death of her husband.

While Merck has stashed away $675m for Vioxx legal cases, the market reckons the total bill could be as much as $18bn. Since the recent legal case in Texas, Merck has seen another 600 lawsuits emerge, taking the total to around 5,000.

Deal makers

Dublin-based Alltracel Pharmaceuticals saw a sharp rise in its share price - up 13 per cent, to 16.5p, after falling by one third during 2005 - on news that it has clinched a deal to market its wound-care products in China, after joining forces with the Yunnan Baiyao Group, the country's largest wound care concern.

Under the deal, the two groups will focus on developing and selling Alltracel's m.doc product, which stops bleeding. Manufacturing and sales are expected to start in 2006 in China, where Yunnan Baiyao will be responsible for selling the product.

Shares in penny stock ZI Medical rose 1.75p, to 9.75p, on the news that it may make an all-share offer for medical device group NMT, which is also listed on the Alternative Investment Market (AIM). The latter's shares advanced 4.5p to 76p.

Cash rich

Biotech firm GeneMedix saw its share price slide marginally to 5.25p on market worries about its rate of cash flow. However, it tried to allay concerns by announcing that it has made good progress and is 'more optimistic' about its prospects.

The company has replenished its cash resources by raising £1.5m on the market and clawing back £370,000 in research and development tax credits. It also managed to reduce its first half loss. The company's first half pre-tax loss came in at £2.76m as against a loss of £2.92m for the same period in the previous year.

Guinea pig farm closes

The closure of the Darley Oaks guinea pig farm in Newchurch, Staffordshire, after an aggressive campaign by anti-vivisectionists was quickly followed by animal rights activists claiming that they had slashed the car tyres of Roche's global drug development director, Eduard Holdener. Roche is a customer of the UK animal testing laboratory Huntingdon Life Sciences.

The Author

Malcolm Craig, author of 14 books on varying aspects of investment, is one of the UK's leading investment commentators.

2nd September 2008


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