Rumour mill

The stock market is still highly volatile with nervous investors increasingly concerned that rising interest rates, particularly in the US, would markedly slow global economic growth.

Persistent worries about rising inflation have put additional pressure on stock markets both here and globally even though commodity prices, which are swinging wildly, are falling. Risk-averse investors are favouring the big cap stocks, and the FTSE 100 index is attempting to consolidate around the 5,600 level.

Takeover tittle-tattle
In a weak market where investment sentiment remains fragile, AstraZeneca (AZ) shone brightly to be the best-performing blue-chip stock, with a rise of 4.2 per cent mainly on the back of takeover speculation. It continued to move ahead strongly in the early part of this week to hit a new six-week high.

Talk that Swiss drug group Novartis or GlaxoSmithKline (GSK) are getting ready to pounce once again, is doing the rounds. Analysts generally dismissed the rumours suggesting that the catalyst for takeover speculation stemmed from the merger activity in Germany where Bayer has won control of Schering. Not even the findings of a new study showing that Vytorin, a cholesterol treatment being developed by Schering-Plough and Merck, is more effective than AZ's Crestor, have dampened buying interest in its shares.

GSK, however, was noticeably softer after data for May revealed that sales of Avandia, its diabetes drug, and Advair, its asthma treatment, were disappointing. May prescription sales for Avandia sank 14 per cent while those for Advair fell 4.4 per cent, somewhat worse than expected.

Stockbroker Dresdner Kleinwort Wasserstein repeated its "buy" recommendation even though it expected news of the prescription data to cause some short-term share price weakness. However, shares had recovered most of the lost ground by the morning of June 20.

Shire Pharmaceuticals, whose share price has under-performed in recent months, enjoyed a good rally towards the end of last week. Investors piled into the stock ahead of a presentation, at a conference on Problems of Drugs Dependency cin Arizona, featuring NRP104, the successor to its blockbuster drug, Adderall XR, an attention deficit treatment. JP Morgan repeated its 965p target ahead of the conference.

Profit-taking trimmed the gain after presentation of the clinical data on NRP104 indicated that it might have the potential to have lower abuse than other similar drugs on the market. Stockbroker Evolution Securities repeated its "sell" recommendation, pointing out that it would be up to the US regulatory authorities to decide whether the claim can be put on the label. On the other hand, HSBC repeated its "overweight" recommendation, although it cut back its price target by 65p to 990p because of recent unfavourable US dollar movements.

Ying and yang
Among the smaller cap pharmaceutical and biotech stocks there have been several interesting developments. BTG, the group that describes itself as a medical innovations company, saw its shares knocked back after announcing it would start phase II clinical safety study in the US of Varisolve, a treatment for varicose veins, after it failed to find a partner to help fund the study. The company maintains it is able to finance the important study from existing resources without impacting on current development activities within its broader pipeline.

Alizyme was one of the best small cap performers last week after suffering a recent sharp fall. Its house broker, Piper Jaffray, repeated its 236p target, double the current price.

Acambis, after floundering at a 12-month low, burst into life with a 16.7 per cent jump as Goldman Sachs suggested that a smallpox contract from the US government, which is close to being awarded, could improve the vaccine maker's prospects. In contrast, Oxford Biomedica continued to slide towards a 12-month low after announcing that it had filed a US lawsuit against Open Biosystems for infringements of key patents.

AGI Therapeutics ended last week on a stronger note, after dipping to a low for the year, after its chairman Ronan Lambe bought 250,000 shares, lifting his holding in the pharmaceuticals group to 1 per cent.

Meanwhile, GW Pharmaceuticals, a developer of cannabis-based medicines, was softer, giving up much of its recent gain, after releasing interim figures that revealed widening pre-tax losses, thanks to increased research and development costs. Chairman Geoffrey Guy said: "We believe the prospects for GW are extremely encouraging." GW is now getting product sales revenues in Canada, Spain and the UK.