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Safe haven

Financial strategists have been steering investors towards the relative safety of the defensive pharmaceutical sector

Safe havenDespite the rise in US interest rates to 4 per cent, City wisdom is that the Bank of England will leave interest rates unchanged on November 10. The downturn in the economy balances out the rise in UK inflation to a nine-year high of 2.5 per cent.

The UK stock market has recovered strongly rising 4 per cent from its Red October panic attack when bids and deals mesmerised the marketplace, and foreign predators prevailed. Foreign bidders have so far this year spent £33bn on buying British companies while mergers across Europe should hit £532bn by the year-end. There is more money (around £45bn) earmarked for buying shares, than there are shares available to buy so the market has considerable upside.

The pharma sector bounced back in line with the market as City strategists pointed fund managers towards the safe, defensive pharma sector. Merckís victory in the second Vioxx case also provided a further boost.

Merckís share price rose by 10 per cent in New York as the company won its second Vioxx liability case, filed in New Jersey by a man who had suffered a heart attack after taking the drug.

Having lost its first case in Texas, the second case was critical to Merckís future. Observers had suggested that a ruling favouring the plaintiff could have resulted in Merck having to settle the remaining suits filed against it ñ of which there are more than 6,000 ñ at a cost of around £27bn.

The jury ruled that Merck was not liable for the heart attack and that it had provided 'adequate warnings' to doctors about the side effects linked to Vioxx. Merck intends to defend every Vioxx lawsuit to the bitter end on a case-by-case basis.

Shire to launch six new drugs in 2006

Shire Pharmaceuticals, the maker of attention deficit hyperactivity disorder drug, Adderall XR, has posted a useful 16p gain in its share price to 695p on the news that the company is planning to introduce six new drugs in 2006 and a total of eight over the next three years.

Shire announced a third-quarter net loss of $624.2m on sales of $376m as against a profit of $10.1m on sales of $344.9m in the same reporting period last year. The latest loss is the result of a one-off charge of £380m following the acquisition of TKT. Operating profit was $95.1m.

The City has accepted as necessary the big increase in marketing and sales costs needed to launch successfully the clutch of new products.

Lobby group threatens vaccine

There is some anxiety in the City that the future for GlaxoSmithKline (GSK) and Merckís cervical cancer drugs may be clouded by political pressure. GSK has Cervarix, which could deliver up to £2.2bn in yearly sales and Merck is developing Gardisil.

City analysts are concerned that a conservative lobby in the US may fight against children being vaccinated against the sexually transmitted disease. Wood Mackenzie, the Edinburgh broker, said research shows the cancer vaccines work to best effect in non-sexually active children.

The vaccination treatment lasts six months and adult patients could succumb to the human papilloma virus, which causes most cervical cancers, in between doses.

Phytopharm reported a turnover of £7.38m, against £1.07m last year and losses of £2.95m as against nearly £7m in the same reporting period last year. The share price hardly budged on the news, rising by only 1p to 48p.

The company has clinched a deal with Unilever to develop a product for obesity using a derivative from hoodia ñ a cactus used by dwellers in the Kalahari Desert to check their appetite.

Phytopharm is expected to announce the appointment of a new broker following the announcement in December of the results of its treatment Cogane, for Alzheimerís and Parkinsonës disease.

The company lost its broker Canaccord because of the actions of animal rights activists.

Exubera delayed

Shares in Bespak, the company making the inhalers for Pfizerís inhaleable insulin treatment Exubera, fell back 1 per cent on news that the Food and Drug Administration (FDA) has extended the review period for the drug by three months.

The FDA wants more time to examine chemical data. The green light for the inhaler is not expected until early in 2006.

Malcolm Craig, author of 14 books on aspects of investment ranging from shares to gilts, from the money markets to Eurobonds, is one of the countryís most respected investment commentators.

2nd September 2008


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