Shining sector

Our weekly review of the pharmaceutical stock market

The FTSE 100 Index continues to trade in a narrow band just below the 4,900 level. Oil prices have retreated from their record highs earlier this month to drop below $54 a barrel after investors decided that supplies will not run out in the short-term.

In the UK, official statistics revealing that UK economic growth had slowed during the first quarter of the year also eased investor fears. The figures from the Office of National Statistics showed that gross domestic product grew at a rate of 0.6 per cent compared to 0.7 per cent in the fourth quarter of 2004. The annual growth rate was estimated at 2.8 per cent - the lowest since the fourth quarter of 2003.

A slowdown in consumer spending and industry output suggests that interest rates will not be increased next month, investors reasoned.

In the pharma and biotech sector investors are waiting patiently for expected first quarter results from the big pharma groups. However, this week it was the turn of the biotech sector to shine.

AstraZeneca up

Shares in AZ were up 20p in early trading ahead of the group's first-quarter results expected on Thursday. The outlook looks good, with analyst Deutsche Bank increasing AZ's target price to £24.50 to reflect the potential of the drugs in its pipeline. Hopes are riding high on the ulcer treatment AZD0865, which could rival Nexium in the future.

Shares in the group were also strong after it was revealed that AZ's cholesterol-lowering drug, Crestor, can halt and reverse the potentially lethal build-up of plaque in clogged arteries.

The two-year study involving 35 patients with established atherosclerosis in the cartid neck artery, found that taking either 5mg or 40mg of Crestor a day kept plaque volumes stable.

Shire deal get mixed reaction

Shire Pharmaceuticals surprised investors last week by revealing that it has acquired the little-known US biotech company Transkaryotic Therapies for $1.6bn. The biotech company, which is currently loss-making and does not expect to break even until 2006, specialises in drugs for rare genetic diseases caused by protein deficiency.

It already markets the therapies Replagal for the treatment of Fabry disease and Dynepo for kidney disease-related anemia.

Although investors had been expecting Shire to use its large cash-pile to acquire new products and reduce its dependency on its hyperactivity treatment Adderall XR, many were taken aback by the choice of company. Credit Suisse First Boston downgraded its recommendation on the share to 'neutral' from 'outperform' but Deutshe Bank were more positive, noting that the acquisition could be a good strategic fit for Shire.

Alizyme reduces losses

Shareholders in UK biotech company Alizyme were celebrating after the Cambridge-based group revealed that it has more than halved its annual pre-tax loss and raised £32.8m through a placing and open offer.

Alizyme raised £30.5m by offering shareholder four shares for every 19 they already own. An additional £2.3m was raised through a private placing of 2.3 million shares to US contract research organisation Quintiles.

Alizyme's chief executive, Richard Palmer, said that the money would fund the development of the group's late-stage products and help to negotiate commercial partnerships.

Renovo plans flotation

Meanwhile, UK biotech company Renovo is planning a flotation on the London Stock Exchange with ambitions of becoming a leading European biotech company.

The company, formed five years ago by two Manchester University professors, boasts four drugs in advanced clinical trials, a further four ready to enter clinical development and a further 13 in the pipeline. The focus of the biotech company is on treatments for the prevention of skin scarring following surgery.

It is hoped the flotation, which could be one of the biggest biotech flotations in Europe, will raise £50m to finance its potential blockbuster drug, Juvista, and help the company compete alongside the big guns in Europe.