Twin peaks

Our weekly review of the pharmaceutical stock market

The FTSE 100 Index continues its march upwards, closing at the beginning of the week above the 4,800 level and just shy of a two-and-a-half-year high. Not to be outdone, the FTSE 250 Index of mid-sized companies also got in on the act, scaling to a fresh peak above the 7,100 mark.

The 250 Index has been rising steadily since the Labour government came into power in 1997. Since March 2003 it has jumped 88 per cent and has comfortably outpaced the FTSE 100.

Pharma and biotech companies listed on the FTSE 100 Index breathed a sign of relief earlier in the week after the government confirmed that it would be amending the Serious Organised Crime and Police Bill to protect pharma company clients from animal rights activists.

The amended Bill will make it a criminal offence to cause economic damage through campaigns of intimidation. Campaigners found guilty could face a five-year prison sentence.

Investors had been concerned that big-name pharma companies would be forced to leave the UK following increased activity from animal rights activists.

AstraZeneca shares soar

The recently troubled pharmaceutical company, AstraZeneca, finally had something to cheer about after the company released its fourth-quarter figures for 2004. The Anglo-Swedish group took investors by surprise by revealing higher than expected forecasted earnings per share of $2.40-2.55 for 2005.

AstraZeneca also predicted that its 2005 earnings would be driven by demand for its established products, coupled with tight cost control and productivity improvements. Shares in the group soared on the news to just below £20, but easily notched up the biggest rise of the day on the FTSE 100.

Last year was a difficult year for AstraZeneca. The group faced rejections from the US Food and Drug Administration and safety concerns surrounding its cholesterol-lowering drug Crestor.

GSK hits setback

Pharma giant GlaxoSmithKline (GSK) continued its long-running dispute with the US Internal Revenue Service (IRS) last week, revealing that the IRS has made fresh demands of $1.9bn (£1bn) in tax from the company.

The IRS argues that GSK owes the amount for the period 1997-2000 when the company was Glaxo Wellcome. If the IRS is successful with the claim, it is estimated that the interest payable would be $700m (£380m).

GSK, however, believes that it has paid all the taxes owed to the US government and has made adequate provision for tax liabilities.

Last year, the IRS demanded that GSK pay a massive $2.7bn for the period 1989-1996, with estimated interest of approximately $2.5bn. GSK is also disputing this claim.

Shares in GSK were largely unaffected by the demands. Instead, investors turned their attention to the announcement of the company's full-year results which are expected next week.

Shire cements deal

Shire Pharmaceuticals revealed this week that it has dotted the i's and crossed the t's of a drug-discovery agreement it struck with New River Pharmaceuticals last month.

The agreement will see the two companies jointly develop and commercialise the drug NRP104 which is currently in phase III clinical trials for the treatment of hyperactivity disorder. Shire already markets a treatment for attention deficit hyperactivity disorder (ADHD), known as Adderall XR, but is expected to face generic competition from 2006 or 2007.

Shire said it will now pay New River Pharmaceuticals an upfront payment of $500m and a further $50m if the drug is reviewed by the US Food and Drug Administration. Further payments of $300m could be made if the drug is approved.

Investors reacted positively to the deal and are looking forward to Shire offering new ADHD products in the future.

Stem cell foundation planned

Meanwhile, a group of high-profile investors are backing plans to start up a public-private foundation for stem cell research. Sir Christopher Evans, Lord Winston, Richard Sykes, Sir Richard Branson and Jon Moulton are all rumoured to have backed the project.

Sykes confirmed: There is a plan to set up a UK stem cell foundation to encourage and support research into stem cells. The plan is to set up the foundation, get a big chunk of money from the government, and then match that with private money.

It is understood that Evans met with Tony Blair to discuss the scheme. Government backing would be expected.