Market Report: Elan buoyed by hopes of large-scale cost cuts

Investors betting that Elan Corp will today unveil much needed cost cuts helped the Irish pharmaceuticals group buck the negative trend in the market. Shares in Elan added €0.11 to €3.38 with City operators convinced that the group's business review will slash costs as the company slims down following the withdrawal of its key Tysabri treatment for multiple sclerosis on safety grounds.

Investors betting that Elan Corp will today unveil much needed cost cuts helped the Irish pharmaceuticals group buck the negative trend in the market. Shares in Elan added €0.11 to €3.38 with City operators convinced that the group's business review will slash costs as the company slims down following the withdrawal of its key Tysabri treatment for multiple sclerosis on safety grounds.

It was in February that serious question marks emerged about Tysabri after two patients developed fatal disorders while taking the drug. Since then, another such patient has been identified. And the news was a major blow to the company. Before this, Kelly Martin, Elan's chief executive, was hoping to rebuild the group around Tysabri, which had been tipped to become a blockbuster. Although, the drug is not a write-off for Elan it is very unlikely to become a major money-spinner.

Meanwhile, Elan faces a cash crunch in 2008, when it is scheduled to start repaying a significant slug of debt. Therefore, reducing overheads is key and analysts expect the axe to fall on Elan's operation on the east coast of America and possibly in its native Ireland.

Elsewhere in the sector, GlaxoSmithKline rose 9p to 1,241p ahead of today's results from the pharmaceuticals giant. Investors hope GSK will deliver positive news on its dispute with the US Food &Drug Administration over a factory in Puerto Rico. Last month, the American regulator seized stockpiles of the antidepressant Paxil CR and the diabetes treatment Avandament at the group's manufacturing facility in the Caribbean country. Shire Pharmaceuticals gained a further 2.5p to 563.5p as it won around some critics of its planned £1bn acquisition of Transkaryotic.

The FTSE 100 slumped 56.1 points to a three-month low 4,789.4. To blame were worries over consumer spending after a profits warning from the DIY giant Kingfisher, down 17.75p to 254.25p. Kingfisher's setback certainly rattled the retail sector. Halfords slumped 18.25p to 278.25p, The Body Shop lost 10p to 165p, Matalan gave up 10.25p to 196.25p, HMV retreated 11.25p to 230p and Kesa Electricals slumped 13.25p to 272.5p.

In fact there were just 14 gainers in the blue-chip index. Among them was Severn Trent, 10p better to 951p thanks to bullish comments from Merrill Lynch. The US broker is convinced the changes that the waste management industry is undergoing are working very much in company's favour. Other defensive stocks to do well yesterday were Gallaher, up 10.5p to 812.5p, National Grid Transco, 5p stronger at 502.75p, and BAT, which rose 6p to 973p.

Diageo ticked 1p higher to 776p as the drinks giant announced plans to launch a US dollar-denominated bond and indicated that the cash it raises from this is likely to be used for acquisitions. Pernod Ricard's bid for Allied Domecq has kick- started the consolidation process in the drinks industry and Diageo seems determined not to be left out. The group said: "In this environment, Diageo expects to continue to evaluate opportunities to make acquisitions that complement its existing premium drinks brands and create shareholder value."

Corus lost 3.5p to 43.25p as steel prices were reported to be in retreat. Misys dropped 6.25p to 208.25p after disappointing results from its rival Temenos. The Swiss software group revealed a 12 per cent drop in first quarter revenues.

Filtronic dropped 9.75p to 195p amid suggestions that trading is weakening at the company. Similar speculation left Helphire 3.5p weaker at 208p. Atrium Underwriting lost 5.5p to 211p after Nicholas Marsh, the chief executive, disclosed the sale of 850,000 shares at 210p. Christine Dandridge, a fellow executive, sold 250,000 at the same price.

Asia Energy dropped 15p to 630p on rumours the coal group is planning a major fund raising at about 570p. Cambrian Mining, which controls 28 per cent of Asia Energy, dropped 2p to 140.5p in response.

Finally, there was some disquiet among investors about Catalyst Media's continued suspension. Trading of the stock was halted in November at the request of the company as it entered negotiations aimed at the purchase of a 20 per cent stake in Satellite Information Services from United Business Media.

Since then, Catalyst has said very little. At the start of January it indicated that these talks were ongoing and a spokes person for the company reiterated the same stance yesterday. Catalyst has an October year-end and has still not posted figures for 2004. Although it has now promised to unveil these results by the end of next month, investors are getting increasingly impatient with the company.