Market Report: Shire surges on hopes of end to patent disputes

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Hopes that Shire Pharmaceuticals is close to settling a number of patent disputes with rival drug makers sent its shares to the top of the FTSE 100 gainers list.

Shire soared 7 per cent, or 55.5p, to 850.5p yesterday, on talk the group will soon settle its disagreements with generic producers trying to challenge patents on its key hyperactivity drug Adderall XR.

It seems the speculation was prompted by comments by Matthew Emmens, the pharma group's chief executive, at an investor conference in the US this week. Adderall is important for the group - it accounts for nearly half of its total sales - so it is no surprise that rumours about its future had such an impact on the company's shares. Traders hope that a settlement will greatly extend Adderall's shelf life.

Deutsche Bank also seemed to hint that a deal is on the way. The broker said: "It is certainly not unreasonable to assume there is an increasing likelihood that Shire and one or more of its generic challengers (most notably Barr Laboratories and Impax) will settle." Meanwhile, in the banking sector, Lloyds TSB added 6p to 511p as Merrill Lynch ushered its clients into the stock, tipping it to be a top performer during the next few months.

The US broker said: "We think the group will surprise in 2006." It predicted improving momentum at Lloyds' Scottish Widows life-assurance business and its wholesale banking division, and even suggested that a share buy-back could be on the cards at the bank in the near future.

For some time now investors have been concerned that Lloyds might have to cut its dividend. But Merrill does not see this as a possibility. It suggested that dividend cover - the number of times a company's profits cover the amount it has to pay its shareholders in dividends - will improve at Lloyds during the course of the year.

The FTSE 100 rose 3.6 points to 5,735.1 while the FTSE 250 gained 10.9 to 8,938.9. Fixed-line telecoms players had a bad day as a profits warning from France Telecom reminded investors just how tough trading conditions are in the industry. Hence, BT Group lost 2.5p to 220.5p andCable & Wireless retreated 3.5p to 123.75p.

Shanks jumped 11.5p to 170.25p in response to bullish comments from Merrill Lynch. The broker's interest in the stock was prompted by the high valuation a competitor to Shanks's Dutch business attracted recently when it was bought by a venture-capital consortium led by CVC Capital. As a result, Merrill Lynch has upgraded its estimation of the worth of Shanks' Netherlands business.

Hot money piled into FKI, up 4p to 123.25p, as rumours of a bid for the engineer circled dealing rooms towards the end of the session. FKI is viewed by traders as very unlikely to end the year as an independent entity, with most expecting the company to be gobbled up by a US conglomerate. Tate & Lyle lost 16.5p to 572p on reports an India-based drug maker had found a way to produce a copy of Sucralose, T&L's zero-calorie sweetener, without infringing the UK group's patents.

London Stock Exchange climbed 8p to a fresh high of 666p amid growing hopes that Macquarie, the Australian investment bank, will soon raise its offer for the bourse.

LSE shares are worth considerably more than Macquarie's 580p-a-share hostile offer. Buyers have been encouraged by this week's bumper quarterly trading update, which prompted most analysts to lift their profits forecasts and target prices. Most traders regard LSE as a win-win bet - that is either Macquarie will pay more to secure control of the exchange or the business will continue to motor ahead as an independent entity.

Inmarsat dropped 7.5p to 348p as venture-capital backers of the satellite company sold 80 million shares - a 17.5 per cent stake - at 348p. JP Morgan Cazenove and Lehman Brothers placed the shares, which belonged to Apax Partners, Permira, Comsat Investments, a unit of Lockheed Martin, and Telenor.

Petrofac added 28.5p to a new all-time high of 308.5p as the provider of support services to the oil and gas industry boasted that its full-year profits would beat City expectations.

Among smaller companies, Max Petroleum rose 3.5p to 125p after securing the purchase of further exploration assets in Kazakhstan. Brandon Hire leapt 12 per cent, or 20.5p, to 189p, as it emerged that its rival Speedy Hire had taken a modest stake in the tool-hire specialist. The move led to hopes that Speedy might eventually table a bid for the group.

Brandon's management is working on a buyout, but should a trade buyer appear on the scene, analysts believe the group could end up being taken out at more than 200p.