Market Report: Shot in the arm for drug stocks on Pfizer ruling

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The Independent Online

Pharmaceutical stocks received a shot in the arm yesterday after the US giant Pfizer drove out a challenge to the core patent to its cholesterol treatment Lipitor, the world's best-selling medicine. The audacious challenge by a copycat maker, the Indian company Ranbaxy, was turned down by an American court late last week. Investors reacted with delight yesterday, driving GlaxoSmithKline 23p higher to 1,483p, AstraZeneca 83p better to 2,830p and Shire 7p stronger to 732.5p.

Had Pfizer lost the case, share prices across the industry would have taken a pasting as it would have prompted fears that key patents held by giants such as GSK and AstraZeneca might also have been at risk. Analysts argued that AstraZeneca's own cholesterol-lowering drug, Crestor, is better off competing against a branded Lipitor sold by Pfizer than a series of generic versions produced by copycat manufacturers such as Ranbaxy.

Credit Suisse First Boston suggested the court win could spark a strong rally by the pharmaceutical sector. The broker said: "With the judgment coming so close to the end of the year and the Medicare Drug Benefit programme about to start in the US in January, there may be an attempt to create a sector rally in Europe or in the US or both that could run for a quarter or so."

Meanwhile, the FTSE 100 rose 8 points to close at 5,539. The FTSE 250 gained 19 points to 8,594. Pennon gave up 5p to 1,168p after Deutsche Bank cut its recommendation on the utility to "hold" from "buy" on valuation grounds.

Dairy Crest soared 39p to 521.5p on reports that the milk supplier is about to receive a takeover offer from France's Groupe Lactalis. According to the speculation, Lactalis is looking to table an all-share bid which will value Dairy Crest at more than £800m, or 630p a share. However, the UK company said it had not yet received any offers and insisted that it was not in talks with Lactalis or any other party.

Despite this, Panmure Gordon upgraded its rating on Dairy Crest to "buy" from "hold" and argued that a tie-up with the French group would make both strategic and financial sense. However, Oriel Securities was sceptical that a deal is imminent. It believes that a marriage will attract the attention of the competition authority given the power the combined group will have in the UK cheese industry.

Drax, 3p lower at 493p, disclosed that Brian Stark, a US hedge fund manager, had built up a stake of 34 million shares, or 8.5 per cent, after last week's float of Europe's largest coal-fired power station. Mr Stark is a specialist when it comes to investing in energy companies. He is thought to have made a killing from British Energy by purchasing large amounts of the company's equity and debt at distressed prices before its financial restructuring at the start of the year. Since January's reform of British Energy, its shares have more than doubled.

HMV fell 2.5p to 181p as the British Video Association warned that the DVD and video market is expected to decline by 10 per cent this year. It seems that while DVD sales are growing in volume terms, the prices at which they are sold are falling fast as supermarkets and internet specialists such as Amazon become more aggressive with their promotions, leaving the overall market in decline in value terms.

Numis Securities fears this trend will have a major effect on HMV. Yesterday, it pointed out that the DVD market has fuelled HMV's strong growth over the past few years but warned that this is no longer the case.

Among small companies, European Colour ticked 0.5p higher to 14p as Peter Gyllenhammar, the Swedish investor, bought a further 750,000 shares in the chemicals group, taking his total shareholding to 9.1 million or 19.6 per cent.

AEA Technology added 2.75p to 101p after unveiling two contract wins worth a combined £8.4m. New Star Asset Management added 8.75p to close at a fresh high of 298.5p thanks to bullish comments from UBS. The Swiss broker slapped a "buy" rating and 340p price target on the stock. It applauded the fact that in just five years the company has grown its funds under management to £15bn and argued that such a performance means its shares deserve a premium rating.

Adamind rose 6.5p to 95p after announcing four contract wins for its software with major mobile phone carriers. The company's software, which helps resolve incompatibilities between handsets, operating systems and different mobile networks, is now used by nearly 100 carriers around the world.

Senior, the aerospace components manufacturer, put on 0.75p to 56p after it assured the City that profits this year will be better than those seen in 2004.