Market Report: Enthusiasm for Zeneca provides tonic for drug stocks

A heady cocktail of takeover rumours and analytical support provided a shot in the arm for drug shares which have been showing signs of stress and strain in recent weeks.

The takeover story, not for the first time, involved Zeneca; the analyst in the heat of the action was Steve Plag of Barclays de Zoete Wedd who changed the securities house's recommendations.

Option activity re-awakened the Zeneca bid stories. At one time the shares were up 29p at 1,415p, a peak. They closed at 1,398p, a 12p gain.

Talk of a Swiss bid went the rounds but there was also support for the theory Glaxo Wellcome, up 20.5p to 857.5p, was wondering about buying Zeneca, partly for its highly promising drugs pipeline. SmithKline Beecham, another seen as a Zeneca predator, rose 11.5p to 694p.

Mr Plag, the top-rated drugs analyst who switched from NatWest Securities to BZW, was said to have moved his stance to "neutral/overweight" from "underweight" which, stripping out the jargon, could be interpreted as going to a cautious buy from sell.

Often when an analyst moves house he sharpens his new employer's view. The decision to adopt a more positive stance seems to be based on routine considerations such as the sector's apparently low political risk, the consumers' need for drugs whatever the economic climate and "good dividend and earning potential". Pick of the majors, said Mr Plag, was Glaxo, "fundamentally the cheapest".

A deal which showed the bio babes can actually make money also helped sentiment. Celltech gained 37p to 645p; it has sold for pounds 42m its manufacturing off-shoot and Lehman Brothers has set a 1,000p target price. Shire Pharmaceuticals helped the higher temperature by letting it be known in investment meetings that its Alzheimer treatment will be the subject of a presentation in Japan next month. The shares put on a further 5p to 253p.

Cantab Pharmaceuticals could hardly have picked a better day to launch a pounds 25.7m placing at 650p. It even managed a 5p gain to 685p.

The rest of the stock market continued its winning streak, gaining a further 13.5 points to 3,769.2, a three-day advance of 62.4. Turnover perked up with signs of some overseas interest.

As expected, Orange, the mobile telephone group, stormed into Footsie becoming, it appears, the first company to join the exclusive blue chips club without going through the process of producing any figures. United News & Media and Next (after an eight-year absence) also won promotion with Foreign & Colonial, Greenalls and Rexam relegated.

Railtrack just failed to make it but with Blenheim, likely to disappear soon if United News takeover talks come to a successful conclusion, and newcomer Millennium & Cop- thorne Hotels, it joins the supporting FT-SE 250 index.

TI Group, the engineer often linked with Lucas Industries, gained 13p to 541p following a dinner with 12 fund managers, hosted by Henderson Crosthwaite. Rolls-Royce, holding another round of US investment presentations, rose 6p to 228p.

Tomkins gained 6p to 254p with Credit Lyonnais Laing said to be supportive and British Steel put on a further 2.5p to 1979p although NatWest frets about weak markets and says sell. Lucas, according to US reports, is caught up in another Pentagon probe, easing 3p to 230p.

Cable & Wireless was ruffled by suggestions its Hong Kong Telecom off- shoot wanted a much greater degree of independence with Cable likely to be forced to reduce its controlling stake. The shares fell 14p to 420p. Dmatek, an electronic tagging business, rose 5p to 70p after the Israeli group met City investors.

Union, the financial group, lost 6p to 92p although Bahamas-based Joseph Lewis nudged his stake higher to 16.27 per cent. His English & National Investment Trust, on the AutoNomy deal, rose a further 10p to 80p.

Celtic, the Glasgow football club, continued its top-of-the-table display, gaining pounds 40 to pounds 295. Orbis, the security group, slipped 2p to 47p after paying pounds 5.8m for Intruder Detection Services and reporting profits of pounds 1.9m (pounds 198,000).

Drummond, the wool and worsted cloth maker, improved 6p to a two-year high of 38p. It has produced profits up 33 per cent to pounds 1.2m and the market is looking for pounds 2m this year.

Surrey Free Inns frothed up a further 21p to 308p and Cafe Inns added 27p to 212p.

Cedardata, a computer group, gained 10p to 190p on a Greig Middleton buy recommendation.