Market Report: AstraZeneca hit on talk of R&D policy risks

AstraZeneca took a tumble yesterday after analysts forecast black clouds ahead for Britain's second-largest drug maker after it posted disappointing third-quarter numbers.

The company's results showed profits had fallen by more than 25 per cent. It blamed higher legal costs as well as pressure from the release of generic versions of some of its major products in the US. However, Seymour Pierce, which stated that it views "the general trend as consistent with our thesis of exposure to generic erosion" added that the company's longer-term policy of moving away from research and development carries serious risks.

Mike Mitchell, Seymour Pierce's healthcare analyst, pointed to the problems that come with a "greater reliance on external programs which I don't think will have been derisked", as the initial development would have been "in an environment where biotechs have been scrabbling for funding". His recommendation was "reduce," and it closed at 3,139.5p, down 106p.

Overall, the FTSE 100 put two days of falls behind it to finish on 5,677.89, a rise of 31.87 points, as the blue-chip index was helped by positive results from Royal Dutch Shell, which gained 9p to 1,962p. Another riser was BHP Billiton, up 57.5p to 2,221p, after Potash, the Canadian fertiliser producer which it is targeting in a hostile takeover, announced a 61 per cent jump in net income for the third-quarter.

After experiencing falls earlier this week, despite posting a solid set of results, chip-maker Arm Holdings began to fight its way back up, gaining 11.6p to 372p. H2O Markets continued to be a fan of the stock and reiterated its "buy" recommendation. Daniel Harris, head of dealing at the broker, said chip-maker "is exceptionally well positioned to benefit from the continued demand in the smartphone and the iPad", and he also picked out its licensing agreement with Microsoft as a positive factor.

Also going strongly was Vodafone, after France Telecom's third-quarter results outstripped forecasts, and last night it was on 170.7p, up 4.4p. Joining it near the top of the index was Roll- Royce, up 14p to 643.5p, on the back of news that it had signed a significant deal with the Korean-based company STX Engine. The aircraft engine manufacturer said the deal will extend its reach in Asia.

The worst performer on the top tier was Aggreko, even as it raised its outlook for the year, and it fell 70p to 1,592p. This came despite Investec adjusting the company's target price to 1,820p from 1,700p, although investors may have been put off by Panmure, whose advisers said that for them "the shares remain a hold given the expectation already in the price".

On the mid-tier, figures published yesterday on the difficulties facing first-time buyers in the UK caused the housebuilders to take a dive. According to the Home Builders Federation's report "Broken Ladder", an average first-time buyer in London would have to save all of their earnings for just under three years before being able to afford a deposit. On the same day, Nationwide released figures indicating that house prices had fallen 0.7 per cent in October. As a result Taylor Wimpey dropped 0.4p to 22.93p while Bellway shed 3.5p to 550p.

Coming top on the FTSE 250 was Hansen Transmissions. The wind-turbine gearbox maker put on 3.5p to 45p despite confirming that it still expected to finish the year with a 10 per cent revenue drop. Earlier this month it recommended an approach worth €75m (£66m) from the Japanese firm Sumitomo Heavy Industries for its industrial gearbox division.

Last week, market chatter was fuelled by news of a potential takeover of Jardine Lloyd Thompson, the insurance group, causing its price to soar. Yesterday's gossip was that an informal approach that priced the company at 720p had been rejected. Chances of a proper bid were not rated highly among investors, and the company enjoyed a small rise of 8p to 587p.

Premier Foods had a rockier time, falling 0.75p to 18p, as it declared a 4.2 per cent drop in group sales from July to September. The company – which produces a number of household favourites including Hovis and Branston Pickle – said that its non-branded goods had been hit the hardest as shoppers turned away from supermarket own-label products.

In the wider market, Mouchel posted a full-year loss of £13.5m, nearly half a million more than in the previous 12 months. As a result its shares plummeted 38p to 90p. The company has been hit by the deficit-reduction plans, it said, which have caused a "postponement or reduction in scale" of many of its projects.

Those investors which went in heavily on Desire Oil, following gossip that it had not only found oil but was about to be the subject of a takeover attempt, found themselves disappointed on both counts: the company published a statement yesterday saying no approaches had been made and no oil had yet been found. There was thus no repeat of Wednesday's 50.75p rise, and instead it closed down 26.75p at 90.75p.

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