Market Report: Generic shot in the arm for GlaxoSmithKline
Saturday 06 November 2010
Glaxosmithkline was revitalised yesterday, as the risk to one of its main drugs from a generic competitor receded.
The pharma giant rose 34.5p to 1,262p after Teva Pharmaceutical Industries, the Israeli generic-drug maker, said it was unlikely to develop a version of GSK's asthma drug Advair in the near future, and that any version would not be substitutable in the US.
The news was a massive boost to GSK given Advair's importance to the company, as it provides nearly 20 per cent of its sales. "Advair is the only marketed drug that can materially hurt GSK at the moment," said Gbola Amusa, an analyst for UBS, who also said that a substitutable generic is a "death knell for a drug". Another broker to welcome the news was Citigroup, which said the announcement "should assuage the fears of even the most sceptical fund manager".
The generic version of Advair that Teva will produce is not likely to be released until around 2013 in Europe and 2016 in the US. This means GSK will have time to bring out their own replacement for the drug, expected between 2013 and 2014.
Overall, the FTSE 100 failed to match Thursday's strong performance, which followed the US Federal Reserve's announcement of extra stimulus measures, yet it still managed to add 12.56 points to 5875.35 after non-farm payroll data from the States beat expectations. Vedanta Resources topped the leaderboard, climbing 129p to 2,319p, with fellow miner Eurasian, up 991.5p to 68,000p, close by.
Another company fighting fit was Smith & Nephew, which manufactures replacement knees and hips, and it rose 29p to 587.5p. The company posted third-quarter figures that showed rises in revenue and trading profit, despite revealing that – thanks to the economic downturn – many younger patients were postponing surgery because they did not want to take time off work.
Seymour Pierce's analyst Mike Mitchell welcomed the consensus-beating numbers and noted that many of its peers in the US have struggled recently. Mr Mitchell kept his "buy" advice, with a target price of 716p, and pointed out that the company was prepared to meet increased customer demand "as/when/if the wider economic recovery gains traction".
There was the return of an old favourite yesterday, as rumours of BP being a potential takeover target for Exxon Mobil did the rounds once again. At one point the gossip prompted BP to reach 451p, but by the bell it had pretty much died away, with the oil company posting a slight gain of 1.25p to 446.35p.
The latest results from two of the UK's major banks did not go down well with traders, as Royal Bank of Scotland and HSBC both dropped. RBS was the worst hit, down 2.14p to 45p, as it warned of tough times ahead in the fourth quarter. Despite saying that profits so far for the year were "well ahead" of the previous 12 months, HSBC lost 12.1p to 683p, with investors indulging in profit-taking after the company's recent strong performance. The bank also made warning noises over a UK bank tax, with RBS in agreement.
The fall-out over the engine failure in a Qantas A380 on Thursday continued to have repercussions for Rolls-Royce, as yesterday Qantas said either a design fault or a material failure was "probably" to blame. There was some good news for the engineering giant, as Goldman Sachs said that it believes the company's "strong net cash position could lead to future cash returns to shareholders". Yet this was not enough to prevent Rolls-Royce plummeting 30.5p to 591p.
Sportingbet found itself near the top of the FTSE 250, as its price rose 3.3p to 60.9p, with traders citing the gambling company's gain as the response to a heavy run of losses.
Tony Rice, the chief executive of Cable & Wireless Communications, gave his company a boost after buying one million of its shares. The telecoms group had slid back on Thursday in the wake of first-half results that showed a 2 per cent climb in sales and also finished any hopes of a recovery this year in the Caribbean market. Although yesterday's climbs were not enough to return it to its position before the update, it did put on 2.69p to 49.68p.
Stuck at the bottom of the mid-tier index was Rentokil Initial, as it warned of hard times to come while revealing a 16 per cent increase in adjusted pre-tax profits. The pest control company's delivery unit, City Link, posted a loss of £1.3m in the third-quarter, blamed on its supposed cost-cutting policy of using contract drivers, and even though the company was raised to a hold by Seymour Pierce, it shed 5.8p and closed on 94.5p.
On the AIM, Corac – an engineering group which specialises in air and gas compressors – confirmed that it is thinking about raising £15m through a share placing at 15p a pop, with an extra £5m to come from an open offer involving existing shareholders. Shares in the company, whose market capitalisation is just £18m, retreated 5p to 17.75p.
FTSE 100 Risers
Invensys 313.5p (up 13.2p, 4.4 per cent)
Still moving up, as Morgan Stanley raises target price to 350p from 340p.
Anglo American 3,029p (up 64p, 2.16 per cent)
Output unaffected at Collahuasi mine in Chile, despite union workers going on strike.
Associated British Foods 1,071p (up 10p, 0.94 per cent)
Owner of Primark rises in run-up to release of full-year results on Tuesday.
FTSE 100 Fallers
RSA 131.7p (down 2.1p, 1.57 per cent)
Fails to match Thursday's price gains which followed the insurer reporting a rise in premium sales.
Cobham 204.8p (down 3.2p, 1.54 per cent)
Continues its fall since Wednesday's announcement over growth worries for fourth quarter.
SABMiller 2,031p (down 13.5p, 0.66 per cent)
Drops towards price target set by Nomura of 1900p, with broker rating it "neutral".
FTSE 250 Risers
Charter International 712.5p (up 30.5p, 4.47 per cent)
Industrial engineer up, despite having its price target cut by Panmure to 750p.
Taylor Wimpey 26.09p (up 1.07p, 4.28 per cent)
Housebuilder enjoys second day of share price gains in the wake of Halifax house price results.
Spirent Communications 156p (up 5.5p, 3.65 per cent)
Benefits from having price target raised by both UBS and Citigroup.
FTSE 250 Fallers
QinetiQ Group 100.2p (down 3.6p, 3.47 per cent)
Third day of losses after receiving boost from security alerts at the beginning of last week.
Amlin 403.8p (down 12.7p, 3.05 per cent)
Insurer drops as JPMorgan downgrades it to "underweight", forecasting a softer market in 2011.
JKX Oil & Gas 287.3p (down 6.8p, 2.31 per cent)
Announces that Shkorpilovtci well in Bulgaria has been plugged and abandoned.
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