Market Report: Second dose of bad news makes Shire feel unwell

  • @greentoby

For the second time in a matter of weeks, disappointing news on one of its drugs left Shire feeling rather poorly. Having withdrawn its US regulatory application for its Fabry disease drug Replagal earlier in the month, the pharmaceutical giant closed at the foot of the benchmark index after admitting its bowel medicine Lialda had failed a clinical study.

Shire had hoped the drug, which is already used to treat ulcerative colitis, could also find a market among diverticulitis sufferers. Yet it has now had to give up on this notion after a study showed it was no more effective than a placebo, prompting the group to say it would not file for approval for this use.

The announcement was taken badly in the Square Mile as Shire's share price was knocked back 98p to 2,020p – its lowest for four months, although the reaction of City scribblers was rather more mixed.

Goldman Sachs' analysts – who had estimated the new use of the drug could result in up to $500m (£310m) of annual sales – called the news "disappointing", although they still kept their "buy" recommendation, while UBS said it had assumed only a 10 per cent chance of success anyway.

Traders noted some in the City were claiming it was a buying opportunity, pointing out the takeover speculation that frequently surrounds Shire.

Overall, it was a session for the bargain hunters as the FTSE 100, which had dropped more than 160 points during the previous three days, enjoyed a modest bounce up of 26.42 points to 5,768.45.

The heavyweight miners were managing to recover some of their recent losses ahead of the release over the weekend of key manufacturing data from China. Antofagasta ended up 30p better off at 1,152p, while Anglo American and Rio Tinto climbed 40.5p to 2,337p and 70.5p to 3,446p respectively.

Positive broker support meant Petrofac closed at the top of the Footsie, advancing 83p to 1,740p after Bank of America said the group was its favourite among the European oil services sector and Goldman Sachs upgraded its advice to "buy".

Tesco's share price may have shed over 14 per cent since January's shock profit warning, but that did not stop Morgan Stanley's Edouard Aubin downgrading his rating to "underweight". The analyst claimed there was "more downside to Tesco's UK profits", saying the grocer – which edged up 1.9p to 330p – had "significantly 'disinvested' from its UK customer proposition since 2007".

The answer, Mr Aubin argued, would be a full re-set including continued investment in prices, but he added that the company "does not appear ready to bite the bullet".

Vodafone retreated 2.25p to 172.2p following the telecoms giant's announcement that it was mulling over what action to take regarding India's proposed retrospective tax on overseas transactions, which would apply to its 2007 purchase of Hutchison Whampoa's Indian mobile operations.

Meanwhile, International Power stayed steady at 405p, with the power station operator still well above the 390p a pop approach from GDF Suez for the 30 per cent of the company it does not already hold. Berenberg's Robert Chantry added his voice to those putting pressure on the French firm to fork out more, arguing there was "potential for at least a moderate increase in the offer price, potentially above about 420p a share".

Down on the FTSE 250, Qinetiq shot up 9.6p to 159.3p after the hi-tech defence firm revealed the Government had decided to give up its veto over "any transaction or activity". The group has been the subject of bid speculation before, and Investec said it lifted a "small barrier to takeover, although the main impediments, golden share and material shareholder thresholds, remain in place".

There was no let-up for FirstGroup. Having slumped over 14 per cent on Thursday after admitting that margins at its UK bus unit would be well under market forecasts, the transport firm reversed another 9.7p to 237.7p as UBS slashed its target price to 250p.

Spirent Communications shrugged off fears it may be knocked by the woes of BlackBerry-maker RIM, a major customer of the telecoms equipment firm, to move up 1.3p to 160.5p. Panmure Gordon's George O'Connor said that while its share price "may get caught up in the RIM backdraft", he remained a buyer of the group.

A successful first day of dealings saw Rare Earths Global close at 340p on AIM, a big move up from the Chinese mineral supplier's float price of 247p a pop.

Elsewhere, Ithaca Energy ticked up 10.75p to 201.25p as vague speculation that a deal may be close continued to swirl around the explorer, which announced earlier in the week it was still in takeover talks.