Market Report: Pharma giants tumble after medicine sales stall

The blue chip pharmaceutical giants GlaxoSmithKline and AstraZeneca had a bad day yesterday, with both featuring as major fallers in the FTSE 100. GSK dropped 21p to 1,071p while AZ fell 40p to 2,326p as investors digested news of a rather unsettling trend in the pharmaceuticals sector.

The blue chip pharmaceutical giants GlaxoSmithKline and AstraZeneca had a bad day yesterday, with both featuring as major fallers in the FTSE 100. GSK dropped 21p to 1,071p while AZ fell 40p to 2,326p as investors digested news of a rather unsettling trend in the pharmaceuticals sector.

According to the latest industry data, branded medicines have suffered a sharp drop in volume growth during recent months. Major European pharma companies have confirmed this but have offered little in the way of an explanation for the phenomenon. Analysts note that this volume weakness has so far been offset by price rises at the likes of GSK and AstraZeneca, but fear that companies will struggle to keep this up for much longer. This leaves the outlook for the industry looking far from rosy.

Meanwhile, two major City stockbrokers weighed in with some troubling comments specific to GSK. Leading the way was Citigroup, which expressed worries over potential setbacks for the group's drug pipeline. According to Citigroup, recent guidance from the US Food and Drug Administration points to possible delays to three GSK cardiovascular treatments. As a result, the broker added two years to the expected launch date of these treatments, which it believes all have the potential to be billion-dollar drugs.

Elsewhere, Deutsche Bank was heard voicing concerns about GSK's asthma drug, Advair. It noted that the treatment has suffered an abrupt slowdown in US sales and suggested that investors are simply too optimistic about future sales of the product at present. Advair is GSK's number one drug and a key growth driver for the company. It is hoped that the product will generate over 50 per cent of sales growth at the group over the next four years.

The share price falls at GSK and AZ weighed on the wider FTSE 100 index, which closed 33.2 points lower at 4,360.0. As did a poor start to trading on Wall Street, where both the Dow Jones Industrial Average and the Nasdaq Composite lost ground. Yell bucked the negative trend to go 5.5p higher to 343.5p as punters piled into the directories group ahead of today's AGM. Word has the trading statement at the meeting will impress.

Man Group, the hedge funds manager, dropped 47p to 1,435p as investors fretted about the performance of its funds. Two factors are believed to be negatively impacting the hedge fund industry at present. First is the fact that stock market indices have pretty much gone sideways over the past six months. Hedge funds do best from sharp movements in share prices. A second negative for the likes of Man is the rising interest rate environment. Hedge funds increase their financial muscle by borrowing large amounts of money and the rise in the cost of this around the globe is bad news for them.

International Power ticked 4p higher to 139.5p on the back of an upgrade from Merrill Lynch. The US broker raised its rating to "buy" from "neutral" and told investors there are signs that a modest recovery is under way for the group's key US and UK markets. Merrill believes that IP is close to resolving some of the problems at its loss-making US power plants.

We know that there is a massive bull position in MFI, as a raft of investors continue to hold the stock in the hope of a bid for the furniture retailer. But yesterday a group of bears moved in on the shares, spreading talk that trading is particularly tough at MFI and that downgrades to analysts' forecasts may soon be required. MFI dropped 2.25p to 137.75p in response. Elsewhere in the sector, Courts Furniture crashed 19p to 80.5p on talk the company is locked in a dispute with its suppliers. The troubled group is presently in the hands of its bankers as management struggle to fend off a cash crunch at the retailer.

TBI added 0.5p to 65p despite news that French construction group Vinci, TBI's biggest shareholder, has been busy selling down its holding. Vinci disclosed the sale of 22 million shares, leaving it with a stake of 56.5 million, or 10 per cent. It has long been rumoured that the French group is keen to reduce its holding in TBI. Some in the market hoped that it would sell its stake in one tranche to a single player who could then use it as a launch pad for a takeover bid. Such a scenario can now be pretty much discounted by investors, say analysts.

Patientline dropped 13p to 144p after HG Capital, one of the group's early stage venture capital backers, sold its entire stake in the company. HG disposed of 9.5 million shares, or a 10.5 per cent stake in Patientline, at 110p through broker Evolution Beeson Gregory. The stock was placed with various institutions. Mears, the support services specialist, jumped 7p to 176p after securing a 7-year contract with Sheffield City Council worth up to £200m. The contract win is by far Mears' single biggest success and takes the group's order book to an impressive £750m.

MARKET MOVERS

Minerva 323.5p (up 77.75p, 31.6 per cent). The property group confirms it has received a takeover approach.

Capital Radio 467.5p (up 24p, 5.4 per cent). Rumours of a tie-up with rival GWR return. Meanwhile, Capital's chief executive is heard to be in the US meeting institutional investors.

Shaftesbury 269.5p (up 12.25p, 4.7 per cent). The property sector is set alight by the news of a bid for Minerva.

St Modwen Properties 291p (up 8p, 2.8 per cent). Reports a 23 per cent jump in first-half profits.

DFS Furniture 425.75p (up 10.25p, 2.4 per cent). The group secures a legal win in the House of Lords in its battle with HM Customs & Excise.

Supporta 54.5p (up 17p, 45.3 per cent). The group's shares are suspended as it enters into negotiations aimed at a reverse takeover.

NeuTec Pharma 495p (up 135p, 37.5 per cent). Mycograb, the group's treatment for life-threatening fungal infections, successfully completes clinical trials.

Jarvis 42p (up 8p, 23.5 per cent). K Capital, the US hedge fund, raises its stake in the group to 25.2 per cent.

Pace Micro 58p (up 10p, 20.8 per cent). Returns to the black to the tune of £3.9m, compared with a £50m loss a year earlier.

EasyJet 143.5p (down 6.5p, 4.3 per cent). Major shareholder Stelios Haji-Ioannou plays down talk that he plans to take the airline private.

Alliance UniChem 662.5p (down 27.5p, 3.9 per cent). Bid speculation subsides.

Thus Group 17.25p (down 1.25p, 6.7 per cent). Investors continue to exit the stock after last week's profit warning.

Big Food Group 86.25p (down 2.75p, 3.1 per cent). Trading statement from the convenience food group disappoints.

Drew Scientific 4.62p (down 1.38p, 23.0 per cent. The board advise shareholders to accept revised all-paper offer from Escalon.

Worthington Group 2.75p (down 0.5p, 15.4 per cent). Posts a full-year loss of £2m compared with a profit of £600,000 a year earlier.