16 - 22 December 1999

Investors' Corner

The Market

Leading blue chips ended the week on a positive note, boosted by a strong showing on Wall Street on the back of the benign US PPI data and intense interest in high street giant Marks & Spencer, as take-over talks resurfaced. The FTSE 100 index ended the Friday session 58.7 points higher at 6739.5 points, while volume was spectacularly high at 1.51 billion shares, swollen by frenzied activity in Marks & Spencer. Potential predator Tesco, which could certainly afford Marks & Spencer's £8 to £9 billion price tag, added 3 pence to close at 185.5 pence, as the speculation mounted.

Water stocks, which suffered a rout in trading recently, enjoyed a return to favour as brokers pointed out that the recent slide was overdone as industry giant United Utilities provided some well-needed cheer. United Utilities helped to lift the sector gloom by revealing that it will not re-base its dividend, much as many other players in the sector have been forced to do, and will float its Norweb telecom unit within the next 12 to 18 months.

Halma

Halma, the specialist engineering group, blamed the ongoing attempts to focus on its stronger operations for its dismal profitability performance in the six months to October 2. The group's chief executive argued that cash flow continued to be strong and, having spent £12.0 million on acquisitions during the first half, the group's net cash balance as at the end of the half year was £21.2 million. The businesses that were acquired during the year to March 1999 have all continued to perform very satisfactorily.

The cumulative impact of Halma's acquisition activities and re-organisations should become more apparent in the second half. These factors, allied to continuing resilient performances from many of the subsidiary companies, should provide a solid platform for the group's second half results. Analysts expect pre-tax profits to reach £45 million for the year, giving a forward PE of 13. Its markets are not exactly blooming, but it seems that Halma is getting the edge over its rivals with the best results in its sector.

Jarvis

Jarvis, the rail maintenance and construction group, reported a 45 per cent decline in pre-tax profits to £10.9 million. However, the increasing political and regulatory pressure to invest in the railway network should generate more work for rail maintenance companies such as Jarvis.

Jarvis' Specialist Road Services division is progressing in its international expansion with the development of joint ventures for its services in Croatia, Greece, Turkey, Israel, Chile, Poland, India and Central America. Meanwhile, the capital projects business has a strong order book; this will be strengthened by further business in the University sector where several institutions have announced their intention to outsource all or substantial parts of their student residential accommodation.

Jarvis' chairman has complained that the group has been affected by seasonal variation and a shortfall in track renewal activity. In addition, he believes that the market has also expected this and although the results for the period may appear disappointing, in comparison with the equivalent period last year, they are in line with market expectations.

Jarvis Projects division has been awarded preferred bidder status on six major new Private Finance Initiative (PFI) projects. The new projects include the construction, rebuilding or extension of new schools for six authorities, from Stirling in Scotland to Torbay in south west England, together, in most instances, with the related financing and ongoing facilities management. They also include the relocation and operation of the North Wiltshire local authority's council offices and, together, the contracts have a combined capital and whole life value of over £330million.

The North Wiltshire District Council scheme involves the relocation of six separate offices to a single site in Monkton Park, Chippenham. Jarvis will build the offices, which will have a development cost of £13 million, and will manage the ongoing services, including cleaning, security, catering and a creche, for a 25-year period. The whole life value of the contract is £50 million. Homelands & Westlands Schools is a flagship project for Torbay Council. Both Homelands Primary School and Westlands Bilateral Secondary School will be rebuilt by Jarvis at a cost of £16 million and will be maintained and serviced over a period of 25 years as part of a whole life contract worth £55 million.

The Trustees of Hampden Gurney Church of England School have also declared Jarvis preferred bidder for the £22 million contract to build a new school and housing on the site of the existing school in Harrowby Street in Westminster, the cost of the new school being financed from the sale of the housing units. The school and the first phase of the residential development are expected to be completed by summer 2001 and the second phase of the housing programme by December 2002. Meanwhile, Essex County Council has designated Jarvis as Preferred Bidder for the Debden Park High School project, which comprises the building, financing and operation over 25 years of a new secondary school on a green field site in Loughton, Essex. The development cost amounts to £16 million. The school will be completed in summer 2001. The whole life value of the contract is over £40 million.

The real growth in the future is expected to come from Jarvis' capital projects division, where turnover was up 61 per cent in the six months to 1 October This is because Jarvis is taking advantage on building work commissioned through the government's private finance initiative.

PowderJect Pharmaceuticals

PowderJect Pharmaceuticals, the needle-free drug delivery company, announced a loss of £7.7 million for the six months to September 30. PowderJect's chairman said that since the end of year the group has moved forward with its lead products and major collaborations with Glaxo Wellcome and Ares-Serono. He added that PowderJect has successfully completed a PowderJect Lidocaine Phase II clinical trial in children, and achieved important proof of concept in patients with PowderJect Alprostadil.

PowderJect Alprostadil, the company's male erectile dysfunction (MED) treatment, has made important advances during the period. PowderJect reported successful preliminary results of this key Phase II study in MED sufferers. The study follows previous positive results in healthy volunteers, and shows that at the appropriate device operating conditions PowderJect Alprostadil achieves a pharmacological effect in patients.

As indicated earlier, the company also announced that recently it has successfully completed a Phase II trial with PowderJect Lidocaine to identify the appropriate device operating conditions and particle size for paediatric use. PowderJect intends to maximise the long-term value of PowderJect Lidocaine by focusing development on a first regulatory filing for use in paediatrics and adult sensitive sites. It also plans to have further discussions with regulatory authorities before it is able to finalise its estimates for the timing of regulatory submissions for the product. Depending on the outcome of these discussions, pivotal Phase III clinical studies in children will start in 2001.

During the last few months, PowderJect has had discussions with potential conventional vaccines partners which have shown that the consumer-focused vaccines approach is welcomed. For instance, there is understanding of the commercial opportunity offered by the potential efficacy advantages and branding possibility of Powderject's influenza vaccine. As the group moves forward in the conventional vaccines area, it aims to retain certain marketing rights that are compatible with its consumer-oriented approach, while recognising that partners are well placed to exploit traditional marketing channels. It also aims to assess routes to get closer to the vaccines marketplace.

The PowderJect Influenza Vaccine, which has entered preclinical testing, is on target to enter clinical trials by the end of this financial year. The influenza vaccine market is substantial, with 1998 sales standing at approximately $340 million, which are forecast to almost double by 2004.

PowderJect's DNA vaccine collaboration with Glaxo Wellcome, which was signed in March 1998, is also progressing well. Development continues on the key projects within this collaboration, hepatitis B prophylactic DNA vaccine, hepatitis B therapeutic DNA vaccine, HIV therapeutic DNA vaccine and a further undisclosed therapeutic DNA vaccine.

PowderJect has also announced that a collaborative project initiated with Boehringer Mannheim in 1997 has drawn to a close. Following its acquisition of Boehringer Mannheim, F. Hoffmann-La Roche Ltd has examined its ongoing projects and priorities and decided not to proceed with this programme. PowderJect regains the right to license the PowderJect System for delivery of this undisclosed therapeutic protein. In addition, Roche and PowderJect continue to explore other product opportunities within the Roche portfolio for administration via the PowderJect System.

Meanwhile, PowderJect's collaboration with Ares-Serono is progressing well. The agreement, which was announced in February this year, covers protein drugs in the fields of immunology and reproductive health. These projects are moving ahead on schedule.

PowderJect's Smart ParticleTM research programme, which develops formulations to further enhance the performance of PowderJect medicines, has continued to progress well. At the end of September the group announced an agreement with Prometic Life Sciences Inc, a world leader in particle technology. This agreement gives it access to Prometic's unique, cost-effective production process for particles of uniform density and shape that are ideal for use in powder injection.

PowderJect has future potential but is not an investment for the feint-hearted, as analysts forecast losses for the year to reach £13 million.

Please note that the value of investments, and income (if any) yielded by them, may fall as well as rise, and you may not recover the full amount of your original investment. Past performance is not necessarily a guide to the future.

James DeBono can be contacted by e-mail: JamesDeBono@CompuServe.com