29 March - 4 April 2001

Investors Corner

The Market
Leading shares in London closed sharply higher on Friday, recouping a chunk of the previous day’s savage sell-off, but were well below their best levels for the day as investors looked cautiously towards the fairly volatile morning session in New York. By the close, the FTSE 100 index was 87.5 points firmer at 5,402.1, having stayed in positive territory all session – although that was below its early afternoon peak at 5,438.0. All the broader FTSE indices also sported good gains – with the techMARK 100 index standing out, ahead 72.38 points to 1,936.98 as Nasdaq extended its rally.
UK blue chips bounced back from the start on Friday, recovering from the horrendous falls of the past week – and most especially the previous day’s hefty 225 point slide, which was its biggest one-day points fall since the ERM crisis of 1992 – after Wall Street pulled back from the edge of the abyss overnight. A strong rally from semiconductor issues in New York had pulled the Nasdaq around from earlier losses, while the DJIA ended well above the day’s worst levels as bargain hunters moved in on selected stocks in the last hour of trade.
Hard-hit telecom, media, and technology issues fuelled the rally in London, bolstered by Nasdaq’s overnight bounce. However, with no key economic data released in either the UK or the US, and little corporate news around, the advance mainly just reflected a bargain-hunting relief rally at the end of a pretty desperate week. As the rally built up steam through the morning session – albeit on fairly volume – the momentum took the FTSE 100 index up to its peak for the day at 12.34pm. But the path from then onwards was downhill, with UK blue chips drifting back in early afternoon trade, nervously eyeing Wall Street’s restart for fresh direction.
In the event, such caution was justified at New York’s open, with the Nasdaq composite index pushing higher from the start, but the DJIA putting in a volatile early performance, dropping back after a modest opening gain as industrials and consumer cyclical stocks were cold shouldered in favour of technology issues. However, the wobble in New York and London was overcome in late trading, with the DJIA rallying strongly, and the FTSE 100 index managing to push back above the 5,400 level. By London’s close, the DJIA was 76.86 points firmer at 9,466.84, while the Nasdaq composite index was 32.45 points higher at 1,930.15.
Among blue chip technology gainers, Logica topped the FTSE 100 gainers list, advancing 136 pence to 1,076, while CMG added 24-1/2 at 631-1/2, and Misys firmed 28-1/2 at 505 as they all recovered after recent individual and sector downgrades by Merrill Lynch earlier this week. RISC-chip maker ARM Holdings bounced back 32 pence to 327, helped by strength from semiconductor stocks in New York.
Telecom issues were also firm, though news of UBS Warburg’s swingeing downgrade to “sell” from its previous “strong buy” recommendation kept Colt Telecom off its earlier position at the head of the FTSE 100 gainers list – though it was still 92 pence higher at 830. Telewest rallied 12-3/4 pence higher to 117 after its results’ announcement, while Cable & Wireless gained 14 pence at 444, and Energis added 24 pence at 294.
BT, up 38 pence at 507 was also in focus after a further batch of press comment. The Financial Times suggested that BT is set to raise £2 billion via a sale of its property estate by early summer, six months ahead of plan. Meanwhile, the Times has pointed out that BT’s debt now almost exceeds the group’s market value – £30.8 billion compared with £30 billion.
Market heavyweight Vodafone also rallied, but eased off an early peak, gaining 1-1/4 pence at 194-1/4 with the Daily Telegraph reporting that the firm is set to launch a formal bid for Cable & Wireless Optus of Australia. Even Invensys, managed to reverse its weak opening trend, rallying 4-3/4 pence at 121 despite the Financial Times suggesting that the planned flotation of its power systems business could be derailed after a profits warning. The group managed to shrug off a raft of negative broker recommendations, including Goldman Sachs’ downgrade to “market outperformer” from “Recommended List” and Schroder Salomon’s “underperform” advice, with a 115 pence price target. Only Deutsche Bank came out in favour, revising its stance to “market perform” from “market underperform”.
Elsewhere, banking issues also rallied helped by the brighter trend in the market, with Abbey National standing out – up 65 at 1,057, boosted by news of an upgrade in stance by Deutsche Bank to “buy” from “market perform”. Fund management firms Schroders, up 81 at 975, and Amvescap, ahead 86 at 949 also benefited from good sentiment as the stock market rallied. On the downside blue chips, “old economy” profit taking provided the majority of fallers.
Oil issues were lower, knocked by an easing of the price of crude overnight, as concerns over demand in US refineries in the traditionally quieter second half – given the slowdown in the US and OPEC’s recent agreement to cut production – undermined sentiment. BP Amoco shares topped the FTSE 100 fallers list, losing 19-1/2 pence at 542-1/2, while Shell lost 5 pence at 540, with second liner Enterprise Oil shedding 12 at 550.
Energy groups were also in focus. PowerGen lost 4 pence at 710 after the Financial Times suggested that EON of Germany is poised to launch take-over bid which is unlikely to be pitched at more than 750 pence per share. Scottish Power, down 4-1/2 at 462 was knocked by news of a downgrade in rating by ABN Amro to “reduce” from “hold”. But International Power managed to gain 4 pence at 247 as the same broker hiked its stance to “buy” from “hold” after the blue chip firm’s well-received results earlier in the week.
Nycomed Amersham
Nycomed Amersham, the pharma and medical products group, reported that trading profit was £390 million, up five per cent, for the year to 31 December. Strong cash flow and the reduction in net debt following the sale of Pharma in 1999 have combined with favourable interest rate movements to reduce the net interest expense by £17 million to £10 million. Good trading margins in Imaging were offset by a decline in Amersham Pharmacia Biotech’s margins due to delays in launching two products, EttanTM MALDI-TOF and SNiPerTM, and investment in new sales and service infrastructure. It also increased its litigation spend to continue defending its intellectual property in sequencing.
Nycomed Amersham’s operating profit was £241 million, a decrease on last year due to a significant increase in the investment in R&D, with expenditure up 17 per cent to £149 million. The majority of the increase in R&D was in Amersham Pharmacia Biotech, with expenditure of £72 million, a growth of 35 per cent.
In addition, the Group made a £4 million early stage investment in the use of its own genomic platforms to potentially develop valuable diagnostic and prognostic markers. In particular, it is targeting prostate cancer and the possibility of genetic prediction.
Nycomed Amersham Imaging is continuing to improve the efficiency of its global manufacturing operations and is currently in the process of rationalising radiopharmaceutical production capacity. It recorded an £11 million exceptional charge in the second half to cover the costs of the rationalisation programme. The programme is expected to yield annual cost savings of £3 million from 2002. In Lindesnes, Norway and Cork, Eire, two major projects totalling £35 million to increase the manufacturing and packaging capacity for diagnostic contrast products are close to completion. The company expects to make regulatory filings before the end of 2001, further improving cost structure.
In Europe, sales decreased to £162 million, four per cent below last year due to market changes ahead of German healthcare reforms and a reduction in bulk sales. In Japan, sales grew 18 per cent to £168 million. This included sales of bulk substance to Daichi Pharmaceutical Co., the licensee in diagnostic contrast products and 50 per cent of sales by NMP.
Sales of radiotherapies decreased by eight per cent to £48 million, largely due to the introduction of many new competitors to the market. Through a combination of innovation and scale, the group is expected to maintain market leadership in this area. Additional claims have been submitted to the UK regulatory authority for the use of MyoviewTM in diagnosing breast cancer, and the feasibility of using ClariscanTM in differentiating cancerous from non-cancerous breast lesions is being evaluated in Phase II clinical trials.
Nycomed Amersham has added to its portfolio a new molecular diagnostic product, NeoSpectTM, that uses a radiopharmaceutical to identify the presence of a protein that only occurs in malignant lung tumours. European regulatory approval for NeoSpectTM was granted in December 2000, enabling marketing in early 2001 and complementing its presence (as NeotectTM) in the USA.
The group has also made significant progress in developing the Spin Signal Technology platform, originally based on hyperpolarised gases such as helium3 and xenon129, but now extended to carbon13 and nitrogen15 signals. It is evaluating helium and xenon in Phase I and pre-clinical trials respectively and is undertaking the research to augment carbon14 use with carbon13 for the drug discovery and drug metabolism markets. Through ImanetTM, an imaging research network recently established to exploit SST and Positron Emission Tomography (PET) capabilities, it is pursuing collaboration agreements with leading pharmaceutical companies who are seeking to license SST products for their R&D and marketing operations.
In Amersham Pharmacia Biotech, trading profit was £135 million, compared with £134 million in 1999. The trading margin of 22.4 per cent (1999 – 24.7 per cent) was affected by two principal factors. First, during 2000, it built up its sales and service infrastructure in line with the growth in the emerging markets of Asia and Latin America and the new technology markets in Drug Discovery such as mass spectrometry.
Second, it continued to vigorously defend its intellectual property in patent suits against Applera Corporation (formerly PE Corporation). In December it received a US court ruling that its patent on energy transfer dyes had been infringed; this case will now proceed to jury trial later this year. The increase in its R&D investment has enabled Nycomed Amersham to commercialise a significant number of new products over the last few years and created a strong technology pipeline from which it plans to launch several new products during 2001 and beyond.
In genomics, Nycomed Amesham also continued development of its reagent portfolio. New products to be launched over the next 12-18 months will include TempliPhiTM, for sequencing template preparation; SNuPeTM, for SNP analysis on MegaBACETM; and Direct Load, for more efficient loading of sequencing reactions onto sequencing instruments.
Nycomed Amersham took a further step towards the partial flotation of Amersham Pharmacia Biotech by filing an amended prospectus with the SEC. However, it subsequently announced that it will delay the flotation of its biotechnology arm on Nasdaq until market conditions improve over the next few weeks. Credit Suisse First Boston changed its recommendation from sell to hold because of the delay in the flotation. Williams de Broe also changed its recommendation from buy to hold.