John Dance

Member Article

GlaxoSmithKline falls on pipeline concerns

Today saw the first of this year’s EU meetings with Merkel and Sarkozy (the pair now known
as “Merkozy”) meeting in Berlin. The agenda included a discussion on the fiscal compact agreed at
the last meeting in December, with hopes that these will be ready to take to an EU wide summit on
the 30th January.

The foreign exchange markets foretold us that there was little in the way of positive developments
expected, with the Euro hitting a new 15 month low against the dollar and an 11 year low against
the Japanese yen overnight. Similarly, overnight deposits at the ECB hit yet another high on Friday
night, the parking of €463.57 billion a sign that institutions are still reluctant to lend money, as was
hoped from the ECB’s 3 year LTRO in December.

Highlighting fears in the market, a German 6-month bills auction went worrying well today; the yield
of -0.0122% effectively meaning people were paying Germany to lend it money! Whilst the position
is favourable for Germany (it has earned money by borrowing it), the inversion of debt markets
(which has never been seen before in Germany) highlights that institutions are prepared to pay a
significant premium for liquidity in what is evidently a highly uncertain environment.

European indices opened roughly flat to marginally lower, holding that level for most of the day until
mid afternoon where there appeared to be a noticeable shift to risk aversion. It may have resulted
from “Merkozy” statements which piled the pressure on Greece, claiming that a loan backed by the
IMF and EU is on hold until the Greek’s conclude debt restructuring talks and enact fiscal reforms.
The FSTE ended the day 37 points, 0.7% lower, at 5612.

GlaxoSmithKline was one of the biggest fallers on the index, the UKs biggest drug maker under
pressure following an update on a Phase III trial of Relovair, a drug for Asthma and COPD. The results
seemed mixed and although the company will file for regulatory approval in the summer of this year,
the drug failed to show superiority to its predecessor Advair, currently GSK’s biggest selling drug
with revenues in excess of £5 billion. With reports of fatal pneumonia in some studies, and a strong
share price performance in the last few months, the shares sold off to the tune of 4.1%, finishing
down by 62p to 1435p.

This was posted in Bdaily's Members' News section by John Dance .

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