Big pharma was under pressure yesterday as brokers voiced concerns about the challenges ahead for London’s drug giants.

Analysts at Goldman Sachs, the US investment bank, argued that both AstraZeneca and GlaxoSmithKline, along with other sector peers, must become more active in developing new drugs as the challenge from generic versions of their products increases.

The broker downgraded AstraZeneca to “sell” from “neutral” and cut its target price to £25.00 from £26.78, arguing that the stock was unlikely to outperform its peers as the wider market recovers and investors begin to assess the significant strategic longer-term challenges facing the company. Shares fell 76p to £25.66.

Goldman also has a “sell” rating on GlaxoSmithKline for similar reasons.

GSK, down 26p to £12.54, was hit after Exane BNP Paribas double downgraded the stock to “underperform” from “outperform”, noting that the company had been supported recently by the appointment of a new chief executive but was entering a more risky period with 2009 likely to be heavily affected by generics. Moreover, it added that there was little room for good surprises from near-term news flow on research.

Fellow drugs group Shire fell 12p to 915½p.

Overall, the FTSE 100 index lost 47.8 points to 5,318.4, dragged down by the embattled retail sector and continuing weakness in banks.

Wm Morrison, the supermarket chain, was the index’s heaviest faller, down 16½p to 253¾p, despite reporting first-half profits in line with expectations, with the City concerned about margins. The group was also hit by disappointing results elsewhere from the likes of Argos owner Home Retail Group, down 13¾ to 228p, and privately held store group John Lewis. Downbeat comments about the health of the high street also sent J Sainsbury 21¾p lower to 345¼p, Kingfisher, off 7.4p to 130.1p, and Marks & Spencer, 7¾p lower at 240p.

Banks continued to suffer from the fallout of losses at Lehman Brothers, the US investment bank, with some questioning whether it could survive. HBOS fell 13p to 286¾p, Royal Bank of Scotland lost 5¾p to 234¼p and Barclays was 8p lower at 338½p.

The blue-chip index’s losses would have been greater had it not been for a resurgent mining sector, which regained ground lost after weeks of being sold off. Analysts at Cazenove commented that the sector had witnessed its sharpest one-month fall since 1997 and the third-sharpest fall in its history. However, Cazenove believes the sell-off to be overdone, with declining metal prices more than offset by weakness in producer currencies and sterling. Anglo American led the index up 113p to £23.08, Xstrata gained 50p to £22.75p and Kazakhmys rose 15½p to 840½p.

In the FTSE 250, Informalost 20¾p to 369¾p amid speculation that the private equity consortium stalking the company would be unable to raise their 450p-per-share offer, although sources close to the bid said they continue to explore the possibility.

— New York: Shares on Wall Street made a rousing comeback from early losses as investors snapped up the stronger players in the financial sector. The Dow Jones industrial average closed at 11,433.70 points, up 164.80.

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