Japan stock market week to April 27, 2009

Tokyo weakened, with a modest retreat in the week ended April 27, following a flat market in the previous reporting period. The Nikkei 225  fell 2.2%, to close at the 8,700 level, while the Topix Index was down  1.8%. The market was directionless due to a lack of fresh trading ideas  and approaching the "Golden Week" holidays. Investors took a  wait-and-see stance ahead of full-fledged reporting after the holidays  of Japanese companies' earnings reports for the fiscal year ended March  2009. On the last trading day, the reported outbreak of swine flu in  Mexico, the USA and other countries (see page 3) caused players to worry  about its negative impact on global economies. Meanwhile, auto and other  export-oriented issues lost ground because of the yen's rise. The  pharmaceutical index lost 2.1%, performing in line with the market.

However, Chugai significantly outperformed the drug sector, finishing  the week with a 9.7% advance, including a daily 14.0% rise in the last  trading day, reflecting investor attention on the firm in relation to  swine flu because it imports from Swiss parent Roche and markets the  influenza drug Tamiflu (oseltamivir). Additionally, the company reported  favorable results for the first quarter of the fiscal year ending  December 2009 on growth of oncology products in Japan and an increase in  non-operating income related to a gain on forward foreign exchange  contracts concluded to cover the risk of foreign exchange transactions.  Turnover was up 43.1% year-on-year to 94.7 billion yen ($975.4 million)  while, after excluding the antiviral and other revenue, sales rose  12.6%. Operating income surged 73.3% to 17.5 billion yen and net income  leapt 106% to 13.8 billion yen. Sales of Tamiflu jumped to 20.4 billion  yen from a mere 1.6 billion yen a year earlier, reflecting the massive  supply to the government for stockpiling worth 14.4 billion yen (versus  200.0 million yen a year ago). Sales of oncology products overall  expanded 36% to 25.7 billion yen, achieving the top market share of  17.3% in the sector. Avastin (bevacizumab), a humanized anti-VEGF  monoclonal antibody, contributed 6.7 billion yen revenue, up 148.1%.  Chugai's share performance was not affected by Roche's negative report  that the Phase III study of Avastin in early-stage colon cancer did not  meet primary its endpoint (Marketletter April 27) . The trial, named  NSABP C-08, evaluated Avastin plus chemotherapy for the treatment of  colon cancer immediately following surgery (adjuvant therapy) compared  to chemotherapy alone. Chugai markets Avastin in Japan for the treatment  of advanced and recurrent colorectal cancer.