Japan stock market week to Aug 7, 2006

Tokyo saw a retreat in the week ended August 7. The Nikkei 225 lost 2.0%, to close at slightly above the 15,100 mark, while the Topix index was off 2.0%. Many institutional investors were on summer holidays and players basically took a wait-and-see stance, causing the market to stage a steep daily pullback on the last trading day. Concerns about a possible slowdown of the US economy, resurgence of a hike in crude oil prices and the yen's strength against the US dollar served as negative factors. On the positive side, continued reporting of solid first-quarter earnings of Japanese companies encouraged the market and drew buying attention on selected domestic demand-oriented companies.

The pharmaceutical index remained unchanged, outperforming the market. Shionogi dropped 4.8%, after it reported weak results for the first quarter of the fiscal year ending March 2007, with sluggish sales of prescription drugs overall, a cut in sales due to the absence of its capsule business and a hike in R&D expenses. Turnover fell 4.7% year-on-year to 46.2 billion yen ($401.9 million) and achieved only 47.6% of the first-half target. Operating income dropped 24.6% to 5.2 billion yen. Net income plunged 45.4% to 3.1 billion yen due, in part, to the absence of extraordinary income. In the first quarter of the previous year the 2.7 billion yen extraordinary income was achieved on the sale of capsule business to Carlyl group of the USA in October 2005. Astellas fell 3.3%, as it reported a steep decline in its first-quarter operating income due to a temporary hike in R&D expenses for in-licensing. Turnover expanded 8.1% year-on-year to 230.4 billion yen, achieving 52.6% of the first-half target. However, operating income dropped 64.0% to 23.5 billion yen, accounting for 34.6% of the first-half target. The fall in net income was 28.3% to 28.3 billion yen, reflecting extraordinary income of 21.2 billion yen for selling its over-the-counter drugs subsidiary, Zepharma, to Daiichi Sankyo. Global Revenues from the immunosuppressant Prograf (tacrolimus) leapt 29.9% to 41.0 billion yen, with growth in all regions.

Eisai inched down 0.2%, despite its favorable earnings for the first quarter due to growth of the firm's principal products in global market. Turnover was up 13.4% year-on-year to 153.9 billion yen and achieved 48.9% of the first-half target. Japanese sales were up a modest 2.6% to 70.9 billion yen due to the impact of the drug reimbursement price reduction, while overseas sales climbed 24.4% to 83 billion yen on volume growth. Operating income was up 7.4% to 24.1 billion yen and achieved 52.4% of the first-half target. Net income increased 6.2% to 15.8 billion yen, slightly less growth than operating income due to an expansion of net extraordinary expenses to 403.0 million yen from 205.0 million yen a year ago.