Japan stock market week to July 24, 2006

Tokyo saw a continued retreat in the week to July 24, although the extent of the decline was more moderate than in the previous week. The Nikkei 225 closed down 0.3%, at a level below the 15,000 mark, while the Topix index lost 0.5%. The market rallied temporarily in the middle of the week, but investors saw that this as technical rebound. Sentiment in general remained weak, with possibility of continued downside risk due to a lack of positive news developments and uncertainties about the direction of crude oil prices and the situation of the Middle East. The weakness of New York markets caused Japanese high-technology shares to encounter selling pressure, and the tighter monetary rein in China triggered selling of China-related stocks, including steels and machinery.

The pharmaceutical index advanced 3.0%, significantly outperforming the market. Chugai leapt 8.9%, supported by its favorable flash earnings report for the first half of the fiscal year ending December 2006, with the less than forecast year-on-year fall in earnings. Operating income dropped 30.6% to 27.7 billion yen ($238.2 million) but overshot the initially forecast 23.5 billion yen (down 41.1%). Sales of its mainstay anti-anemia agent Epogin (epoetin beta) fell 6.6% to 31.0 billion yen, below the target, due to the introduction in April 2006 of the flat-sum reimbursement system for dialysis treatment. Turnover of Tamiflu (oseltamivir) decreased 29.7% to 16.3 billion yen, reflecting the fact that the latest influenza season was more moderate than a year ago. However, Tamiflu's turnover was significantly better than the forecast of 14.9 billion yen, thanks to the larger-than-anticipated supply to the government for stockpiling. Revenues from Neutrogin (lenograstim), a treatment for neutropenia, expanded 10.7% to 16.5 billion yen.

Daiichi Sankyo climbed 5.7%, after its subsidiary, Daiichi Sankyo Europe, and US drug major Eli Lilly signed a marketing and distribution agreement for Evista (raloxifene), the selective estrogen receptor modulator for the treatment and prevention of osteoporosis, in certain European countries. With the addition of Evista, Daiichi Sankyo plans to strengthen its European business.