Japan stock market week to July 3, 2006

Tokyo saw an accelerated advance in the week ended July 3. The Nikkei 225 rose 2.8% to close at the 15,500 level, while the Topix index was up 2.9%. The market staged a robust rally mid-week, with buying of a broad range of stocks helped by the recovery of New York markets and reports of Japan's positive economic indicators. The consumer price index in May increased 0.6% year-on-year, showing the steepest growth since March 1998, and suggesting that deflation is receding. The Bank of Japan's business sentiment survey for the April-June period indicated that companies are forecasting double-digit growth in capital expenditures for the current fiscal year.

The pharmaceutical index ended 2.4% higher, slightly underperforming the market. Hisamitsu leapt 9.4%, as it reported strong earnings for the first quarter (March-May 2006) of the fiscal year ending February 2007 thanks to continued growth of the mainstay Mohrus Tape, a prescription anti-inflammatory patch (containing ketoprofen), overcoming the average 7.3% drug reimbursement price reduction in April 2006. Turnover was up 11.8% year-on-year to 27.4 billion yen $238.4 million), operating income expanded 16.5% to 6.4 billion yen and recurring income rose 14.3% to 6.7 billion yen. Turnover of Mohrus tape grew 13.8% to 13.4 billion yen and over-the-counter anti-inflammatory agents also increased.

Takeda gained 2.8%, reacting to its conclusion with Affymax of the USA of a comprehensive global agreement on Hematide, synthetic peptide-based erythropoiesis-stimulating agent for the treatment of anemia. Both companies will collaborate on the development and co-commercialization of Hematide in the USA, while Takeda will have an exclusive right outside that country, including Japan, based on a previous agreement concluded in February. The share action was not negatively affected by the ruling of the Osaka Regional Taxation Bureau requiring Takeda to pay additional taxes due to its transfer pricing of the anti-ulcer agent lansoprazole with TAP, its US joint venture with Abbott Laboratories. The Bureau contends that profits earned in the USA from the product's transactions between Takeda and TAP were under-allocated to Takeda for the six-year period (the fiscal years ending March 2000 to March 2005). The assessed income in the notice is 122.3 billion yen and the total additional tax is about 57.0 billion yen. Takeda disagrees with the notified correction and is set to seek legal procedures so that it is revoked.