Japan stock market week to May 19, 2008

Tokyo staged a rally in the week ended May 19. The Nikkei 225 advanced 3.8%, to close at the 14,200 level, while the Topix index rose 4.6%. The solid performance of Tokyo was aided by a report that Japan's Gross Domestic Product in the January-March 2008 period grew an annualized 3.3%, better than had been projected. There was relatively limited impact on Asian markets of the powerful earthquake in China and the slowed appreciation of the yen was also supportive. Natural resources-related companies with favorable earnings prospects, such as steels and mining, as well as trading companies drew buying attention. The pharmaceutical index was up 4.4%, slightly outperforming the market.

Astellas leapt 8.1% after it reported strong earnings in the fiscal year ended March 2008, thanks to growth of the immunosuppressant Prograf (tacrolimus) and the positive impact of the weaker yen against the US dollar. Turnover was up 5.6% to 972.6 billion yen ($9.31 billion) and operating income was up 44.8% to 275.9 billion yen, exceeding the plan of 269.0 billion yen. Global revenue from Prograf was up 15.8% to 203.0 billion yen and global sales of Vesicare (solifenacin) for the treatment of urinary frequency and incontinence associated with overactive bladder climbed 65.8% to 60.1 billion yen. For the fiscal year ending March 2009, the company anticipates that operating income will be down 15.9% to 232.0 billion yen due to the effect of the National Health Insurance drug reimbursement price cut, a higher yen against the dollar and euro and likely slowing in US sales of Prograf due to its patent expiry in April this year.

Eisai gained 6.6%, despite reporting results in line with its revision in April to reflect the impact of the acquisition of MGI Pharma in January at a cost of $3.94 billion (Marketletters passim). Operating income plunged 83.1% to 17.7 billion yen, due to a surge in R&D expenses to 225.4 billion from 108.3 billion yen a year ago with the recording of MGI products' in-process R&D expenses. On the positive side, global revenue from Aricept (donepezil) for the treatment of Alzheimer's disease was up 15.1% to 291.0 billion yen and turnover of Aciphex/Pariet (rabeprazole), a proton pump inhibitor anti-ulcer drug, edged up 0.9% to 175.9 billion yen. The company projects that, for the next fiscal year, operating income will recover to 93.0 billion yen from 17.7 billion yen a year earlier without one-time recording of in-process R&D expenses.