Japan stock market week to May 21, 2007

Tokyo retreated moderately in the week ended May 21. The Nikkei 225 dipped 0.7%, to close at the 17,500 level following a daily decline for three sessions of the review week - despite a strong daily gain in the last day helped by strength of the Chinese market, while the Topix index was off 1.2%. Investors refrained from positive buying, looking at Japanese companies' generally conservative earnings projections for the current fiscal year. Disappointing economic data also discouraged players. Machinery orders in March dropped a seasonally-adjusted 4.5%, a sharper decline than the market's expectation. Moreover, Japan's Gross Domestic Product in the January-March period grew at an annualized rate of 2.4%, indicating a slowing from the 5.0% growth in the previous quarter, reflecting the slower corporate spending. The pharmaceutical index was down 1.2%, slightly underperforming the market.

Astellas gained 1.0% after it reported earnings results for the fiscal year ended March 2007, exceeding its target, on growth in sales of principal products in global market and the effect of the weaker yen (see page 7). Turnover increased 4.7% to 920.6 billion yen ($7.55 billion), even though the drug reimbursement price cuts in April 2006 and the transfer of the over-the-counter medicines company Zepharma reduced sales to some extent. Operating income edged down 1.3% to 190.5 billion yen but exceeded the plan. Net income climbed 26.7% to 131.3 billion yen, due to a decrease in net extraordinary expenses. Global sales of the immunosuppressant Prograf (tacrolimus) grew 20.2% to 175.4 billion yen, while those of Vesicare (solifenacin), for the treatment of urinary frequency and incontinence associated with overactive bladder, surged to 36.2 billion yen from 14.8 billion yen a year ago.

Shionogi went down 1.4%, reflecting its report of a year-on-year decline in profits, in line with its downward revision in April due to the impact of the drug price cuts on its Japanese sales and higher expenses. Sales were up 1.7% to 199.8 billion yen. Some core products in Japan decreased but royalty obtained from licensee AstraZeneca on Crestor (rosuvastatin) for the treatment of hyperlipidemia contributed to the sales growth. However, operating income declined 1.2% to 28.9 billion yen, due to a rise in R&D and marketing expenses. Royalty revenue on Crestor expanded to 19.4 billion yen, exceeding the plan of 18.5 billion yen and up from 8.1 billion yen a year earlier.