Japan stock market week to Oct 30, 2006

Tokyo saw a correction in the week to October 30. The Nikkei 225 dropped 2.6% to close at the 16,300 level, the lowest since October 4, while the Topix index declined 2.3%. This was in part caused by investor caution about the recently-powerful rally. Additionally, players retreated from buying international blue chips due to concerns about the slowdown of the US economy and the yen's appreciation against the US dollar in the review week. In contrast, domestic economy-oriented issues and defensive plays showed relatively solid performance.

The pharmaceutical index lost 1.8%, but outperformed the market. Daiichi Sankyo inched up 0.6%, as it raised its projection for the first half of the fiscal year ending March 2007. The new estimate forecasts a year-on-year 7.5% increase in turnover to 485.5 billion yen ($4.13 billion) or 5.5 billion yen higher than the original estimate and a year-on-year 2.9% fall in operating income to 78.0 billion yen, or 13.0 billion yen higher than the initial forecast. The reasons for the upward revision include the better-than-expected sales in the USA of the anti-hypertensive agent olmesartan (brand name Benicar) and lower-than-expected costs and expenses as a result of streamlining efforts. Daiichi Sankyo's share action also reflected an announcement in the previous week, together with Eli Lilly, that in a Phase I study the new anti-platelet agent prasugrel with a 60mg loading dose achieved faster onset of activity and greater inhibition of platelet aggregation than the approved 300mg loading dose of clopidogrel (Plavix) or a higher 600mg clopidogrel dose. Both companies are currently undertaking a Phase III head-to-head study of prasugrel compared with clopidogrel involving 14,000 patients.

Chugai dropped 9.3%, reflecting the fact that it had reported a year-on-year decline in turnover and earnings for the first-nine months of the fiscal year ending December 2006 due to a setback for its mainstay product Epogin (epoetin beta), a treatment of renal anemia in end-stage renal disease and the anti-influenza agent Tamiflu (oseltamivir). Results were basically in line with the company's projection. Sales slid 1.6% to 227.2 billion yen and operating income fell 30.8% to 39.5 billion yen.