Japan stock market week to October 9, 2006

Tokyo saw an accelerated advance in the week ended October 9 (four trading days only because the last was a national holiday in Japan). The Nikkei 225 gained 1.1%, to close at the 16,400 mark, the highest level since May 15, while the Topix index ended up 0.6%. The market suffered from heavy profit-taking of blue chips in the first two days of the review week but strengthened later, helped by the solid performance of New York markets and receding concerns about the US economy's slowdown. Investors bought-back blue chips in the high technology sector, while domestic economy-related stocks, such as banks and communications, sustained favorable performances.

The pharmaceutical index advanced 2.1%, outperforming the market. Astellas was the best performer, with a 7.6% leap reflecting the unveiling of its new mid-term five-year management plan finishing in the fiscal year ending March 2011 at its board meeting (see page 3). The plan was perceived as rational and realistic by investors and analysts. It forecasts turnover of 1,060.0 billion yen ($8.9 billion), against the estimated 902.0 billion yen in the fiscal year ending March 2007, and operating income of 280.0 billion yen (versus the forecast 180.0 billion yen), with planned annual R&D spending of 170.0 billion yen (compared with the projected 175.0 billion yen which included 40.0 billion yen in-licensing fees). The company anticipates a difficult operating environment due to the patent expiration of two of its main drugs, the immunosuppressant Prograf (tacrolimus) and Harnal (tamsulosin) for functional symptoms associated with benign prostatic hyperplasia. However, Astellas targets sustained growth in sales and earnings by expanding its global franchises in urology and organ transplant. It also expects to achieve the top market share in Japan with expanded turnover of six priority areas including cardiovascular and urology and looks for growth in North America for Vesicare (solifenacin), a treatment for overactive bladder.

Hisamitsu advanced 3.6%, reacting to its announcement of an upward revision of its forecast for the first half and full year of the fiscal year ending February 2007 based on better-than-expected turnover so far of the mainstay anti-inflammatory patch formulation drug Mohrus tape (containing ketoprofen) and the contribution of the new product in the over-the-counter area. The company now expects that the full year turnover will be up 4.3% year-on-year to 108.5 billion yen, or 1.4 billion yen more than the original forecast. Operating income is expected to rise 12.4% year-on-year to 25.6 billion yen, or 1 billion yen higher than the initial forecast. The extraordinary receipt of orders from wholesalers in line with the revision of the order receipt system at the end of August 2006 will also contribute to the above-forecast turnover and earnings.