Stock Commentary - Europe - week to Nov 13, 2006

EUROPEAN: bourses gyrated through the reporting week to November 13, but all the markets followed ended the period with gains of some kind. Drug stocks, especially those with significant US business exposure, were hit hard on confirmation of sweeping Democratic victories in the US mid-term elections, since a change of power in both houses of Congress is expected to result in a harsher environment for the sector (see also page 13). In ZURICH, there was a double whammy for Novartis, which fell 5.0% on the week, after it was revealed that its anti-diabetes drug candidate Galvus (vildagliptin) had had its US Food and Drug Administration review period delayed for three months (see page 20). Actelion slumped 7.0%, after announcing it had sold 460.0 million Swiss francs ($369.9 million) in zero-coupon convertible bonds, due 2011 to fund strategic growth opportunities. In FRANKFURT, drug majors Bayer and Merck KGaA dipped 0.5% and 0.4%, respectively, impacted by the drug stock sell-off rather than individual news, although the former also announced a restructuring of its combined Bayer Schering Pharma business in the USA, with 800 job cuts expected (see page 3).

LONDON: share prices moved lower on four of the reporting days, leaving the FTSE 100 down 0.5% overall. AstraZeneca and GlaxoSmithKline were 4.7% and 3.5% lower, respectively, on fears that a Democratic-led US Congress would put pressure on drug prices. Protherics slumped 11.4% on the news that the US FDA has requested additional manufacturing data on the firm's Voraxaze (carboxypeptidase G2; Marketletter November 13), delaying the drug until 2008.