Stock Commentary - New York week to Aug 25, 2008

NEW YORK: equities saw great deal of volatility over the two weeks to August 25, with more negative trading days than positives, leaving the Dow Jones 3.4% lower over the period. Although in the pharmaceutical and biotechnology sectors losers outweighed gainers by three to one, economic worries about housing, gas prices and the US banking system have helped take the pressure off drug stocks, according to some analysts, who are once again looking at the sector as a safe haven in tough times. In recent years, worries about generic competition, the approval of potential new blockbuster drugs, drug side effects and the possibilities of anything even remotely resembling price controls under a Democratic administration meant investors shied away from the sector, which under-performed. But the more global economic problems have put the positive spotlight back on the sector and its earning figures, fueled, among other reasons, by demographic trends. And within the sector, biotechnology companies, which have been better lately at developing new drugs and have more potential as takeover candidates, have been pushing aside drug companies in investors' eyes.

A takeover offer fueled Alpharma's 44% rise (see page 3). Although it has rejected King Pharmaceutical's bid, most analysts feel the company will lose its independence, albeit at a heftier price, through a higher bid or at auction. RBC Capital Markets has reiterated its outperform rating on Alpharma, and raised its target price from $36 to $40. King shares dropped as news of the bid was made public at the tail end of this two-week reporting period, but it ended up 4.8% overall. King believes the purchase will be accretive in the second year. Jonas Alsenas at Leerink Swann has again rated Amylin as outperform, noting that it should see its stock at $46-48 next year. Too much is being made of a pancreatitis concern for Byetta (exenatide; see page 20), and of competition from Novo Nordisk's liraglutide, said Mr Alsenas. He also expects good news in 2009 for its pramlintide/leptin combination. In general, Wall Street seems to have a positive outlook for Byetta sales and for the longer-acting version. Amylin ended off 16.5% while partner Eli Lilly's shares shed 3.1%.