Stock Commentary - New York week to Feb 12, 2007

NEW YORK: equities drifted lower in the reporting week to February 12, not helped by weaker oil prices and concerns about the US housing market and mortgage loans. Pharmaceutical and biotechnology stocks were mostly down, with 24 of those tracked falling and 15 seeing a rise. Investors have shown caution recently when it comes to the drug sector, although fourth and third quarter company earnings generally met or exceeded expectations. Generic competition, new leadership at some firms, job cutting and the passage of some legislation in Congress that would permit Medicare to negotiate drug prices have weighed the scale towards the negative for many.

Although Affymetrix' just-reported earnings (see page 4) were much lower than in the same quarter last year, they were at least in the black and not the red, as they were in the previous quarter - and they beat analysts' estimates. Robert W Baird analysts held on to their neutral rating on the stock, and revised their estimates, raising their target price from $24 to $26. Others note that, while Affymetrix will still face pricing pressures in its discovery research products, the company has said that gross margins should return to the 60% level. Still others say that not many firms are as well-positioned to take advantage of the information gathered as a result of the sequencing of the human genome than Affymetrix. The stock was up 6.3% for the reported week. Watson got an added boost from its acquisition of Andrx when UK drug giant GlaxoSmithKline agreed to pay $35.0 million up front in exchange for a royalty-bearing license for a patent covering Wellbutrin (bupropion; see page 20). Over a year ago, Andrx sued GSK, alleging that its Wellbutrin infringed on a patent owned by Andrx, which Watson purchased last year (Marketletter November 6, 2006). The stock rose 2.9% for the week. Bristol-Myers Squibb shares fell on reports that rumored merger talks with France's Sanofi-Aventis had fallen apart. B-MS' valuation, as well as the start of a court case relating to the jointly-sold blockbuster drug, Plavix (clopidogrel), were mentioned by some as the reason, with one analyst saying that no deal is likely until the Plavix patent case is resolved. The stock fell 4.0%.