Stock Commentary - New York week to Jan 21, 2008

NEW YORK: equities escaped relatively lightly in the reporting week to January 21, with markets closed on the last day for the Martin Luther King holiday when most of the rest of the world saw share prices plummet on the back of worries about the US economy and the credit crisis. The Dow Jones ended the period 5.3% lower, having fallen on four consecutive days. With the fourth-quarter and full-year 2007 reporting season just beginning, drug and biotechnology stocks were out of favor, not helped by comments from Goldman Sachs analysts that total prescription drug growth is slowing. In the first week of this year, this was down 9% year-on-year, they said. Of stocks tracked, 32 were down and just seven saw a rise.

Forest Labs jumped 9%, helped by expectation-beating fiscal third-quarter results (Marketletter January 21), which the company attributed to the performance of Lexapro (escitalopram) and Namenda (memantine). Forest also said wholesalers stocked more inventory of these drugs at the end of December. The bad news is that both will soon lose patent protection, with generic drugmakers already chomping at the bit. Elliot Wilbur of Oppenheimer feels the shares will hover at about the current price until there is some surety that drugs in development and ones recently-launched will succeed, including Bystolic (nebivolol), noting there is little confidence that the company will succeed in its promise to "more than replace" earnings from products whose patent are expiring. On the other hand, David Windley of Jefferies & Co, who has a buy rating on the stock and a price target of $50, says that investors are overlooking the value of Forest's pipeline. Schering-Plough and Merck & Co continue to see the fallout from the results of the Vytorin (ezetimibe and simvastatin) study (Marketletter January 21 and page 6 this issue), with the former stock off 16.6% and the latter down 10.8% last week. Chris Schott of Banc of America Securities told clients he was dropping his Vytorin sales forecasts $200.0 million to $400.0 million per year between 2008 and 2012. He also cut his S-P price target $2 to $30, maintaining a neutral rating on the stock. About 70% of the firm's earnings depend on Zetia (ezetimibe) and Vytorin, say analysts.