Stock Commentary - New York week to Jan 30

NEW YORK: equities reversed their previous week's downturn, with the Dow Jones gaining 2% in the reporting period to January 30. Drug and biotechnology stocks were mainly higher, with 30 of those tracked rising and 14 falling. With earning reports now in full swing and squabbles over the Medicare prescription problems, some analysts feel that the dark skies over the health care sector are finally breaking up - or at least that investment risk is largely priced into the shares already. These same Wall Street watchers indicate that they are looking for M&A activity to pick up as the big-capital pharmaceutical companies look to fatten up their product pipelines. And, given the economic slowdown that some are predicting, health care stocks are the classic defensive move that also allows for growth and earnings expansion. And one possible good bit of news for the sector that emerged from the State of the Union message is President George W Bush's call for making the R&D tax credit permanent.

Drug major Schering-Plough's return to profit (see page 2) failed to inspire investors who were looking for better figures, despite up-beat statement from chief executive Fred Hassan, who also said that the firm is now on the lookout for "affordable" new product acquisitions. The stock fell 2.5% on the day of the results release, January 27, but ended the week just 0.7% lower. ImClone Systems, up 6.0%, put itself up for sale (Marketletter January 30) and, while Bristol-Myers Squibb, which markets its Erbitux (cetuximab) in the USA, is the most logical bidder, possible other bidders include Pfizer, Johnson & Johnson and Germany's Merck KGaA, which markets Erbitux in Europe. David Molowa, a UBS analyst, said the company is an attractive acquisition candidate, based on anticipated sales growth of Erbitux, although he noted that sales of the cancer drug could fluctuate this year as it will now face new competition from Amgen's P-Mab. Affymetrix, down 4.4%, is seen as trying to fix its poor manufacturing yields for new arrays that disappointed some customers, but some analysts still doubt its ability to meet the figures in its revenue guidance, because instrument turnover is expected to drop.