Stock Commentary - New York - week to July 16, 2007

NEW YORK: after a negative start on retail and household sector earnings warnings, the Dow Jones pushed forward to end the reporting week to July 16 up 2.2% and looking to break through the 14,000 level. Ahead of the second-quarter results reporting, pharmaceutical and biotechnology stocks were generally strong, with 25 of those tracked rising, 13 falling and one unchanged.

Prior to Schering-Plough's earnings report, Joseph Tooley of AG Edwards told clients that better-than-expected growth of the Zetia (ezetimibe)/Vytorin (ezetimibe and simvastatin) franchise, combined with higher international sales of Remicade (infliximab), have led him to increase his earnings per share estimate $0.01 to $0.31, though it is still $0.02 below consensus, as is his new full-year 2007 forecast of $1.27. Mr Tooley also said that he is waiting for further clarification about Organon's contribution. The firm is well-positioned for growth, first because of its cholesterol franchise and then by an emerging pipeline, he noted, but, at current prices, S-P's high relative valuation and heavy dependence on its cholesterol drugs represent a somewhat higher risk/reward profile. He has a hold/ aggressive rating on the stock, which was up 6.9% for the week. Noting that generic competition threatens the sales of King Pharma's top three drugs, Andrew Swanson of Citigroup downgraded the stock to sell from hold and cut his price target to $16 per share from $21. Generic rivals to Altace (ramipril) could come quicker than expected, and copies are also looming for Skelaxin (metaxolone) and Thrombin-JMI. The company has what he termed a broken business model, with few promising candidates in its pipeline. The stock was off 5.9% for the week. ImClone shares took a 4.7% dive after a Phase III study of Erbitux (cetuximab) for metastatic non-small cell lung cancer did not meet its primary endpoint, though the firm and its marketing partner Bristol-Myers Squibb (up 2.4%) said key secondary endpoints, including response rate, were statistically significant and favored the Erbitux-containing arm (see page 21). Most analysts agreed that the news was disappointing and that growth opportunities for the drug are now in question.