Stock Commentary - New York week to May 15, 2006

NEW YORK: equities moved up and down during the reporting week to May 15, with particularly heavy falls on May 11 and 12, depressed by rising commodity prices and, following a 25 base point increase in the interest rate, indications from the Federal Reserve Bank that more could be on the way. The Dow Jones ended the week 1.3% lower, with 29 of the drug and biotechnology stocks tracked declining, 11 rising and one unchanged. However, pharmaceutical stocks did well on the last day, on the news that UK-based AstraZeneca was buying the remaining 81% of Cambridge Antibody Technology at a near 70% premium, heightening speculation of further merger and acquisition activity (see page 3).

Investors reacted well to two pieces of news for Vivus, which leapt 41.7% on the week. The first boost came after the company announced positive Phase II clinical trial results for its obesity drug Qnexa (phentermine and topiramate; see page 28). Then, shares took off again after the firm said it would sell $12.0 million of its stock to two institutional investors. Some of the proceeds from the financing will be used to fund clinical trials, including studies required before the start of a Phase III. Investors also liked a report put out by David Witzke of Bank of America, who reaffirmed his buy recommendation on ImClone Systems, which rose 11.6%, noting its good pipeline of drugs for cancer treatment. The stock hit a new 52-week high on the news. While everyone knows about Erbitux (cetuximab), ImClone has several specific drugs under development, he said, and the cancer pipeline is underappreciated. Noting that Wall Street is overly pessimistic on the potential for the firm to be acquired, he also kept his 12-month target price for the stock at $48. However, investors walked away from Barr Laboratories' shares, which fell 11.3%, after the US Patent and Trademark Office said it would not reissue its patent on Seasonale, which probably means generic competition for the contraceptive. Watson's 10.9% decline came after the company posted a 35% drop in quarterly profit. The group is seeing continuing declines in prescriptions for its non-promoted brand products and pricing pressure in its generic business.