Stock Commentary - New York week to Nov 6, 2006

NEW YORK: equities drifted lower for the first four reporting days to November 6, falling below the recently-gained record 12,000 mark on November 3, before regaining that level with a 1% rise in the Dow Jones on the last day, leaving the index up 0.2% overall. Trading that day was boosted by bargain-hunting and takeover activity, including Abbott Laboratories' acquisition of Kos Pharmaceuticals (see page 2), news which pushed the health care major's stock down slightly, but still up 0.8% on the week. Ahead of the elections, some pharmaceutical analysts downgraded the sector, taking note of the Democrats' promise of government price negotiations for drugs covered under Medicare's Part D (see pages 24-25). Polls showed that voters considered health care issues when deciding for whom to cast their ballots in the midterm elections. It was not just the cost of drugs that interested voters, but also stem-cell research and funding for government health care research. Biogen Idec shares were up 10.2% after the company's third-quarter earnings were up above analyst's expectations, up a whopping 18% (see page 6). The figures were driven by sales of Avonex (interferon beta-1a) and Rituxan (rituximab), with Eric Schmidt of Cowen & Co noting that its lower cost structure that means the firm spends less and deliver more on bottom-line earnings; he has an "outperform" rating on the stock. Mark Schoenebaum of Bear Stearns has upgraded the stock to peer perform from underperform, noting that the prospects for Tysabri (natalizumab) look brighter, perhaps with a faster roll-out than expected, but that Biogen seems fully valued at current levels. He could become more positive if Tysabri's cannibalization of Avonex is not as strong as expected, if the Tysabri ramp-up is faster and if Rituxan's Phase III lupus trials are good. In Phase II trials, obese patients taking Vivus' Qnexa (a proprietary formulation of two previously-approved products - phentermine and topiramate) dropped an average 26 pounds over 24 weeks. The firm is now planning Phase III trials, to begin next year. It also reported increased third-quarter revenue, which it said was due in large part to a rise in domestic shipments of Muse (alprostadil).