Stock Commentary - New York week to Oct 9, 2006

NEW YORK: equities started the week in negative mode but then just kept moving upward to new closing highs, with the Dow Jones rising 1.5% over the reporting week to October 9. Drug and biotechnology stocks were mostly stronger, with 34 of those tracked up and seven down. With a possible economic slowdown looming, a softening housing market and high energy prices, investors are again remembering that people will always take medicines whenever they are unwell. Recent lackluster performances, fewer blockbusters in the pipeline and liability concerns for the past few years mean that these stocks are now being a seen as undervalued and a bargain, note analysts. The new Medicare Part D benefit adds to the upside for these defensive stocks. Investors may also have underestimated industry innovation as well as their ability to win law suits.

Vertex' VX-950 protease inhibitor could take a big chunk of the estimated $5.0 billion worldwide market for Hep C, analysts said, adding the drug could improve compliance because of fewer side effects. S&P has given the company a strong buy rating, and investors will be even more impressed by additional test data expected early next year. Several other products, one to treat rheumatoid arthritis and another for cystic fibrosis and yet another for cancer, also look promising. Work on these drugs is being carried out with other firms, including Merck & Co and GlaxoSmithKline. Vertex, which could see profitability in 2010, saw its shares rise 9.1% during the reported week. Gilead Sciences agreement to acquire Myogen (Marketletter October 9) saw some analysts downgrade the stock, with the deal expected to be dilutive in 2007 and 2008, even though it puts Gilead into a good position vis-a-vis the pulmonary sector. Gilead was up 1.4%. Vivus stock fell 3.7% on the news that Alista, (topical alprostadil), for female sexual arousal disorder, was not effective in a midstage study. While the drug did show a doubling of baseline in the number of satisfactory sexual events, the figure was not statistically significant compared with those taking placebo. The company needs to see how to better control the placebo response rate, and it noted that the drug will get a lower development priority.