Stock Commentary - New York week to October 22, 2007

NEW YORK: equities drifted lower for the first three reporting days to October 22, before the Dow Jones plunged over 2.6% ahead of the weekend, on a return of US subprime mortgage crisis and weak third-quarter earnings. It was also the 20th anniversary of the momentous October 1987 global market crash. Stability returned to the Dow on the last trading day, leaving the index 3.0% lower on the week, but that trading session saw the pharmaceutical sector battered due to a poor reaction to results for drug major Schering-Plough. Of the stocks tracked, only nine saw a gain, while 30 declined.

Disappointing quarterly results pushed Schering-Plough stock down 12.4% for the reported week, with a 13.6% fall on October 22. Slower growth of cholesterol and allergy drug sales got the blame (see page 10). Though sales of Vytorin (ezetimibe and simvastatin) and Zetia (ezetimibe), co-marketed with Merck & Co, were strong, growth has slowed 30% year-over-year. Investors have come to expect more from the firm, which had 11 straight quarters of double-digit adjusted sales growth. Even so, S-P is still selling at a higher premium than some other drugmakers, including Pfizer, which fell 3.9% on the news it was dropping Exubera (see page 3). Merck, on the other hand, gained 2.5% on positive reaction to its results (see page 11). Rachel McMinn of Cowen & Co has downgraded Vertex stock to neutral, because of possible competition for telaprevir after better-than-expected mid-stage study data from a potential rival, boceprevir, from Schering-Plough (see page 22). Several analysts agreed with her, noting that the S-P product showed a higher response rate in patients than those taking telaprevir. Most also discounted some earlier negative data for boceprevir and emphasized the coming competition in the sector. Vertex stock was down 11.8% for the week. Forest Lab's drop of 6.4% for the week came after the company missed second-quarter earnings estimates because of a $70.0 million licensing charge for linaclotide (see page 4). Still, the company boosted its full-year guidance to a range of $3.10 to $3.20 a share as compared to prior guidance of a range of $3.05 to $3.15 (minus the licensing charge).