Stock Commentary - New York week to Sept 1, 2008

NEW YORK: equities edged higher for the first three reporting days in the week to September 1, but fell sharply on August 29 - ahead of the Labor Day holiday - as worries about the economy and the financial sector re-emerged. Drug and biotechnology stocks were mostly lower, with 14 of those tracked rising, 21 falling and one remaining unchanged. While the biotechnology sector has had its good and its bad investment times, Pharma is usually seen as a safe investment haven in tough economic times. That has not been the case this time round, and investors have been voicing their reasons for the change. Everyone knows that biotechnology is a risky business, and money is easier during the boom times, but investors who have been used to a quick return on their money are looking at device companies, with quicker development times, rather than drug firms whose products can take years to hit the shelf. Some are also pointing to the hot new "green" industries, which have upstaged biotechnology as the trendy place to invest.

The news that Valeant Pharma was getting a $125.0-million upfront payment from UK drug major GlaxoSmithKline for retigabine (see page 4) was not enough to offset the residual effect off the news about the company's recent second-quarter 2008 loss (Marketletter August 18). The company ended the reporting week off 8.4%, despite the immediate payment and the possibility of up to $545.0 million for future milestones, plus royalties. It might be that investors agreed with Michael Tong of Wachovia Capital Markets, who told clients that the drug might take a back seat to GSK's Lamictal (lamotrigine) XR, which could hit the market ahead of retigabine. Amylin continued to drop on the link between Byetta (exenatide) and pancreatitis, ending the week off 20.8%. Pointing to a study that showed most doctors would only slightly change or leave alone their prescribing patterns for the drug even with a "black box" warning, Lazard has upped its rating on the firm from hold to buy and set its target price for the stock at $30. Taking the opposite tack, Canaccord Adams said it was sticking to its sell rating and $20 price target, noting that prescription figures are down and that there will likely be delays for Amylin's long-acting release Byetta.