Stock Commentary - Tokyo week to Oct 2, 2006

TOKYO: saw a negative start to the reporting week to October 2, with the Nikkei 225 falling on the news Cabinet appointments by Japan's new Prime Minister Shinzo Abe. The following day saw a huge rebound, with the index rising over 2.5%, as the new financial services minister prompted speculation that the regulatory tightening will not be as tough as people originally expected, said Go Arai of Dai-Ichi Kangyo Asset Management, reported by Bloomberg. The Nikkei then continued to move higher, rising to a four-week high of 16,254,29, up 4.0% on the week, as headline figures from the Bank of Japan's Tankan survey, which showed strong business confidence.

Although pharmaceutical stocks ended the reporting period generally on the up, the sector took a battering on September 27, after a downgrade for Tsumura from Credit Suisse because reimbursements from Japan's National Health Insurance are declining. The stock dropped 3.2%, but recovered for a week-on-week decline of 1.6%. That day also saw Japanese number one and two drugmakers, Takeda and Astellas Pharma, fall 0.8% and 1.7%, respectively, although both regained their composure by the end of the week, rising 1.5% and 0.9% overall. Putting in a strong showing was Daiichi Sankyo, with a 7.2% rise, after the company applied to Japan's Ministry of Health, Labor and Welfare for an additional indication for its analgesic and sedation product Fentanyl injection (fentanyl citrate). Helped by a positive physician-led Phase III clinical trial, the company has applied for pediatric use of its drug. There was no immediately apparent reason for Toyama's sharp 10.6% rise. Also putting a dampner on Japan's pharmaceutical stocks was Lehman Brothers' Japan analyst Toshihide Yoda, who expects domestic drug pricing pressure to worsen and has lowered the firm's sector rating from 2-neutral to 3-negative for manufacturers and from 1-positive to 2-neutral for drug wholesalers. He notes that the MHLW is planning to change the frequency of NHI reimbursement revisions to annually (Marketletters passim) which, if proposals to raise the consumption tax in 2009 proceed, could result in three consecutive years of NHI drug price cuts.