Tokyo stocks to May 12, 2008

Tokyo retreated in the week ended May 12 (four trading days only because May 6 was a national holiday in Japan). The Nikkei 225 lost 2.2% to close at the 13,700 level and the Topix index declined 2.5%. Many investors sat on the sidelines due to a lack of fresh buying incentives. A report on tighter disclosure regulations for American banks provoked new concerns about the US financial system. On the positive side, there was renewed interest in Japanese equities on the back of concerns with the Chinese market, leading to an influx of overseas funds that protected Tokyo from significant losses. The pharmaceutical index was off 0.7%, outperforming the market.

Takeda was up 0.7%, despite reporting a 7.7% decline in operating income to 423.1 billion yen ($4.17 billion) in the fiscal year ended March 2008, which was due to a 42.7% jump in R&D expenses to 275.8 billion yen after in-licensing of compounds from Amgen and H Lundbeck (see page 11). Revenue grew 5.3% to 1,374.8 billion yen, reflecting 17.8% growth in global turnover of the diabetes drug Actos (pioglitazone) to 396.2 billion yen. The company expects a 43.3% decrease in operating income in the coming fiscal year to 240.0 billion yen due to in-process R&D expenses and goodwill amortization costs related to the acquisition of Millennium and division and conversion of its joint venture with Abbott Laboratories, TAP, into a wholly-owned subsidiary (Marketletters passim). Excluding these effects, operating income is forecast to increase 4.2%. Takeda's share performance reflected the previous week's US Food and Drug Administration approval of a supplemental New Drug Application of Amitiza (lubiprostone) for the additional application of irritable bowel syndrome with constipation. The drug is co-marketed in the USA with its originator, Sucampo Pharmaceuticals, for the initial indication of chronic idiopathic constipation.

Mitsubishi Tanabe inched up 0.4%, after it reported a modest increase in earnings in the 12 months ended March 2008. The company was established in October 2007 with the merger of Mitsubishi Pharma and Tanabe. On a simple sum basis, revenue was up 1.1% to 409.4 billion yen and operating income was up 2.9% to 72.5 billion yen due to less-than-planned R&D expenses. Net income plummeted 28.2% to 31.9 billion yen, reflecting extraordinary losses of 20.3 billion yen, including hepatitis C virus litigation of 9.1 billion yen, as well as costs related to business integration. The HCV costs are based on the government's decision of the Relief Law in January 2008 for people who contracted HCV from fibrinogen and other products manufactured by the former Green Cross. Sales of Remicade (infliximab) for the treatment of Crohn's disease and rheumatoid arthritis were up 39.6% to 28.6 billion yen.