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Scrip's Stock Tracker: January 2010

This article was originally published in Scrip

Executive Summary

Fears that a market correction was imminent pushed the equity markets down as January tapered out, with the Standard & Poors 500 moving below its 100-day moving average for the first time since April 2009.

For healthcare stocks, potentially the biggest influencer of the month was US President Barack Obama's comments on the healthcare reform programme in his January 27th State of the Union address. In the event, his stated intention to continue to broadly push for the reform, after the Democrats recently lost their super-majority in the Senate, had a mixed effect on drug stocks.

In the UK, the blue chip FTSE 100 slipped to a two-month loss on S&P reports that UK banks are not the risk-free and stable entities they were once considered to be.

AstraZeneca missing its earnings target and producing a flat outlook for 2010 contributed to the late-month dip in the equity markets. The FTSE Eurofirst 300 edged down, hovering above 1,001, with Sanofi-Aventis, dropping by 2.1% on the penultimate day's trading, adding to the fall. The French group ended January 2.7% down over the month, its price having dipped at one point on the appointment of Boehringer Ingelheim's Hans Regenauer as vice-president of its newly enlarged consumer healthcare activities in Europe, and of global development.

General share trading had started brightly enough in the new year, the FTSE Eurofirst 300 rising by 1.4% on the first day of January trading and other European bourses following suit: Frankfurt's Xetra Dax rose by 1.5% and Paris's CAC 40 climbing by 2%.

In this early trading, there was no sign of the return of the volatility that manifested itself later in the month: the S&P 500 reached its highest level since October 2008, and the Dow Jones Industrial Average was up by 1.5%; the FTSE 100 crossed the 5,500 threshold; and Japan's Nikkei index hit a 15-month closing high.

But the bullish start was evaporating fast by mid-month, with jitters about the global economy having set in again after US retailers reported a 0.3% drop in December. Pharma and biotech stocks pushed the FTSE Eurofirst 300 up in this mid-month period.

Novartis's move to buy the eyecare group Alcon saw its price dip by 2.6% on the first trading day of the year, but by mid-month it had recovered by 1.9% after Bank of America Merrill Lynch analysts upgraded the stock, because of the company's new drug ventures and an increased presence in emerging markets.

The Swiss company also gained more plaudits in a Bernstein Research report, which said that it was among the best-prepared companies in terms of patent expiries, as it had diversified away from chemical-based drugs.

Jefferies Research said: "Novartis offers good near-term underlying growth, some potentially positive catalysts during the next six to 12 months and a relatively safe haven for investors from wider economic issues." The broker was also optimistic about the group's 12-month earnings momentum. It stock price finished month up by 0.8%.

Roche was similarly appraised by Bernstein Research, and its shares finished the month up by a similar margin (0.7%).

Novartis's Alcon purchase fuelled consolidation hopes in the sector, and boosted other European stocks, such as GlaxoSmithKline and AstraZeneca. The latter's shares also benefited from its settlement of a long-running patent dispute over Nexium and Prilosec with Israel's Teva.

The German government told GSK that it was reducing the size of its swine influenza vaccine order by 30%, and wanted only 34 million doses. The UK group was also in discussions with other governments about changes to their swine flu vaccine plans. However, its share price was little affected by the news. Sanofi-Aventis and others have been similarly affected: Australian vaccine maker CSL had its US order cut from 36 million to 14 million doses.

top ten 10 pharmas

GSK was the worst performing among the top 10 pharma stocks over the month, falling by 8.2%. Lilly, Johnson & Johnson and Bristol-Myers Squibb (see graph below), besides Sanofi-Aventis (see above) joined the UK group going into the red for the month.

AstraZeneca finished dead even, and the other four grew – but by less than 1% in the case of the Basel duo (Novartis and Roche).

Pfizer was up by 2.1%, but the best performing pharma major was Merck & Co, whose price benefited from a Credit Suisse review in which Catherine Arnold upgraded the shares to "outperform" from "neutral," and raised her price target to $47 per share, which suggested the stock could rise by about 25% over the next year.

Her comments were on the back of improving sentiment about Merck & Co's pipeline, with investors becoming more optimistic about the anti-clotting drug candidate, TRA, and the experimental drugs boceprevir for hepatitis C, the staph infection vaccine V710, and heart drug candidate betrixaban. Merck has risen by over 20% since the start of November and its shares have been trading at their highest level since May 2008.

Bristol-Myers Squibb

BMS, which became one of the Scrip Stock Tracker's leading 10 pharma groups in November, following the merger of Pfizer and Wyeth, was the second-worst performing stock in January, starting at $25.41 on January 4th and finishing on $24.36 on January 29th.

In the first week of the month, its price trailed gently downwards, dropping to $24.82 on January 8th, then rebounding above $25 on January 11th, and peaking on January 19th at $25.65, a day when more than 19 million of its shares changed hands. In the following six days it lost 6% of its value, dropping to a low for the month of $24.10 on January 28th, before regaining some losses on the final trading day.

Its steepest one-day fall was on January 21st, when the stock dropped by 2%, and the sharpest rise was during the period January 15th-19th, when its price rose by 2.3%.

the biotechs

The five biotech stocks monitored by Scrip Stock Tracker were subject to livelier trading than both the pharma stocks and the Nasdaq biotech index.

Rising by an average of 4.67%, they outperformed the latter's 0.97% rise four-fold.

Only Biogen Idec held back the charge, dropping by 0.42%, having risen early in the month on news that its CEO, James Mullen, will retire in June, and further still when activist investor Carl Icahn said he plans to nominate three directors to the company's board.

At the other end of the scale, Gilead Sciences was up 11.24% after news that its profit climbed by 43% in the fourth quarter due to rising sales of its three-in-one HIV drug, Atripla.

Genzyme was not far behind, up by 9.04%, with the company having signed a manufacturing deal for its key products Cerezyme, Fabrazyme, Myozyme and Thyrogen with Hospira.

Celgene was virtually flat for the month, rising by just 0.24%, while Amgen posted growth of 3.27%, after steady fourth-quarter sales of its top drugs, Aranesp and Epogen. Early in the month, its price dipped on concerns that the FDA's call for dosing studies on anaemia drugs could put more pressure on these products.

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