22 - 28 February 2001

Investors Corner

The Market
Leading shares ended sharply lower on Friday, just holding off earlier hefty lows for the session in the afternoon as Wall Street shares dropped back in morning trade, with the Nasdaq composite index especially under pressure following fresh corporate earnings warnings from technology and telecom issues.
At the close, the FTSE 100 index was 109.6 points lower at 6,088.3, just above mid-afternoon lows of 6,082.8, never having reached in to positive territory all session. All the wider indices ended in negative territory, with the techMARK bearing the brunt of the decline - down nearly 88 points. Volume was unexciting, in spite of a midmorning futures expiry boost, with 1.89 billion shares changing hands in 138,878 transactions.
UK blue chips started in depressing fashion on Friday, dropping back in early deals in reaction to a slump from technology and telecom issues in reaction to bad news from PC maker, Dell, and network router group, Nortel. Most notably, Nortel shares saw a dramatic plunge in after-hours trade in the US – down around 23 per cent – after warning on 2001 sales growth and substantial job cuts.
Trading was also cautious in London ahead of the morning’s futures and options expiries across Europe, with conditions very volatile, and investor interest light as many fund managers headed away early for the half-term holiday in the UK.
Analysts also pointed out that US markets will be closed on Monday for President’s Day and with no key UK economic pointers released, the main focus was set on the afternoon’s US data with latest PPI and industrial production figures due for release. In the absence of any major corporate news in London, shares drifted lower throughout the morning session, with the decline gaining pace over lunchtime ahead of the release of the key US data.
Leading shares extended their losses in early afternoon trading, hit hard by the much stronger-than-expected US January PPI data and the unexpected sharp rise in housing starts – which defied even the most bullish expectations.
The strength of the data took the market completely by surprise, and heightened speculation the Fed. will not put in place as aggressive interest rate cuts as many in the market had been expecting. US producer prices rose 1.1 per cent in January, while the core rate, excluding food and energy prices increased 0.7 per cent – with the rise in the headline figure the strongest gain since September 1990, while core rate gain was the largest increase since December 1998.
Most Wall Street economists had looked for headline PPI to rise by 0.3 per cent, and for core PPI to increase 0.1 per cent. Even more surprising to the market was the shock rise in housing starts – which was totally unexpected by the market. Housing starts rose 5.3 per cent in January to a seasonally adjusted annual rate of 1.651 million units – the highest level of housing starts since April 2000.
The consensus forecast of Wall Street economists was for housing starts to fall 2.2 per cent to 1.54 million units. In reaction to the data, Wall Street stocks dropped back from the start, dragging the FTSE 100 index back to its lows for the session at 2.33pm.
Although New York shares managed to ease off their worst levels as the morning session progressed across the Atlantic, UK blue chips finish off their lows for the day, with the mood in the markets remaining very depressed. By London’s close, the DJIA was 69.81 points lower 10,281.11, with the Nasdaq composite index off 103.59 points at 2,449.32.
The rout in telecom, media, and technology issues was the main drag on UK blue chip sentiment as investors fretted about the warnings from major US players Nortel Networks and Dell. Telecom issues suffered the most as dealer noted that Nortel’s comments on the sector growth outlook seemed to confirm the market’s worst fears for 2001, as did its swingeing job losses. Telecoms equipment maker Marconi was a big blue chip, slumping nearly 11 per cent as investors continued to bale out in the wake of the Nortel alert. Its shares were down 50 pence at 553.
Spirent was also a loser, shedding 43 pence at 445, while Logica was down 135 pence at 1,550, ARM Holdings fell 32-1/2 pence at 410-1/2, and Dimension Data shed 39-1/2 pence to 425. CMG was also a major casualty, sliding 45 to 905, as rumours of a profits warning – despite guidance to the contrary from the company – persisted ahead of upcoming
figures.
Telecom shares also had a rocky ride, with Colt Telecom falling 70 pence to 1,400, Telewest down 4-3/4 pence at 134-3/4, and Vodafone 11-1/2 pence easier at 204-1/2. But BT managed to buck the weak trend, rising 9-1/2 pence to 599-1/2 – with some feeling its recent weakness looks well overdone. Media stocks had a nervous session. Shares in WPP Group were 20 pence lower at 795 – ignoring positive advice from SocGen and Merrill Lynch, with BSkyB shares 22 pence off at 948, and Reuters losing 29 at 1,071.
The panic surrounding tech stocks was not confined to the leaders board, with second line tech stocks suffering a real pasting. Second liner Bookham remained one of the hardest hit, down 46 pence at 706, with Thursday’s rally now a distant memory. Elsewhere, ARC International shed 20 pence to 216-1/2, FI Group lost 31-1/2 pence to 364, BATM 6-1/2 lower at 119, and Amerindo fell 3-1/2 pence to 52-1/2. But the slide in the TMTs prompted a strong switch back into “old economy” issues, which dominated the leaders board.
Property group Canary Wharf was the top FTSE 100 riser, up 23 pence at 518, as brokers focused on rental growth prospects in the wake of its new lettings - including CSFB, McGraw Hill and Lehman Brothers. Merrill Lynch used the opportunity to upgrade to “accumulate” from “neutral”, while Schroder Salomon Smith Barney repeated its “buy” stance and 600 pence target. BG Group, up 6-3/4 at 267, and Cadbury Schweppes, up 6-1/2 at 599-1/2, benefited from positive comment after recent results, while Anglo-American gained 120 to 4,700 as the market continued to mull its De Beers move.

AstraZeneca
AstraZeneca, the pharmaceutical group announced that the next two years would be challenging as the company shifts its reliance on hugely successful, yet maturing products, like Losec and Zestril, to the equally exciting new generation of medicines with high potential that will form the basis for future growth.
In the short-term, the company’s aim is to balance investment in new product launches to fuel
future growth, while delivering acceptable returns to shareholders.
The company has clearly signalled its intention to realise the full potential of its strong pipeline of products, including further investment in sales and marketing as the new products roll out, and also in research and development, particularly in post launch studies. The realisation of the full synergy benefits, efficient deployment of resources and firm prioritisation of the portfolio will be essential in achieving this. Delivery of the current plans for 2001 would result in mid single digit sales growth and EPS growth slightly ahead of this.
Pre-trial proceedings are essentially complete for the first four defendants in the US patent litigation for Prilosec in the USA. The parties await rulings on summary judgement motions and further scheduling decisions as to the timing and venue for trial proceedings. With launches in nine European markets, Nexium is off to an excellent start. Early market tracking from the UK and Germany indicate market acceptance rivalling the best launches ever seen in these markets. The broad GP launch of Nexium in Sweden, as well as a further 20 launches, is anticipated this year, including the USA.
In AstraZeneca’s cardiovascular business, as expected, sales of Zestril were down in the quarter. Continued inventory de-stocking in the USA led to a 30 per cent decline in reported sales versus the fourth quarter 1999; coupled with rebate-related price variances on performance contracts recorded earlier in the year, this resulted in a two per cent growth in the USA for the year. This masks good underlying prescription growth of nearly 10 per cent, and sales are anticipated to be more in line with prescription trends this year.
Meanwhile in the Company’s respiratory business, Symbicort received its first approval in Sweden. Since its launch in late August market response has been encouraging, with an 8.2 per cent share of the inhaled steroid and fixed combination market achieved in four months. Further European launches in the first half of this year will follow the December approval through the EU Mutual Recognition Procedure.
In oncology AstraZeneca reported good growth continued for Casodex, with a particularly strong performance in Japan. The monotherapy claim for locally advanced prostate cancer has now been launched in nine markets, with notable uptake seen in the UK and Sweden. The company plans to submit registrations for the treatment of early prostate cancer later this year. The submission for the 150mg tablet for use in advanced disease was withdrawn in the US;
the company stated that this dosage form will now
be submitted in conjunction with the early prostate
filing.
AstraZeneca’s regulatory filings for Faslodex will commence in the first quarter of 2001, with the submission in the USA for second-line treatment of advanced breast cancer. Its European and Japanese registrations will await the first line data, with filings anticipated in the first quarter 2002. AstraZeneca’s Seroquel had an excellent year, with prescription growth of around 75 per cent in the USA, and its share of new prescriptions exceeded 12 per cent in December. The company is also beginning to see some contribution from the 20 new launches in 2000, including encouraging uptake in Germany and Italy. Registration was achieved in Japan in December.
Although AstraZeneca has a strong late-stage pipeline, the impending fall in profits will take time to recover. Analysts fear that there is no guarantee that Nexium or any of its new drugs in development will get close to bridging the likely shortfall in sales.