BIOTECH was the best performing industry in US stocks in the second quarter, led by Genentech. Last week, the California company became the world's largest biotech firm after the success of its cancer-fighting drugs.
Shares in the Biotech Index rose 14.5% from April to June, topping all other industry indices. The seven largest US biotechnology firms have overtaken the pharmaceutical industry's 9.1% rise.
Genentech's shares soared 41.8% in the quarter and are up more than 50% on the year. They have climbed from around $17 a share in mid-2003 to a close of $89.60 on Thursday. The latest share price gives Genentech a $89bn market capitalisation, making it the largest biotech company in the world, surpassing Amgen.
Genentech's second-quarter revenue rose 35% to $1.53bn from $1.13bn last year. Profit was $296.2m, or 27 cents a share, up 73% from $170.8m, or 16 cents, in last year's second quarter. Annual revenue is nearing $6bn, with $1.2bn in earnings.
The success rests on four cancer drugs, Avastin, Herceptin, Rituxan, and Tarceva. Sales of the cancer drugs in the second quarter alone amounted to $919m, which was 76% of total US sales, or $1.3bn.
The breast cancer medicine Herceptin's second-quarter revenue rose 29% to $152m. Tests in the past few weeks show that Herceptin might prohibit tumours from returning after chemotherapy.
Sales of Avastin, a colon cancer drug approved by the FDA in February 2004, climbed 85% from last year to $245.7m. Some doctors see it as a wonder drug, prescribing it for lung, kidney and breast cancer, though it is still awaiting FDA approval for any use beyond colon cancer.
Tarceva, a new lung cancer treatment approved only last November, saw second-quarter sales jump to $70.2m. A study last Thursday said Tarceva, which acts to shrink tumours, could also be used to treat other types of cancer. Sales of Rituxan, a non-Hodgkins lymphoma therapy, grew 15% to $450.3m.
In a world where more traditional pharmaceuticals firms face a nightmare of litigation over controversial drugs and generics erosion, the biotech sector looks increasingly attractive. Patients, and investors, have reason to be grateful.
M&S's Rose wilting?
TROUBLED UK retailers Marks & Spencer and Sainsbury were probably approaching recent annual shareholder gatherings with slightly less trepidation than a year ago, yet, having listened to their bosses, it is clear the firms' paths are diverging month by month. While Sainsbury looks to be setting a strong course for the future, investors in M&S are having to look even further into the future for the return of the good times.
A year ago, the two companies were in crisis mode. However, for Sainsbury's recently appointed chief executive Justin King, things are now definitely on the up. Sainsbury said it was encouraged by recent trading, which has shown sustained growth. The firm also said like-for-like sales - which ignore the effect of new store openings - were up 1.3%, excluding petrol, in the 12 weeks to 18 June.
The chain is in the midst of a three-year recovery plan aimed at regaining ground on its rivals. Total sales for the quarter were up 5.7%, or 5.3% excluding petrol sales, Sainsbury said. Like-for-like sales including petrol were 1.9% higher.
Recent figures from the market- research firm TNS showed Sainsbury closing in on the UK's second-largest supermarket chain, Asda. However, while King can point to signs of a turnaround it is too early to buy into an M&S recovery story.
The company announced sales at M&S fell for the seventh quarter in a row. Overall sales fell 5.4% in the 14 weeks to July 9 with its core clothing sales continuing to slide. Only food recorded an improvement with like-for-like sales up 0.7% during the three-month period.
"The trading environment continues to be very tough," said chief executive Stuart Rose, but he did add that margin and cost targets remain unchanged.
Investors are increasingly impatient with M&S's lack of progress. One key investor gives Rose a maximum of six more months before he wants to see some clear sign of an upturn. Unless there is a dramatic change, it is likely to be a bleak winter for Rose.
Russian invasion force
WHILE investors have been lauding multi-year highs in the world's major stock markets last week, the real action has been in Russia. The RTS index is one of the best performing markets in the world at the moment: it passed the 720 mark last week and is well on its way to breaking the all time high of 781 set in April 2004.
What is most surprising is that it is non-Russians who are behind the surge.
"Foreigners were behind most of the buying as funds increased their Russian weighting," says Peter Westin, an economist with Aton Capital. "A string of earnings upgrades and high international oil prices have given the market some impetus. Russia's fundamentals have become too strong to ignore."
Rather like the continued interest in China - which, as we report on Page 5 this week, is based on some strangely optimistic assumptions about the country's future - investors' love affair with Moscow is down to a global search for risk, and the associated returns.
Investors faced with questionable growth assumptions in more traditional western equities and bonds are searching elsewhere. In this case the Yukos affair, where the Kremlin was blasted for the arrest of the oil company owner Mikhail Khodorkovsky, who was subsequently jailed for nine years for fraud, seems to have persuaded investors to stand on the sidelines while it unwound, rather than abandon the country altogether.
"The annual spring rally was delayed by the Khodorkovsky trial as investors waited to see if there was any follow up, but no news is doubly good news in Russia. There are still political risks, but they are clearly receding," says Kim Iskyan, head of research at MDM Bank.
Prime Minister Mikhail Fradkov admitted last week that economic growth would not meet Putin's goal of doubling by 2010. Yet with little opportunities for finding decent returns elsewhere, it seems unlikely that investors will shun markets such as Russia and China - whatever the risk.