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News : International Last Updated: Aug 19, 2010 - 2:45:26 PM


Markets News Wednesday: Elan hit by Eli Lilly's termination of Alzheimer drug trials; APN News & Media reports lower HI 2010 figures than expected
By Finfacts Team
Aug 18, 2010 - 8:14:26 AM

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Eli Lilly halted two late-stage clinical trials of an experimental Alzheimer’s treatment on Tuesday. At the early stage, the drug was jointly developed by Lilly and Elan and the latter had retained marketing rights and was also expected to enjoy royalties from sales. Alzheimer’s disease affects an estimated 5.3 million Americans. Five of EL's six leading products face generic competition in the next four years.

Pharmaceutical Industry: Proportion of sales from newer drugs drops; $65bn spent in US on R&D in 2009; 200,000 jobs to go in 2009-2015

During August, we will not be providing the 'Markets Afternoon' report due to holiday and site development work. Use the relevant links below for the latest data.

Irish economy properly emerged from recession in Q2; growth likely to remain sluggish: outgoing chief economist of Davy, Rossa White, comments: "Ireland was absent (like some other small euro area nations) from the 'flash' Q2 GDP estimate that brightened last Friday. Detailed Irish national accounts for the second quarter will not be released until the end of September. Those figures will genuinely confirm that Ireland has emerged from recession: the volume of GNP grew in Q2 after eight quarters of decline (note that GDP expanded in Q1, but GNP is the best guide to the Irish economy). Yet it will be important to take cognisance of nominal aggregates in the next 18 months. The cash size of the economy will struggle to increase, at least in H2 2010 (nominal GNP has in fact contracted in 12 of the last 13 quarters).

The implications of rising real GNP (catch-up annualised growth of at least 3% from a low base is likely for the next couple of years) twinned with relatively flat nominal national income are varied. First, the cyclical part of the deficit may not close until about 2013 as automatic stabilisers take time to unravel. Second, it will impact bank balance sheet growth (that tends to depend more on money growth in the economy rather than the level of real activity) and the state of the legacy loan book. With regard to existing loans, lack of inflation makes it more difficult to reduce the real size of debt outstanding. Finally, the better news: if nominal GNP lags real GNP, it means that that the average level of prices across the economy will still be falling (albeit that construction will account for a large part of that trend). That will make Ireland increasingly competitive on international markets. In other words, further adjustment in the shorter term will bear fruit beyond 2012.

We tweaked our forecasts slightly to take account of the recent revision to the national accounts. Annual average GNP may slip 1.1% this year versus our previous -0.9%. But that is less relevant than the 2011 number and, of course, hides the fact that GNP will rise sequentially in H2 over H1. For next year, GNP may not quite grow 3% for the full year (our previous projection); 2.7% is our new forecast. The unemployment rate is still set to peak at around 13.5% in Q3: it is likely that the Live Register has overestimated the recent rise in the absence of the labour force estimates from the Quarterly National Household Survey. As regards the public finances, the overall GGB deficit may hit 25% of GDP this year (as it will include all of the banking hits) before a dramatic drop to 10% next year. But that masks the more encouraging trend in the underlying deficit, which will nudge down from 12.1% of GDP last year to about 11% this year to that 10% figure in 2011.

This is my last Market Comment before leaving Davy to take up my new role. I would like to thank all of you who have read it and responded to it over the last eight years."

Eli Lilly is halting the development of an Alzheimer's drug, with John Lechleiter, Eli Lilly chairman & CEO:

Economic View: NTMA to fund 40% of 2011 requirements by the end of the year; Goodbody chief economist, Dermot O’Leary, comments  -- "With yesterday’s successful sale of €1.5bn in Irish government bonds, Ireland has completed its funding requirement for 2010. There was some trepidation ahead of the auction but bid-cover ratios remained strong (2.4x and 5.4x for the 10-year and 2-year, respectively), although there was the expected increase in interest rate spread with German bunds at which the debt was sold (spread on 10-year issue rose to 303bps, relative to 289bps in July). The NTMA should not, and will not, rest on its laurels for the rest of the year, as pre-funding will now begin for an expected net funding need of €25bn for 2011. €25bn is a lot of money in anyone’s language, but the NTMA expects to have about 40% of this funding completed by the end of this year.

Even at the current time, the Irish Exchequer is fully funded up to the second quarter of 2011. Funding, therefore, is not the issue. However, the interest rate being paid on this funding certainly still is. Paying 3% over 10-year German bunds is unsustainably high. The process of fiscal consolidation is expected to continue in December’s Budget judging from all the noises coming from Government of late, but the more recent concerns stem from uncertainty around the banking sector. Bank of Ireland has already completed its capital-raising, while AIB has plans to meet its capital requirements by the end of the year, but we are still none the wiser on Anglo Irish Bank, both in terms of its future and the final cost to the State.

By the time the next auction comes along on 21st September, one would hope we would have much-needed clarity on the issue. Central Bank Governor Patrick Honohan stated yesterday that the cost of the banking crisis to the State would be something of the order of €26bn-€29bn, which is close to our own 20% of GDP estimate that we laid out earlier in the year. This is indeed a huge amount of money and is contributing to the government debt/GDP ratio rising to 100% over the next two years. However, it is affordable for the Irish State if the debt level can stabilise at that ratio, given that most of the developed world will have a similar ratio."

The European Union has received a letter from nine of its members calling for a change in the way the debt of EU countries is calculated. Peter Attard Montalto from Nomura has analysis:

Elan (Reduce, Closing Price $4.92); Elan's pipeline depleted as Lilly pulls AD drug; Goodbody's Ian Hunter comments  -- "Yesterday afternoon, Eli Lilly announced that it was halting the development of semagacestat (LY450139) for the treatment of Alzheimer's disease (AD). Preliminary results from two ongoing long-term Phase III studies showed that: (i) it did not slow disease progression: and that it was associated with (ii) worsening of clinical measures of cognition; (iii) worsening of the patients' ability to perform activities of daily living; and (iv) an increased risk of skin cancer. At the early stages, the drug was jointly developed by Lilly and Elan and the latter had retained marketing rights and was also expected to enjoy royalties from sales.

We were expecting data from the LY450139 trials in FY12 and had pencilled in marketing and royalty income for Elan of $8.0m, $14.6m and $22.1m in FY14, FY15 and FY16, respectively. Removing them from our model would see our DCF valuation for the company fall from $4.72 to $4.58. In addition, this is the most advanced of a cohort of drug candidates looking to control/ treat AD through the modulation of gamma-secretase. As such, the results could place a question mark over this whole approach. Elan has a couple of other drug candidates using the gamma-secretase inhibition approach on the radar, namely ELND006 (in Phase I) and ELND007 (at the pre-clinical stage)."

Redemption of 2011 floating rate note: "As expected, following its announcement on the11th of August of the offer of $200m in senior notes with a coupon of 8.75% (due 2016), Elan yesterday evening announced that it will redeem all of the $300m currently outstanding Senior Floating Rate Notes, due 2011. The redemption is expected to occur on or about the 17th of September. At the time of announcing the intention to offer the $200m notes, Elan had indicated that the monies raised would go to partly pay down the 2011 notes. This move pushes out Elan's debt profile, but does so at a cost, with an interest rate increase of c.4% (we estimate the floating rate notes - LIBOR + 4% - would currently equate to 4.75%), albeit on a smaller amount of capital."

The UK's coalition government marks its first 100 days if office today. David Buik, partner at BGC Partners, shares his thoughts on the government's policies thus far, with CNBC's Steve Sedgwick, Chloe Cho and Yousef Gamal El-Din:

US Markets

On Tuesday in New York, the Dow Jones rose 104 points or 1.01% to 10,406.

The S&P 500 added 1.22% and the Nasdaq rose 1.26%.

Asia Markets

The MSCI Asia Pacific index gained 0.5% Wednesday - - its fourth straight rise.

The Nikkei added 0.86%; China's Shanghai Composite dipped 0.32%; Australia's S&P/ASX 200 Index fell 0.05% and India's Sensex Index advanced 0.38%.

Asia benchmarks

Finfacts Reports

India to outpace China's growth by 2013-15; By 2020 India will have the largest annual number of new graduates globally
Bearish sentiment among global fund managers eases; Move out of Japan and US and into Europe
Dr. Peter Morici: Deflation is coming and Americans should be alarmed
Irish business faces risks and competitive advantages from climate change
Irish Commercial Rents: Report of the Working Group on Transparency in Commercial Rent Reviews published
US housing starts increased 1.7% in July; Apartment units rose while single-family housing starts dropped 4.2%; Building permits dipped 3.1%
German ZEW Indicator of Economic Sentiment fell slightly in August
NTMA completes 99% of Irish 2010 borrowings of €20bn; 10-year bond yield over German benchmark above 3%

In Europe, the Dow Jones Stoxx 600 fell 0.41% Wednesday.

The ISEQ has declined 0.05% in Dublin.

CRH is off 0.73%; Bank of Ireland has risen 0.86%.

APN News & Media, the Australian/New Zealand media group in which Independent News & Media has a 32% stake, today released its results for the six months to the end of June.

Its net profit rose 11% from a year earlier to A$40m, while the group said its underlying revenue rose by 5%.

Davy's Simon McGrotty  commented: "Revenues in two of the group's three primary divisions, outdoor and broadcasting, came in behind expectations. Publishing revenues were $296m versus our estimate of $286m, boosted by a strong recovery in advertising revenues particularly during May and June (up 13% and 15% respectively ), while national advertising also recorded double-digit revenue growth.

Despite H1 numbers being somewhat disappointing, management notes that the recovery in advertising is well underway, with the group seeing strong growth in the second quarter. Total revenue was up 8% and EBIT was up 22% on a like-for-like basis.

In terms of outlook, management expects the second half to record an improvement over the first – further evidence of a strengthening recovery.

DAVY VIEW: Although these numbers were disappointing, the outlook statement was positive and there are clear signs that a recovery is taking place in APN's key markets. Although the second half is expected to show further improvements, it is likely that consensus numbers for the full year are likely to come back. The market is looking for full-year EBIT of $226m and revenue of $1093.3m.

We are unlikely to make any material changes to our H1 numbers for INM as more positive foreign exchange rates are likely to offset the lower level of EBIT."

European Benchmarks

Irish Share Prices

Irish Stock Market Capitalisation by Company

Key Index Performance Statistics

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies 

The euro is trading at $1.2836 and at £0.8268.

For live currency updates, check the right-hand column of the Finfacts home page.

The US dollar fell to $1.6038 per euro on Tuesday, July 15, 2008 - an-all time record.

Commodities

The Baltic Dry Index, a measure of shipping costs for dry commodities, hit an all-time High of 11,771 on the 21st of May, 2008. From that time it reversed and on the 5th of December, 2008 it hit a low of 663 - - close to a 1986 low.

The BDI closed at 3,005 on Thursday, Dec 31st - - a rise of 289% in 2009. The index averaged 59% lower in 2009 than a year earlier.

On Thursday, July 15, 2010, the index  fell for the 35th straight session, by 9 points, or 0.537%, to 1,700 points, Bloomberg report.

On Friday July16th, the BDI rose 20 points or 1.12% to 1,700 to break the 35-session losing streak; on Tuesday this week, the BDI rose 27 points or 1.08% to 2,515.

Crude oil for September 2010 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $75.24 per barrel down 53 cents from Tuesday's close. In London, Brent for September delivery is trading on the International Commodities Exchange at $76.28.

Gold spot price

The spot price of an oz of gold is trading in New York at $1,222.10, down $3.60 from Tuesday's close.

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