Archive for October, 2008

FTSE 100 up 85.69 points (AP)

Friday, October 31st, 2008 | Finance News

LONDON – Share prices on the London Stock Exchange closed higher on Friday.

The FTSE-100 share index was up 85.69 points, or 2 percent, at 4,377.34.

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Falling retail sales underscore recession fears (AFP)

Friday, October 31st, 2008 | Finance News

WASHINGTON (AFP) –
Sharp falls in consumer spending in the United States and Germany deepened fears Friday of a global recession as Japan joined a growing list of major central banks in cutting key interest rates.

As stock markets ended one of their most traumatic months in history with a mixed set of results, evidence abounded of the loss of confidence among businesses and consumers.

A report from the US Commerce Department showed American consumers cut spending by 0.3 percent in September, the steepest decline since June 2004.

The drop in spending -- which accounts for two-thirds of US economic activity -- came even as incomes rose 0.2 percent.

"Although this report is old news -- in the sense that the data are already embedded in the third-quarter GDP decline -- it underscores that we are in a consumer recession," said John Ryding at RDQ Economics.

A similar trend was apparent in Germany with official figures showing that retail sales plunged by 2.3 percent in September.

In a statement announcing it had cut its key lending rate by 20 basis points to 0.30 percent, the Bank of Japan forecast that "increased sluggishness in Japan's economic activity will likely remain over the next several quarters."

The Japanese economy shrank in the second quarter of this year and a slew of gloomy data since then has reinforced fears of a prolonged downturn.

The bank slashed its economic outlook, predicting tepid growth of 0.1 percent in the current financial year to March and 0.6 percent next year.

The rate cut was slightly smaller than markets had expected and failed to halt a slide in Japanese shares, with Tokyo's Nikkei stock index closing down 5.01 percent as investors took profits after three days of gains.

Hong Kong shares closed down 2.5 percent as investors locked in recent sharp gains sparked by hopes that the credit crunch was easing.

European stock markets however posted solid gains with the FTSE in London adding 2.0 percent, while in Paris the CAC 40 rose 2.33 percent and the Frankfurt DAX gained 2.44 percent.

In the US, the Dow Jones Industrial Average reversed opening losses and edged up 0.08 percent at 1455 GMT, building on gains of nearly 10 percent in the week for blue chips.

But those results failed to eradicate the memory of what had been one of the worst ever months for global stock exchanges, many of whom suffered record one-day losses at some point in October.

"October is historically is a good month for the markets. After a month like this, who needs a bad month?," said Jeffrey Dawkins, chief investment officer at US-based asset managers The FQ Group.

Central banks from the United States to Asia have lowered borrowing costs this week as part of efforts to avert a financial system meltdown.

Speculation is growing that the European Central Bank and the Bank of England could follow suit next week with fresh rate cuts.

The Bank of Spain meanwhile said the Spanish economy, which has been hard hit by a property slump and the global financial crisis, shrank 0.2 percent in the third quarter, the first contraction in gross domestic product since 1993.

Dutch Finance Minister Wouter Bos cut his country's growth forecast for next year from 1.25 percent closer to zero, while the Hungarian government cut its growth and deficit prediction.

Evidence of the downturn was widespread with US financial group American Express unveiling 10,000 job cuts worldwide and equipment maker Motorola saying it would slash 3,000 positions, with both firms citing weak economic conditions.

Japan's second-largest bank Mizuho Financial Group said it had cut its net profit forecast by more than half for the current year due to turmoil in the global financial markets.

Nissan Motor Co., the country's third largest automaker, reported a 40.5 percent slump in half-year net profits and predicted annual earnings would plunge by two-thirds due to weak global markets and a strong yen.

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Biotech IPOs dying on the vine (Reuters)

Friday, October 31st, 2008 | Finance News

NEW YORK (Reuters) –
While the market for initial public offerings has shut down in all industries, with no deals in the United States in nearly three months, biotechnology companies desperate for capital will likely be waiting in line far longer than others when it does re-open.

Once an industry coveted by investors, biotech has not seen an IPO since November last year, when Nanosphere Inc (NSPH.O), which develops diagnostic tests, made its $113 million debut at the bottom of its price range. Since then, it's down 68 percent, compared with just a 16 percent drop in the sector, as measured by the Nasdaq Biotech index (.NBI).

Others waiting in the wings are throwing in the towel. In the last two weeks, nearly half of the biotech companies in the IPO pipeline have dropped out.

They include drug delivery company CyDex Pharmaceuticals Inc, which pulled its filing on Tuesday, along with Xanodyne Pharmaceuticals, which focuses pain management, and Phenomix Corp, which specializes in diabetes treatments, with both withdrawing last week.

"We're in a period where small cap names are not attractive," said Eric Schmidt, a biotechnology analyst at Cowen and Company.

Paradoxically, Schmidt said, many already public, larger biotech companies are attracting investors because they are "defensive" stocks, with revenues resilient in downturns, and in contrast to pharmaceuticals, no looming patent expirations.

"We're not looking at any revenue cliffs in five years," Schmidt said.

That leaves five companies in the pipeline, with deals totaling $330.5 million, according to Thomson Reuters data.

Among them are Omeros Corp, which works on central nervous system disorders and hopes to raise $115 million, and genomics analysis firm Biotrove, aiming for a $75 million IPO.

But as biotech companies have been snubbed by the capital markets, and unable to get financing, they have proven tantalizing, often willing, targets for big pharmaceuticals companies eager to replenish their drug pipelines.

This week, GlaxoSmithKline (GSK.L) purchased Genelabs Technologies, which develops therapies against hepatitis C, for $57 million.

Swiss drugmaker Roche Holding AG (ROG.VX) is trying to buy the shares in Genentech Inc (DNA.N) it does not already own for $43.7 billion, while Eli Lilly & Co (LLY.N) recently acquired ImClone Systems Inc (IMCL.O) for $6.5 billion.

But that enthusiasm only extends to biotech companies with products ready for sale.

"Pharma is not interested in funding five years of research," Schmidt said.

"No one is looking for another phase 1 or phase 2 stage company," he added. "And since no one is looking for those companies, there won't be any IPO's either."

BIOTECH'S COMEBACK

When the spigot does re-open, biotech companies with marketable therapies for hepatitis C, cancer and Alzheimer's therapies have the best prospects, analysts said.

"The nearer to market, the better and the less capital required beyond an IPO the better," Schmidt said.

Demographic trends could improve biotech's longer term prospects.

"Biotechs offer a glimmer of hope to deal with the array of illnesses our aging population will be facing," said Steve Brozak, an analyst with WBB Securities LLC.

Brozak predicts the next wave of IPOs will be come from spinoffs of current biopharmaceutical companies that can tap into their parents' resources.

But even if the market for IPOs does return soon, biotech companies may have to wait longer than their peers.

"Institutions are now looking at buying assets, not concepts," said Tim Monfort, head of equity capital markets at investment bank Jefferies and Company Inc.

"Most biotechs are largely selling early-stage concepts," he said, making it likely they won't be appealing to investors for a while yet.

The greatest threat to the return of biotech IPOs is the nearly universally poor performance of biotech stocks, analysts said, despite biotech once being the hottest sector.

"There have been IPO windows, when investors got very bullish on biotech and there was a lot of irrational exuberance," said Guatam Jaggi, managing editor of consulting firm Ernst & Young's annual biotechnology report.

One such period was in 2000, after the human genome project was completed, and there were 22 biotech IPOs. But in 2001, the market cooled, and there was only one biotech deal.

"People realized it would take much longer to develop drugs than they thought and they rushed out of biotech," Jaggi said.

Only 7 of the 61 biotech companies to have gone public since 2000 are currently trading above their IPO price.

"Until people start making some money on these stocks, I don't see much interest in IPOs," said Schmidt.

(Additional reporting by Toni Clarke in Boston)

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