For Immediate Release
Chicago, IL – January 13, 2012 – Zacks.com announces the list of
stocks featured in the Analyst Blog. Every day the Zacks Equity
Research analysts discuss the latest news and events impacting
stocks and the financial markets. Stocks recently featured in the
blog include General Motors Co. (
GM), Toyota Motor Corp. ( TM), Ford Motor
Co. ( F), Biogen Idec ( BIIB) and
Isis Pharmaceuticals, Inc. ( ISIS).
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Here are highlights from Thursday’s Analyst
Blog:
Is China’s Auto Market Invincible?
It seems that the Chinese auto market is invincible compared
with the U.S., the other biggest auto market in the world. Despite
posting the slowest growth in vehicle sales in more than decade,
the country saw the largest volume of sales in 2011 compared with
the U.S.
Total vehicle sales in China increased a tad 2.5% to 18.5
million units in 2011 while that in the U.S. rose 10% to 12.8
million units.
The expiration of tax incentives and subsidies, restrictions on
car purchases and higher prices are the main factors that kept auto
sales at bay during the year. However, rising disposable income,
growing domestic demand from lower-tier cities and much lower
vehicles to people ratio have kept the sales volumes in the country
intact.
Auto sales in China had grown at a double-digit pace since 1999,
except in 2008 when the global economic crisis crept in. In 2009,
China overtook the U.S. as the biggest auto market in the world by
sales volumes when the Beijing government introduced a stimulus
package, including tax incentives for small cars with engine sizes
of 1.6 liters or smaller.
However, the incentives were scrapped last year and the Beijing
government imposed quotas on new car registrations in order to
control the traffic gridlock. As a result, new car deliveries
plummeted 56% to 403,500 units in 2011.
According to China Passenger Car Association, the country’s
passenger car sales (excluding buses and heavy trucks) inched up
2.8% to 13.7 million units, sports utility vehicles (SUVs) sales
surged 25% to 1.5 million units and sedans rose 3.6% to 9.6 million
units in 2011. However, sales of vans and minivans fell sharply by
11% to 2.1 million units.
A Global Playground
China has become the playground for global automakers, which
outpaced the local automakers in terms of growth in sales mix.
Local brands in the country accounted for 29.1% of car sales in
2011, which is lower than 2010 by 1.78 percentage point, according
to the China Association of Automobile Manufacturers (CAAM).
However, share of German and U.S. brands in total sales rose 0.77
and 1.91 percentage points, respectively, in 2011 compared with
2010.
General Motors Co. ( GM) took the No.1 spot
among the overseas automakers in China by outpacing Toyota
Motor Corp. ( TM) in terms of sales volumes during 2011.
GM sold 2.55 million vehicles in its biggest international market
during the year, up 8.3% from 2010.
Meanwhile, Toyota sold 883,000 vehicles in the year, implying
the slowest increase (4%) since 2004, due to the backlash from the
twin disasters in Japan in early 2011 and severe flooding in
Thailand in the second half of the year.
In contrast, GM’s cross-town rival Ford Motor
Co. ( F) sold 519,390 vehicles in 2011 through its
Chongqing Changan Automobile Co Ltd joint venture with Changan
Automobile and Japan’s Mazda Motor Corp, and Jiangling Motors Corp.
The sales were up 7% from 2010.
GM operates 11 joint ventures in China, including Shanghai GM
with Shanghai Automotive Industry Corporation (SAIC) that occupies
a leading position in the Chinese auto market. Recently, GM
revealed its plan to increase its ownership stake in Shanghai GM by
1 percentage point to 50%.
The automaker employs more than 35,000 people in the country. It
has also expanded its dealership network to 2,700 covering all of
its mainland provinces.
GM expects its overseas sales to improve further in 2012, driven
mainly by China that accounted for 68% of the company’s
international division sales in 2011. The automaker’s market share
in China has increased from 12.7% in 2010 to 13.6% in 2011.
The Tailwinds
China’s automotive industry outlook is promising in 2012 and
beyond. According to CAAM, car sales in 2012 is expected to grow by
9.5%, which is much higher than 2011.
The recent statistical figures also indicate a pent-up demand in
the China’s lower tire cities. According to China’s State
Information Center (SIC), contribution of tier 1 cities to total
car sales declined to 30.7% in 2010 from 35.7% in 2007, while the
ratio in tier 3 cities escalated to 29.1% from 24.7% during the
same period.
Further, vehicles to people ratio in China is considerably
lower. According to World Bank data, there are about 37 vehicles
per 1000 people in China. This compared with 249 vehicles per 1000
people in Brazil and 828 vehicles per 1000 people in the U.S.
Although we are concerned about China’s decreasing GDP growth
(9.7% in the first quarter of 2011 to 9.1% in the third quarter of
the year), the recent monetary and fiscal policies adopted by the
government are likely to ease the fall.
China's inflation rate eased to a 15-month low in December last
year. The Beijing government has reduced banks’ cash reserve ratio
by 50 basis points to 21% in November 2011 for the first time in
three years in order to boost corporate credit lines and support
firms cushioning against both falling domestic and international
demands. Moreover, the government plans to cut interest rates in
March this year.
Isis-Biogen Team Up
Biogen Idec ( BIIB) recently joined hands with
Isis Pharmaceuticals, Inc. ( ISIS) for the
development and commercialization of an antisense drug for the
treatment of spinal muscular atrophy (SMA).
The Candidate
The exclusive, global option and collaboration agreement relates
to the development of ISIS-SMNRx, which is currently in a phase I
study. The study, initiated in Dec 2011, is being conducted in
children with SMA, a genetic neuromuscular disease characterized by
muscle atrophy and weakness. It is estimated that one child out of
every 10,000 births is born with SMA across the world. The life
span could be significantly shortened in the most severe form of
the disease.
ISIS-SMNRx enjoys orphan drug as well as fast track status with
the US Food and Drug Administration (FDA). The currently ongoing
single-dose, dose-escalation study is evaluating the safety,
tolerability and pharmacokinetic profile of the drug in children
(aged 2 - 14 years) who are medically stable. Isis Pharma has plans
to conduct a phase I multiple-ascending dose study as well.
Terms of the Deal
Biogen has the option to license ISIS-SMNRx until completion of
the first successful phase II/III trial. Isis Pharma, besides
receiving an upfront payment of $29 million, could receive up to
$45 million on the achievement of development milestones prior to
licensing.
Biogen could end up paying up to another $225 million in the
form of license fees and regulatory milestone payments. Moreover,
Isis Pharma will be entitled to receive double-digit royalties on
sales of ISIS-SMNRx.
While Isis Pharma will be responsible for the global development
of ISIS-SMNRx through the completion of phase II/III registrational
studies, with input from Biogen, the latter will take over global
development, regulatory and commercialization responsibilities if
it decides to exercise its option.
Our Take
This deal is a major positive for Isis Pharma. It not only
validates the company’s antisense technology, it also provides the
company with funds in the form of upfront, milestone and other
payments. Biogen is a suitable partner for Isis Pharma given its
expertise in the field of neurology. We currently have a Neutral
recommendation on Isis Pharma, which carries a Zacks #3 Rank
(short-term “Hold” rating).
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BIOGEN IDEC INC (BIIB): Free Stock Analysis Report
FORD MOTOR CO (F): Free Stock Analysis Report
GENERAL MOTORS (GM): Free Stock Analysis Report
ISIS PHARMACEUT (ISIS): Free Stock Analysis Report
TOYOTA MOTOR CP (TM): Free Stock Analysis Report
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