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The Zacks Analyst Blog Highlights: General Motors, Toyota Motor, Ford Motor, Biogen Idec and Isis Pharmaceuticals

GM TM F ISIS

 ZacksTrade Now

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 - Analyst Report), Toyota Motor Corp. ( (TM - Analyst Report), Ford Motor Co. ( (F - Analyst Report), Biogen Idec ( and Isis Pharmaceuticals, Inc. ( (ISIS - Analyst Report).

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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 - Analyst Report) took the No.1 spot among the overseas automakers in China by outpacing Toyota Motor Corp. ( (TM - Analyst Report) 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 - Analyst Report) 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 ( recently joined hands with Isis Pharmaceuticals, Inc. ( (ISIS - Analyst Report) 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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