Stocks fell in morning trading on Friday, but the major indexes recovered somewhat in the afternoon. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) closed with small losses on very light volume the last trading day before Christmas.
Today's stock market
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Healthcare was the weakest sector, with the Health Care Select Sector SPDR ETF (NYSEMKT:XLV) slumping 0.3%. Real estate stocks rebounded from recent losses; the iShares US Real Estate ETF (NYSEMKT:IYR) closed up 0.6%.
As for individual stocks, Ignyta, Inc. (NASDAQ:RXDX) soared on a news of a buyout, and Nike (NYSE:NKE) fell after reporting a quarter that beat expectations, but indicated continuing issues for North American sales.
Roche pays big for Ignyta
Investors in clinical-stage biotech Ignyta got some holiday cheer today when Swiss drug company Roche Holding AG (NASDAQOTH:RHHBY) announced it was buying the company for $27 a share, a whopping 74% premium to the stock's closing price yesterday. The $1.7 billion all-cash deal has been approved by both boards and is expected to close in the first half of 2018.
The big prize for Roche is Ignyte's lead drug candidate, entrectinib, and the technology that led to its development. The small-molecule drug attacks cancer tumors with specific genetic mutations, and has shown effectiveness against a broad range of cancers in midstage trials. Ignyte's platform is on the cutting edge of precision medicine, combining diagnostic tests with precisely targeted therapeutics.
"Cancer is a highly complex disease and many patients suffer from mutations which are difficult to detect and treat," said Roche CEO Daniel O'Day. "The agreement with Ignyta builds on Roche's strategy of fitting treatments to patients and will allow Roche to broaden and strengthen its oncology portfolio globally."
With the stock closing at $26.85 today -- up 72.7% -- it's too late for investors to profit from buying Ignyta, but the purchase builds on an impressive position that Roche has in oncology, and the $1.7 billion that it paid for Ignyta may end up being a bargain. With a research and development budget of over $10 billion a year, the biggest in the industry, Roche has plenty of resources to build on its strengths, and may look all the more attractive to investors after today.
Nike reports strong international growth
Nike reported fiscal second-quarter results that soundly beat analyst expectations thanks to a strong showing overseas, but U.S. sales continue to struggle, and the stock slumped 2.4%. Revenue increased 4.6% to $8.55 billion and earnings per share fell 8% to $0.46. Wall Street was expecting $8.4 billion in revenue and per-share earnings of $0.40.
Sales outside North America were excellent, growing 11.9%. Sales in Greater China were up 15% excluding currency; Europe, Middle East, and Africa increased 14%; and Asia-Pacific and Latin America grew 8%. Nike's Air VaporMax is now the global top-selling running shoe over $100.
Despite higher average selling prices, gross margin declined by 120 basis points, mostly due to currency effects and higher product costs per unit. That decline was less than expected, though, as Nike had previously said the drop in gross margin in Q2 would be about what it was in Q1 (180 basis points).
Looking forward, the company reiterated earlier guidance for full-year revenue growth in the mid-single digits and a contraction of gross margin by 50 to 100 basis points.
The market seems to be focused on U.S. sales, and ignoring the strong performance -- especially in China -- of overseas sales, which now account for 59% of revenue. The stock was down as much as 7.2% early in the day, but recovered most of that loss.