TheChek News Flow

Asian Market Update: Qantas Airlines credit rating cut to junk; Shanghai still shrouded in smog

***Observations/Insights*** - Credit rating of Qantas, Australia's biggest airline, has been cut to junk. After the airline warned to expect steep H1 losses overnight, S&P said the "downgrades reflect view that the intense competition in the airline industry has weakened Qantas' business risk profile to "fair" from "satisfactory", and financial risk profile to 'significant' from 'intermediate'"; Moreover, S&P said it would take some time before Qantas credit profile can recover to investment grade. Qantas management officials responded that while the rating downgrade was not unexpected, external forces rather than internal business dynamics were to blame. QAN shares fell over 4% in the morning session. - Airlines on the mainland remain impacted by week-long smog issues, with limited visibility preventing most of air travel around Shanghai. Separately in China, PBoC setting for the yuan fell below CNY6.13, a record high, and 3-month Shibor tightened to levels not seen since June in the wake of the first net liquidity drain in 3 weeks. - JPY traded softer in the afternoon session after Japan pension fund official called for a reduction of domestic bond holdings in favor of less risk-averse assets.

***Economic Data*** - (JP) JAPAN NOV OFFICIAL RESERVE ASSETS: $1.28T V $1.28T PRIOR - (AU) AUSTRALIA NOV AIG PERFORMANCE OF CONSTRUCTION INDEX: 55.2 V 54.4 PRIOR (2nd straight expansion; highest reading since Apr 2010) - (MY) MALAYSIA OCT TRADE BALANCE (MYR): 8.2B V 9.1BE

***Fixed Income/Commodities/Currencies*** - (US) Weekly Fed Balance Sheet Assets Week ending Dec 4th: $3.889T (record high) v $3.883T prior; M1 y/y change: 8.4% v 8.4% w/w; M2 y/y change: 6.4% v 6.5% w/w - (AU) Australia MoF (AOFM) sells A$1.5B in 2018 Bonds; avg yield: 3.5738%; bid-to-cover: 3.13x - (JP) BOJ offers to buy ¥250B in 1-3yr JGBs, ¥250B in 3-5yr JGBs, and ¥400B in 5-10yr JGBs - (CN) China Ministry of Finance (MOF) sells 30-yr bonds, avg yield 5.05% - (CN) Daily Shibor fixings: O/N: 3.7000% v 3.7030 % prior (4th consecutive decline); 1-week: 4.5500% v 4.5580 % prior (3rd consecutive decline)

- USD/CNY: (CN) PBoC sets yuan mid point at 6.1232 v 6.1310 prior setting (record high setting for Yuan) - USD majors are trading in narrow ranges after a volatile morning in the US session ahead of the all-important non-farm payrolls report that could further bolster the case for a December taper by the Fed. USD/JPY has bounced off the US-session lows around ¥101.60, approaching ¥102 handle, while EUR/JPY and AUD/JPY crosses were flat around ¥139.20 and ¥92.20 respectively. EUR/USD spend the day in a 10-pip range around $1.3670, cable remained capped by $1.6350, and AUD/USD briefly came under pressure to trade below $0.9040 following Qantas credit rating cut. NZD underperformed following recent reports of lower than expected revenues from asset sales, falling over 30pips below $0.82.

***Speakers/Political/In the Papers*** - (CN) Shanghai Academy of Spaceflight Technology: China to adjust space probe planning; To delay manned lunar landing project - Chinese press - (CN) China 2014 fixed asset investment (FAI) may grow at about 19% - Chinese press - (CN) China may accelerate construction of 100 ecological demonstration zones - Chinese press - (CN) Shanghai air pollution levels remaining high (4th consecutive day) - financial press - (JP) Chairman of govt appointed panel Takatoshi Ito: Public pension fund GPIF should reduce domestic Bond holdings to 52%; need to start selling bonds as soon as possible - financial press interview - (JP) According to the latest data from Tokyo Stock Exchange, individual investors are selling off stocks ahead of the sales tax hike - Nikkei (update) - (KR) According to Bank of Korea (BoK) data, at the end of Nov, foreign exchange bank deposits hit a record $48.6B v $46.1B m/m - Korean press - (AU) Australia PM Abbott: Economic conditions not as strong as they could be - (NZ) New Zealand Fin Min English: NZ accounts on track in 4 months to Oct; on track for FY14/15 surplus - New Zealand govt financial statement - (DE) German Fin Min Schaeuble expresses interest to remain in office as part of the grand-coalition govt - German press

***Equities*** Market Snapshot (as of 04:30 GMT): - Nikkei225 flat, S&P/ASX -0.3%, Kospi +0.1%, Shanghai Composite -0.6%, Hang Seng -0.2%, Dec S&P500 +0.2% at 1,786, Feb gold -0.6% at $1,225, Jan crude oil +0.1% at $97.46/brl

US markets: - PSUN: Reports Q3 -$0.05 v -$0.05e, R$206.6M v $206Me; +8.7% afterhours - TEX: Initiates quarterly dividend of $0.05 (implied yield 0.5%); approves $200M buyback program (about 5% of market cap); +0.1% afterhours - IOC: Confirms selection of Total SA for PNG Gas Development; +0.1% afterhours - GPS: Reports Nov SSS +2.0% v +0.9%e - FDX: To increase 2014 ground rates by 4.9%; effective Jan 6 - KR: Reports Q3 $0.53 v $0.53e, R$22.5B v $22.9Be - ZUMZ: Reports Q3 $0.39 v $0.46e, R$191M v $191Me; Board to repurchase $30M in common stock (3.9% of market cap); -4.7% afterhours - BIG: Reports Q3 -$0.16 v -$0.08e, R$1.15B v $1.16Be; to exit Canadian market; -10.1% afterhours - ULTA: Reports Q3 $0.70 v $0.74e, R$618.8M v $623Me; -18.3% afterhours

Notable movers by sector: - Consumer discretionary: Qantas Airways Ltd QAN.AU -2.8% (S&P cuts rating); Panasonic Corporation 6752.JP +2.1% (development center plans); Flight Centre Ltd FLT.AU -3.0% (ACCC ruling); Dalian Sunasia Tourism Holding Co Ltd 600593.CN +2.2% (China to promote marine tourism) - Consumer staples: Yuan Longping High-tech Agriculture Co Ltd 000998.CN +1.8% (acquisition) - Industrials: Great Wall Motor 601633.CN +3.7% (Nov results); Shenzhen Green Eco-manufacture Hi-Tech Co Ltd 002340.CN +3.5% (China to subsidize waste electronic treatment companies); China Spacesat 600118.CN -3.3%, Aerosun Corp 600501.CN -4.7%, Shaanxi Aerospace Power Hi-Tech 600343.CN -3.8% (China to delay lunar project) - Financials: Beijing Orient Landscape Co Ltd 002310.CN +6.5%, Palm Landscape Architecture Co Ltd 002431.CN +7.3%, Shenzhen Techand Ecology & Environment Co Ltd 300197.CN +3.9%, Pubang Landscape Architecture Co Ltd 002663.CN +10.0% (China may accelerate construction of ecological demonstration zones) - Technology: Advantest Corp 6857.JP +5.0% (comments on cost reduction) - Energy: Shandong Molong Petroleum Machinery 002490.CN +1.2%, Yantai Jereh Oilfield Services Group 002353.CN +2.0%, Kingdream PLC 000852.CN +2.1%, Zhangjiagang Furui Special Equipment 300228.CN +3.2% (China Premier, NEA comments on shale gas)

Energy Takeover Targets?

Some small U.S. exploration and production companies look ripe for consolidation. Two stocks that could rise at least 50%.

While merger activity this year has been relatively subdued, there is ample reason to expect some consolidation among the patchwork quilt of small U.S. exploration and production companies drilling for oil.

"I think we will see more energy deals. Doors may be closing for major oil companies, whose growth is constrained," says Bernard Picchi, a portfolio manager at Palisade Capital Management in New Jersey. "Oil-and-gas producers know they can operate with political stability in the U.S., where new drilling-and-completion techniques offer upside."

Horizontal drilling, and fracturing, the technique of shattering underground rock to harvest hydrocarbons, have resulted in the highest level of U.S. oil production in decades as the country edges toward energy independence.

Growth-oriented exploration companies that have taken on excessive debt are more likely to be takeover candidates, because "outspending cash flow is unsustainable. The party will end with a pullback in commodity prices," says Sven Del Pozzo, an energy analyst at IHS Herold. U.S. oil prices, near $97 per barrel, have fallen almost $10 in recent months.

At a Glance

Northern Oil & Gas (NOG)

Stock Price: $15.40 52-Week High: $17.90 52-Week Low: $11.79 Market Value: $940 million Est. 2014 EPS:$1.31 Price/Earnings11.7 Est. Long-Term EPS Growth:*N/A Est. ('14/'13) EPS Growth: 12% Revenue (trailing 12 months):$350 million Dividend Yield: None CEO: Michael L. Reger

The biggest energy companies, whose shares have lagged the broader market this year, can afford premium buyout prices. A larger acquirer can find cost efficiencies and better manage commodity price swings thanks to a more robust balance sheet. Midsize explorers and private-equity players could also bid. Targets would most likely be companies worth $500 million to $3 billion.

We asked energy-focused investment advisors to identify takeover candidates, based on undervalued assets in hot oilfields. Two names bubbled up: Northern Oil & Gas (ticker: NOG) and Approach Resources (AREX). (For a longer list, see the table below, "In Play? Cheap Oil Exploration Plays.")

Northern Oil & Gas Northern Oil & Gas, focused on the oil-rich Bakken Shale, has a passive business model: It has minority interests in wells, and gets a cut from partners drilling on its acreage in North Dakota and Montana. This year, the U.S. Geological Survey doubled its estimate for undiscovered oil volume in the Bakken and Three Forks formations, where Northern also operates.

A buyer could pay up for Northern's cash flow, broad acreage holdings, and its knowledge of multiple operators in the basin, says Art Smith, senior portfolio manager at energy-focused Triple Double Advisors in Houston. He thinks shares could double in a takeover. Assuming no deal, they could offer 35% upside in the next year, he says. Short interest totals about 25% of outstanding shares as of Oct. 31. The stock closed Thursday at $15.40.

Using Northern's enterprise value (market value plus debt) of about $1.5 billion, it trades at about just 5.4 times trailing earnings before interest, taxes depreciation and amortization. Larger peers in the Bakken are trading at about nine times trailing Ebitda.

Moreover, Northern may be positive cash flow in 2014, says Smith. Northern was the target of short sellers in 2011, the result of an accounting controversy. Today's discount, despite disappointing third-quarter production, looks unwarranted.

Approach Resources (AREX)

Stock Price: $19.93 52-Week High: $31.67 52-Week Low: $19.77 Market Value: $778 million Est. 2014 EPS:$0.68 Price/Earnings29 Est. Long-Term EPS Growth:*N/A Est. ('14/'13) EPS Growth: 70% Revenue (trailing 12 months):$158 million Dividend Yield: None CEO: J. Ross Craft Headquarters:Fort Worth, Texas N/A=Not available

If bad weather crimps fourth-quarter production, any selloff among Bakken players would be a buying opportunity, says Tyler Kocon, a portfolio manager at Split Rock Private Trading, an investment advisor in Duluth, Minn. with energy portfolios. He likes Kodiak Oil & Gas (KOG) for its acreage, and says shares, which ended Thursday at $11.64, could rise 20% in a takeover.

Approach Resources Another attractive buyout candidate: Approach Resources, which owns some of the cheapest reserves in the Permian Basin in Texas. Approach's assets are likely worth a good deal more given the rich price paid by Chinese energy company Sinochem for a 40% stake in Permian player Pioneer Natural Resources (PXD). (See Barron's, Sizing Up Small Caps, "Approach Resources: At Least 50% Upside," Sept. 21.)

Approach has dropped 17% since our story, when we argued that shares offered 50% upside, due to disappointing well results. However, the selloff appears overdone. As we wrote in September, "Approach is unlikely to remain independent long-term."

The stock trades at 10.6 times EV/trailing Ebitda, a significant discount to Pioneer's multiple of about 14.5 times.

Of course, small exploration companies are hypersensitive to commodity prices. If oil prices spike, takeovers become more expensive and less likely. If oil prices fall, shares can drop even more sharply. But oil prices look like they may remain in the $90s in the next year based on the futures market.

And as the patchwork quilt of exploration companies consolidates, investors could find themselves blanketed with nice returns.

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BN 12/05 22:31 *SHIRE: ENDPOINT NOT MET FOR INFERIOR CORNEAL STAINING SCORE BN 12/05 22:31 *SHIRE: SIGN OF INFERIOR CORNEAL STAINING SCORE ENDPOINT NOT MET BN 12/05 22:31 *SHIRE: PATIENT-REPORTED SYMPTOM OF EYE DRYNESS ENDPOINT MET BFW 12/05 22:31 *SHIRE: LIFITEGRAST DIDN’T MEET PRESPECIFIED CO-PRIMARY ENDPOINT BN 12/05 22:30 *SHIRE: LIFITEGRAST SHOWED STAT. SIGNIFICANT IMPROVEMENT BN 12/05 22:30 *SHIRE: LIFITEGRAST DIDN'T MEET OTHER CO-PRIMARY ENDPOINT BN 12/05 22:30 *SHIRE: LIFITEGRAST DIDN'T MEET PRESPECIFIED CO-PRIMARY ENDPOINT BN 12/05 22:30 *SHIRE : LIFITEGRAST MET PRESPECIFIED CO-PRIMARY ENDPOINT BN 12/05 22:30 *SHIRE SAYS LIFITEGRAST MET PRESPECIFIED CO-PRIMARY ENDPOINT BN 12/05 22:30 *SHIRE REPORTS TOP-LINE RESULTS ON OPUS-2, A PHASE 3 STUDY

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Shire Reports Top-Line Results on OPUS-2, a Phase 3 Study Investigating the Use of Lifitegrast (5.0% Ophthalmic Solution) in 2013-12-05 22:30:11.954 GMT

Shire Reports Top-Line Results on OPUS-2, a Phase 3 Study Investigating the Use of Lifitegrast (5.0% Ophthalmic Solution) in Adults With Dry Eye Disease

PR Newswire

LEXINGTON, Massachusetts, December 5, 2013

LEXINGTON, Massachusetts, December 5, 2013 /PRNewswire/ --

Shire plc (LSE: SHP, NASDAQ: SHPG), the global specialty biopharmaceutical company, today announced top-line results from OPUS-2, a Phase 3 efficacy and safety study of 5.0% lifitegrast ophthalmic solution. OPUS-2 compared lifitegrast to placebo administered twice daily for 84 days (12 weeks) in dry eye patients with history of active artificial tear use within 30 days prior to screening. Lifitegrast met the prespecified co-primary endpoint for the patient-reported symptom of eye dryness (change in Eye Dryness Score from baseline to week 12) (p-value<0.0001). Lifitegrast did not meet the prespecified co-primary endpoint for the sign of inferior corneal staining score (change from baseline to Week 12) using fluorescein staining compared with placebo (p-value=0.6186).

"In this clinical trial, we note that lifitegrast showed a statistically significant improvement in the prespecified symptoms of dry eye disease and is the first drug to do so in a phase 3 clinical trial," said Flemming Ornskov, M.D., Chief Executive Officer, Shire. "We will be examining the totality of the data for lifitegrast in OPUS-2, as well as OPUS-1 and across the entire clinical trial program. We look forward to discussing the lifitegrast program with regulatory authorities."

The study also evaluated the safety and tolerability of lifitegrast based on occurrence of treatment-emergent adverse events (TEAEs). The most commonly reported TEAEs associated with lifitegrast were dysgeusia (altered sense of taste) (16.2% vs 0.3% for placebo), instillation site irritation (7.8% vs 1.4% for placebo), instillation site reaction (7.0% vs 1.1% for placebo) and visual acuity reduced (5.0% vs 6.4% for placebo). There were no ocular serious TEAEs or drug-related serious TEAEs. 93.2% of patients enrolled in the study remained for the entire duration of the 12-week clinical trial.

ABOUT THE LIFITEGRAST PHASE 3 CLINICAL DEVELOPMENT PROGRAM

OPUS-1, OPUS-2 and SONATA currently make up the phase 3 clinical development program for lifitegrast.

OPUS-1 was a multicenter, placebo-controlled trial conducted in a controlled adverse environment with 588 dry eye subjects to investigate the efficacy and safety of lifitegrast (5.0% solution) versus placebo twice daily for 84 days.

o In OPUS-1, the pre-specified co-primary endpoints were: 1) mean change from baseline to Day 84 in the inferior corneal fluorescein staining score (i.e., "sign"); and 2) the mean change from baseline to Day 84 in the Visual Related (VR) function subscale of the Ocular Surface Disease Index (OSDI) (i.e., "symptom"). In this study, lifitegrast demonstrated superiority over placebo on the sign endpoint of improvement of the inferior corneal fluorescein staining score (P=0.0007). Ocular surface damage, which is a hallmark of chronic inflammation from dry eye disease, is often detected using this staining parameter. However, the co-primary symptom endpoint, the VR function subscale of the OSDI, did not achieve statistical significance. o There were no serious ocular adverse events. The most commonly reported ocular adverse events were irritation and pain upon initial instillation, and were generally mild in severity.

OPUS-2, initiated in December 2012, was conducted in the natural environment and compared lifitegrast to placebo administered twice daily for 84 days (12 weeks) in dry eye patients with history of active artificial tear use within 30 days prior to screening.

OPUS-2 was a multicenter, randomized, double-masked, placebo-controlled, parallel-arm study with a 14-day open-label placebo screening run-in period.  Patients randomized into the study were not allowed to use artificial tears during the study. Overall, 718 patients were randomized at 31 US sites. The study consisted of 5 visits over 98 days: screening visits Day -14 (Visit 1) to Day 0 (Visit 2), and treatment visits at Day 0 (Visit 2), Day 14 (Visit 3), Day 42 (Visit 4), and Day 84 (Visit 5).

SONATA, which was initiated in December 2012, is a prospective, randomized, double-masked, placebo-controlled trial in 300 dry eye subjects to evaluate the safety of lifitegrast for 1 year. This trial is scheduled for completion in mid 2014.

ABOUT LIFITEGRAST

Lifitegrast, a small-molecule integrin antagonist, was designed in order to treat dry eye disease, and is a preservative-free topical eye solution. Lifitegrast is believed to work by reducing inflammation through inhibition of lymphocyte function-associated antigen 1 (LFA-1) and preventing its binding to intercellular adhesion molecule-1 (ICAM-1) that influences T-cell activation and cytokine (protein) release. The interaction between these two proteins plays a key role in the chronic inflammation associated with dry eye. T-cells are important components of the immune system that help control the body's response to a foreign or harmful substance or stimuli.

ABOUT DRY EYE DISEASE

As defined by the International Dry Eye Workshop in 2007, dry eye is a multifactorial disease of the tears and ocular surface that results in symptoms of discomfort, visual disturbance, and tear film instability with potential damage to the ocular surface. It is accompanied by increased osmolarity of the tear film and inflammation of the ocular surface.

NOTES TO EDITORS

Shire enables people with life-altering conditions to lead better lives.

Our strategy is to focus on developing and marketing innovative specialty medicines to meet significant unmet patient needs.

We provide treatments in Neuroscience, Rare Diseases, Gastrointestinal, Internal Medicine and Regenerative Medicine and we are developing treatments for symptomatic conditions treated by specialist physicians in other targeted therapeutic areas.

http://www.shire.com

FORWARD - LOOKING STATEMENTS - "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Statements included in this announcement that are not historical facts are forward-looking statements. Forward-looking statements involve a number of risks and uncertainties and are subject to change at any time. In the event such risks or uncertainties materialize, Shire's results could be materially adversely affected. The risks and uncertainties include, but are not limited to, that:

o Shire's products may not be a commercial success; o revenues from ADDERALL XR are subject to generic erosion; o the failure to obtain and maintain reimbursement, or an adequate level of reimbursement, by third-party payors in a timely manner for Shire's products may impact future revenues and earnings; o Shire relies on a single source for manufacture of certain of its products and a disruption to the supply chain for those products may result in Shire being unable to continue marketing or developing a product or may result in Shire being unable to do so on a commercially viable basis; o Shire uses third party manufacturers to manufacture many of its products and is reliant upon third party contractors for certain goods and services, and any inability of these third party manufacturers to manufacture products, or any failure of these third party contractors to provide these goods and services, in each case in accordance with its respective contractual obligations, could adversely affect Shire's ability to manage its manufacturing processes or to operate its business; o the development, approval and manufacturing of Shire's products is subject to extensive oversight by various regulatory agencies and regulatory approvals or interventions associated with changes to manufacturing sites, ingredients or manufacturing processes could lead to significant delays, increase in operating costs, lost product sales, an interruption of research activities or the delay of new product launches; o the actions of certain customers could affect Shire 's ability to sell or market products profitably and fluctuations in buying or distribution patterns by such customers could adversely impact Shire's revenues, financial conditions or results of operations; o investigations or enforcement action by regulatory authorities or law enforcement agencies relating to Shire's activities in the highly regulated markets in which it operates may result in the distraction of senior management, significant legal costs and the payment of substantial compensation or fines; o adverse outcomes in legal matters and other disputes, including Shire's ability to obtain, maintain, enforce and defend patents and other intellectual property rights required for its business, could have a material adverse effect on Shire's revenues, financial condition or results of operations;and other risks and uncertainties detailed from time to time in Shire's filings with the U.S. Securities and Exchange Commission, including its most recent Annual Report on Form 10-K.

For further information please contact:

Investor Relations

Eric Rojas erojas@shire.com +1-781-482-0999

Sarah Elton-Farr seltonfarr@shire.com +44-1256-894157

Media

Jessica Mann jmann@shire.com +44-1256-894-280

Gwen Fisher gfisher@shire.com +1-484-595-9836

SOURCE Shire plc

-0- Dec/05/2013 22:30 GMT

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*FED'S LOCKHART CALLS FOR SETTING TIMETABLE FOR TAPERING QE 2013-12-05 13:15:00.0 GMT

--JAMES L TYSON

-0- Dec/05/2013 13:15 GMT