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NetEase Sees Dip In Mobile And PC Games, Gets Hurt By Tax Change

China gaming company  NetEase ( NTES ) is being hit by declining user activity for both its PC and mobile games and an “unfavorable” tax rate change, according to an analyst. “Cross-border commerce continues to grow, but we are cautious on likely negative catalysts, including government regulations, currency exchange fluctuation and intensifying competition,” wrote ITG Investment Research analyst Henry Guo in a research note Monday. Seasonality and competition are offsetting the company’s cross-border e-commerce momentum in Q1, he said. “Longer term, we continue to see multiple potential risks to NetEase’s e-commerce efforts, considering the uncertainties related to government policy and tax regulations on cross-border commerce and increasing competition from established e-commerce players in the market,” Guo wrote. NetEase stock closed Monday at 140, down 3.1%. NetEase stock has risen 36% in the past 12 months but is down 22% since early January. Shares touched a record high above 186 near the end of 2015. Three China tech firms — Internet search leader Baidu ( BIDU ), e-commerce king Alibaba Group ( BABA ) and Tencent Holdings ( TCEHY ), China’s leader in messaging and gaming — lead the way in China’s Internet arena. NetEase is another leader on China’s Web, as is e-commerce company JD.com ( JD ). The company said that revenue from online games, its biggest segment, more than doubled in Q4, thanks to growth in its original mobile games. The company’s “Westward Journey Online” and “Fantasy Westward Journey” came in as the top two games in the Apple ( AAPL ) iOS China app store in the fourth quarter, NetEase said. While the company now has multiple mobile games in testing, Guo said, few are available for public testing. “As such, we haven’t seen a step-up in game user activity in the quarter, which we attribute to a lack of promotions or incentives,” he said. Guo said he has modeled NetEase’s ad revenue to decline 10% quarter over quarter in Q1 2016, “a significant improvement from the year-ago period’s 18% quarter-over-quarter decline, reflecting NetEase’s heightened immunity to advertising seasonality, such as the Chinese New Year.” NetEase is best known for its desktop PC games and has had a lucrative exclusive license for Activision Blizzard ( ATVI )‘s “World of Warcraft” in mainland China since 2009. The company also develops its own games, mostly the multiplayer variety played on desktop PCs and mobile devices. Apple stock closed down a fraction at 105.19, while JD.com stock fell 2% to close at 25.82. Alibaba stock rose a fraction to close at 76.48, while Baidu stock rose a fraction to 185.17.

Feds Withdraw Order That Apple Hack Killer’s iPhone

The U.S. Department of Justice has withdrawn its demand that Apple ( AAPL ) help it hack into an iPhone belonging to one of the shooters in the San Bernardino, Calif., massacre, according to media reports late Monday. The news comes one week after the Justice Department said it had learned of a way to unlock a password-protected iPhone without Apple’s help. Last week, the FBI said an unidentified outside party had demonstrated to it a possible method for unlocking the iPhone in question. CNBC reported Monday that authorities had successfully accessed data on the iPhone belonging to Syed Farook, one of the two now-deceased killers in the San Bernardino shootings. Farook and his wife, Tashfeen Malik, shot and killed 14 people on Dec. 2. The radicalized Muslim couple, described in press reports as supporters of terror group ISIS, died in a gun battle with police. A U.S. magistrate on Feb. 16 ordered Apple to assist the FBI in hacking Farook’s iPhone, but Apple contested the order, saying it would set a dangerous precedent. Apple said the government wanted it to create a back door around its security protections that would put the data of all of its customers at risk. Apple executives said the government was overstepping its bounds by ordering Apple to write special software to hack its own smartphones. The case has fueled a debate over smartphone encryption, which has pitted Silicon Valley and civil rights groups against the federal government and law enforcement agencies. Federal authorities now say they don’t need Apple’s help in the case and are asking the judge to drop her Feb. 16 order. USA Today was the first to report that the government would drop its case against Apple.  

Gilead Rises As Analysts Still Like HCV Franchise; Alder Soars On Test

Big biotech Gilead Sciences ( GILD ) hit a two-month high Monday after two analysts delivered bullish outlooks for the company. On Sunday, RBC Capital Markets analyst Michael Yee lifted his Q1 EPS estimates due to a stock buyback and noted several recent pieces of “incremental” good news. For one, he cited late Friday the successful patent suit that Merck ( MRK ) and Ionis Pharmaceuticals ( IONS ) had brought, which resulted in a somewhat lower damages award ($200 million) than Wall Street had expected. He also noted that weekly prescription data from IMS Health ( IMS ) suggest that Gilead’s hepatitis C drugs, Sovaldi and Harvoni, were holding up reasonably well in the face of competition from Merck’s Zepatier, which launched in late January. Leerink analyst Geoffrey Porges made this point more emphatically Monday in a research note that called Merck a “pretender to the HCV (hepatitis C virus) throne.” Porges noted that a survey of top payer plans backed this up. “Seven weeks after the launch of Zepatier, Sovaldi and Harvoni retain a relatively favorable position in 65% of the top 20 largest commercial plans and 70% of the top 10 largest government plans relative to AbbVie ’s ( ABBV ) Viekira Pak (20%, 30%, respectively) and Zepatier (0%, 10%),” Porges wrote. “Further, in the top 20 Medicare plans, while Harvoni is covered by 100% of plans, 85% of plans do not cover Viekira Pak, and none cover Zepatier.” Porges affirmed his outperform rating on Gilead stock, with a price target of 127. Gilead shares rose 1% Monday. The stock has climbed about 13% from the 20-month low it hit on Feb. 2, but it still has a weak IBD Relative Price Strength Rating of 29, meaning the stock’s performed in the lowest 29% of all stocks the past 12 months, with an emphasis on the most recent months. Alder BioPhama Soars On Trial Small biotech Alder BioPharmaceuticals ( ALDR ) soared nearly 50% to a two-month high Monday after its migraine drug candidate succeeded in a midstage trial, positioning it to compete with some giant rivals. Alder said that a single intravenous infusion of Alder’s monoclonal antibody, ALD403, had significantly reduced migraine days over a 12-week period, compared to a placebo. Depending on the dose, between 44% and 57% of patients experienced a 50% reduction in migraine days, while 27% to 33% experienced a 75% reduction. “Evaluation of ALD403 continues to exhibit a potential best-in-class profile, which includes immediate, significant and durable migraine prevention with infrequent quarterly dosing,” Alder CEO Randall Schatzman said in a statement. “With our commitment to the accelerated development of ALD403 reinforced by today’s positive results, we look forward to advancing our development plan, and assuming FDA approval, independently marketing ALD403 in the U.S. to meet the critical medical needs of the 13 million patients nationwide who are candidates for migraine prevention therapy.” Alder’s decision to market its drug without a Big Pharma partner, unusual for a small biotech, could pit it against some very big competitors developing similar drugs. ALD403 is an anti-calcitonin gene-related peptide (CGRP) antibody, similar to migraine candidates that Amgen ( AMGN ), Teva Pharmaceutical Industries ( TEVA ) and Eli Lilly ( LLY ) are developing. Quarterly dosing distinguishes Alder’s drug: Amgen and Teva’s drugs are injected once a month, while Lilly’s is biweekly. ALD403 would also compete against Allergan ’s ( AGN ) Botox, which is also quarterly but involves 31 separate shots. Credit Suisse analyst Vamil Divan wrote that ALD403’s results seem roughly equivalent to Teva’s in terms of effectiveness, but he did note that there was no significant improvement over the placebo in the number of patients who experienced a 100% reduction in migraine days. Between 4% and 8% of patients on the drug achieved this, which was lower than the 16% who had been headache-free in a previous trial. Alder shares are rising from a deep decline.