Why moving - I doubt it was this morning's Boston Globe column; thanks for posting the Rx #'s, Jon:
High hopes, steep fall
By Steven Syre, Globe Columnist | March 27, 2007
Medical stocks should come with their own warning labels.
True, they can climb high on the strength of a powerful investment story and even make good on the promise, at least for awhile. But the relentless pressure of expectations and competition make it incredibly difficult for medical companies to sustain the stock market's peak enthusiasm.
Consider developments at two companies: Boston Scientific Corp., the stent maker headquartered in Natick, and Sepracor Inc., a drug company in Marlborough. In recent years, both companies developed what would become flagship products, reaping huge stock market rewards. Now, their positions in lucrative markets are coming under increasingly competitive pressure. Their stocks have come away worse for the experience so far this year.
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Sepracor is familiar with many of these story lines. The company's Lunesta sleep drug already faces competition from the likes of Ambien and Ambien CR, as well as many other smaller threats. But Lunesta and the Ambien products combined control between two-thirds and 85 percent of the market, depending on how you measure it.
Lunesta will face a new kind of competition in just a few weeks, when generic Ambien arrives on the market. Some analysts believe that will cut into Lunesta's customer base and make it harder for the Sepracor product to win the same share of new patients. That's one big reason why Sepracor shares are down 22 percent this year.
Lunesta generated $567 million in sales last year, and some analysts project that figure will approach $1 billion in peak years ahead. "That's a sizable trajectory, and a lot has to break right for it to happen," says analyst David Amsellem of Friedman Billing Ramsey. "I don't think it's going to be a billion-dollar drug."
Competition and increased regulatory scrutiny of the entire sleep-drug category may cause problems for Lunesta, but Sepracor still has another leg to stand on. Its Xopenex asthma drug generated sales roughly equal to Lunesta revenue last year, and other products are under development.
But Lunesta was the investment story that really got Sepracor stock up off the mat in fall 2002. The company's shares climbed from about $4 at that time to a peak of over $65 just before the drug's launch two years ago. Since then, Sepracor shares have actually declined about 10 percent.
High expectations and intense competition are powerful trends to fight. Medical stocks run into them all the time and usually end up worse for the experience. |
