[MTC MRK PFE BMY]DuPont bets on biotech/Beware of drug stocks side effects
By Jeff Clabaugh, CBS MarketWatch
Last Update: 11:52 AM ET Nov 20, 1998
How will chemical giant DuPont (DD), the six-armed company that gave
us nylon and Kevlar, transform itself for the new century? DuPont's new
boss has seen the future, and the future is "life sciences," or the marrying
of chemistry with biotechnology. Fortune Investor Online says that may
mean acquisitions are on the horizon, and writer Amy R. Kover says
CEO Charles Holiday may soon be flush with the cash to make those
acquisitions. Having just pulled off Wall Street's biggest IPO ever with the
partial spin-off of Conoco Oil (COC), and with plans to sell the rest of the
oil company to DuPont shareholders, Kover estimates DuPont will have
about $9 billion in cash on hand. Likely takeover target? She guesses
Monsanto (MTC) is vulnerable after its failed merger with American
Home Products (AHP) last month. And she thinks DuPont may start
buying mid-sized pharmaceuticals companies or a series of small biotechs.
Kover quotes Holiday as saying DuPont's transformation will be a slow
one and the company will cling to its traditional lines. Evidence of that in
DuPont's $1.89 billion acquisition last month of Herberts, an automotive
paint company. She warns DuPont may continue to post disappointing
earnings for the next few quarters and writes, "After all, a $27 billion
chemical cow can't change into a lithe biotech gazelle overnight." More on
this recommendation is available at
pathfinder.com.
Beware of drug stock side effects
Choosing which pharmaceutical companies to invest in should take into
consideration not only research into what drugs the company has in the
pipeline, but also its exposure to patent expirations. Multex Investor
Network's The Ink Well interviews Alec Murray of Massachusetts
Financial Services who likes a lot of what he sees in today's drug industry,
but issues the patent exposure warning. Merck (MRK) is a good
example. Murray says while Merck has a new form of pain killer coming
to market called a Cox II inhibitor with the potential of generating billions
of dollars in revenue, Merck also has a number of products that will lose
patents between 2000 and 2002 including its second largest product,
Vasotec, a hypertension drug. When a drug goes on the generic market,
Murray says, the name brand equivalent typically loses 75 percent of its
sales in the first year. One company Murray says has worked its way
through its patent expiration problems is Bristol Myers Squibb (BMY),
which is growing earnings by 13 percent a year. The company has two
promising new products coming to market that could generate $500
million in annual combined sales. That would be on top of two other
Bristol Myers Squibb drugs already on the market that are worth more
than $2 billion dollars in sales. And yes, Murray likes Pfizer Inc (PFE) as
one of his top picks, but not just because of its blockbuster Viagra, which
now has the whole European market to conquer. He says Pfizer is also
bringing a Cox II inhibitor to market that will compete with Merck's
version. A company who's revenue was up 21 percent last quarter,
Murray puts a 12 month target price on Pfizer at $130. More on this
recommendation is available at
multexinvestor.com.
[Thread, the original article "Analyst Prescribes Drug Stocks" provides much more details. Do click and read the full article]
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