U.S. drug group loses ground to "cyclical" stocks
Reuters Story - April 19, 1999 20:09
NEW YORK, April 19 (Reuters) - Shares of big pharmaceutical stocks dropped Monday as drug investors continued shifting money into industries deemed to have more growth potential and amid jitters about the falling sales of several blockbuster drugs, analysts said.
Hambrecht & Quist drug analyst Alex Zisson attributed most of Monday's decline to "sector rotation" out of drug stocks into other so-called cyclical industries whose fortunes brighten as global economic conditions improve, such as paper and aluminum.
Zisson said investors were bailing out of non-cyclical industries such as pharmaceuticals, which make products that people need to buy regardless of whether economic conditions are good or sour.
"It's part of an ongoing rotation for the last four trading days," Zisson said. "Investors are rotating out of defensive, non-cyclical stocks."
Investors have also been abandoning technology issues, particularly volatile Internet stocks. The technology-heavy Nasdaq composite index fell 5.57 percent Monday. The broad- based Standard & Poors 500 index of large U.S. companies fell 2.24 percent.
"Investors are continuing to rotate out of drug stocks across the board," said EVEREN Securities analyst Jeffrey Kraws, who added that it was anybody's guess when the sell-off would end.
The American Stock Exchange Pharmaceutical Index, comprised of the largest U.S. drug makers and a handful of European companies, fell 5.69 percent to 363.81 Monday. The index reached a closing lifetime high of 424.94 on April 12, but has fallen 16.8 percent in the past week.
Eli Lilly & Co. was the drug group loss leader Monday, its shares shrinking $9.44 to $72.87, or 11.5 percent. Lilly earlier Monday said first-quarter global profit rose to $626 million. But it spooked investors by disclosing that revenues from its flagship drug Prozac fell 4 percent to $589.9 million.
Pfizer Inc. lost $9.12 to $117.94 on the New York Stock Exchange with almost 7 million shares exchanging hands. Pfizer shares have tumbled 21.3 percent since reaching a lifetime closing high of 150 on April 12.
Pfizer last Thursday matched Wall Street first-quarter earnings estimates with profits rising 18 percent to $815 million. But it disappointed with news that sales of anti- impotence drug Viagra fell to $193 million, down 18 percent from fourth quarter 1998 revenues of $236 million.
Pfizer cautioned that, although 1999 earnings would likely grow at least 20 percent over the prior year, its second quarter earnings growth would slow to single-digit range because of higher research and development expenses and other factors.
Zisson said Lilly was hurt by sales growth "mediocre relative to expectations" and that Pfizer was being punished for predicting the second-quarter earnings slowdown.
"A more forgiving market might shrug it off, but given the overall backdrop, Pfizer and Lilly have been particularly punished," Zisson said.
Warner-Lambert Co. , maker of anti-cholesterol drug Lipitor and diabetes drug Rezulin, fell $5.50 to $61.87. It is now down 18 percent from its April 13 closing price of $72.50.
Schering-Plough Corp. , maker of the blockbuster antihistamine Claritin, dropped $4.12 to $48.37. It is down 20.4 percent from its closing lifetime high of $60.75 of April 12.
Bristol-Myers Squibb Co. fell $4.12 to $57.44. That is down 15 percent from its closing lifetime high of $67.50 on April 13.
American Home Products dropped $2.81 to $59.75. Its shares are off 14.3 percent from their April 12 lifetime high of $69.75
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