Drug Stocks Rise as Fed Seen Acting to Cool Economic Growth
Bloomberg News
June 4, 1999, 4:59 p.m. ET
Drug Stocks Rise as Fed Seen Acting to Cool Economic Growth
Madison, New Jersey, June 4 (Bloomberg) -- Drugmakers, led
by Pfizer Inc., rose after government job statistics suggested
the Federal Reserve could raise interest rates to cool the
economy.
Drug stocks plunged this year on concerns that a growing
economy could make other industries more attractive to investors.
Before today, the AMEX Pharmaceutical Index had fallen 7.9
percent in 1999. The index rose 3.4 percent today after the
government reported the unemployment rate tied a 29-year low
while average hourly earnings increased.
Investors were attracted back to pharmaceutical stocks after
recent declines because drug companies can be relied on to
produce steady earnings growth even if the Fed raises interest
rates, analysts said.
''This group just kind of woke up. A lot of people had been
sitting on the sideline waiting for the drug stocks to get
cheap,'' said Jeffrey Chaffkin, an analyst with PaineWebber.
Pfizer, the maker of the anti-impotence pill Viagra, rose 6
5/8 to 115 1/8. Before today, shares had slipped 12 percent for
the year.
Schering-Plough Corp., maker of the world's No. 1 allergy
drug, Claritin, rose 2 3/4 to 48 7/8. Eli Lilly & Co., maker
of the world's No. 1 antidepressant, Prozac, rose 3 5/16 to 75
1/4.
American Home Products Corp. rose 3 5/16 to 56 5/16. On
Tuesday, the maker of the painkiller Advil warned that its 1999
profit will be less than expected because of weak demand for its
herbicides and pesticides.
Even with today's rally, the pharmaceutical industry faces
several challenges in the next few years. Congress is considering
ways to have its Medicare plan buy more drugs for the elderly.
That could put result in the U.S. government purchasing 30
percent of drugs in the U.S., giving it bargaining power to
demand lower prices.
In 2000, drugmakers will begin to see some of the world's
best-selling pills lose patent protection. Generic versions of
some of the world's top-selling drugs, including Eli Lilly &
Co.'s Prozac and AstraZeneca's Prilosec, could arrive within the
next few years.
These likely setbacks will follow years when managed-care,
once seen as a threat to pharmaceutical companies, helped boost
drugmakers profits and sales to record highs. Many managed-care
companies offer prescription plans, letting people get monthly
prescriptions for $5 or $10 co-pays.
These health plans also encourage people to visit doctors,
letting them get check-ups for $10 co-pays. Doctors then catch
more cases of chronic ailments such as high cholesterol and high
blood pressure. In recent years, drugmakers have brought out
several new medicines for these conditions, including Warner-
Lambert Co.'s cholesterol reducer Lipitor.
Now, managed care plans are trying to shift some of these
costs to customers, raising the cost of some prescriptions to $25
or $30 a month. At that price, some consumers may opt for cheaper
brands or even generic drugs.
''It's hard to believe the environment for drug stocks will
get better going forward,'' said Jack Lamberton, an analyst with
HSBC Securities.
|
