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Biotech / Medical : PFE (Pfizer) How high will it go? -- Ignore unavailable to you. Want to Upgrade?

To: BigKNY3 who wrote (7100)	2/26/1999 11:25:00 PM
From: BigKNY3	Read Replies (1) \| Respond to of 9523

Future growth of the global pharmaceutical market evaluated by MSDW February 24, 1999 Marketletter via NewsEdge Corporation : In an evaluation of the issues expected to shape the performance of the pharmaceutical industry over the coming 12-18 months, analysts at Morgan Stanley Dean Witter have concluded that growth in the USA is peaking and that although Europe will benefit from industry consolidation, absolute growth is unlikely to rise dramatically. In general, the report favors second-half 1999 growth in smaller-capitalization companies like Nycomed Amersham and Fresenius Medical Care, rather than mainstream drug stocks, shifting the emphasis from high- capitalization to life sciences investments or emerging-growth pharmaceutical stocks with intact growth rates which have lagged the majors. The positive and negative influences which MSDW considers will affect the growth rate of the pharmaceutical market include: the long-term positive influence of demographics - the percentage of over 65s in the population will peak in 2020, giving an expected underlying US prescription volume of 5%, compared to 3.0%-3.5% in the mid-to-late 1990s; - mix - where new, expensive drugs will replace older, inexpensive ones, eg Glaxo Wellcome's Imitrex (sumatriptan) for aspirin, Janssen's Risperdal (risperidone) or Eli Lilly's Zyprexa (olanzapine) for generic haloperidol; - technology - advances in technology enables new diseases to be treatable, eg Gaucher's disease, Alzheimer's and multiple sclerosis; - patent expiry - essentially a negative mix change; - price cuts - more common in Europe due to government-controlled returns on sales. Changes in the payer-provider environment in the USA may also tackle rising prescription drug cost and cause negative growth; and - political involvement - more of a risk in Europe, but US risks imagined by stock market. New drugs are accepted at a slower rate in Europe and Japanese market practices are expected to be similar to Europe after the reimbursement-system changes. Differences between Europe and the USA are enhanced by the use of direct-to- consumer advertising. The report notes that a trend towards more generic prescribing and the availability of new drugs will result in more pan-European brands rather than regional favorites, and this should favor multinationals such as Glaxo Wellcome, SmithKline Beecham, Roche and Novartis. An analysis of the price/earnings ratio versus consensus growth for US firms between 1998 and 2000 shows that those companies which factored higher growth rates in 1998 (based on share prices as at June 30, 1997), namely Pfizer, Warner- Lambert and Eli Lilly, have rates which have generally materialized in the 2000 consensus (estimated from January 1999 data). The data for 2000 also show that Amgen has crossed above the line, possibly due to an improved outlook for Epogen (epoetin alfa), and W-L has dropped below the line, reflecting uncertainty over Rezulin (troglitazone) which is the subject of a US Food and Drug Administration meeting later this month. The analysts question whether market expectations are at another near-term top, as previous trends have shown that a downward revision in economic growth results in better performances in drug groups, and vice versa. Moreover, actual rather than relative changes in drug industry outlook produce more dramatic effects, such as the underperformance coinciding with Hillary Clinton's health care reform plans in 1992-93 when five-year growth projections fell from 15%-16% to 8%-9%. Expectations are now riding at 15%-16% again after outperformance of bull and bear phases in the early 1990s. Stock market earnings growth was not triggered in late 1998 despite the launch of new products such as Roche's Posicor (mibefradil), which was subsequently withdrawn over safety issues, Eli Lilly's Evista (raloxifene) and Novo Nordisk's Prandin (repaglinide). MSDW attributes the failure of these products to trigger the market to a lack of uniformity of view on the drugs' prospects. The converse may mean that the outlook for US pharmaceutical market growth may be less than that factored by analysts as uniformity of view has bolstered the prospects of COX-2 inhibitors such as Merck's Vioxx (rofecoxib) and Searle/Pfizer's Celebrex (celecoxib), meaning failure to obtain high prescription volumes soon after launch may trigger a downward review of the market. In the UK market, an upward turn may come from SB's diabetes drug Avandia (rosiglitazone) and five new products waiting in the wings at GW. In the rest of Europe, Roche's Xenical (orlistat) is expected to perform well in the USA after a promising start in Europe. MSDW analysts believe that a near-term negative impact on the US market would be seen if the Allen Bill (Marketletter February 22) is passed in its proposed form, resulting in triple the level of discounting in order to provide Medicare patients with access to the same drug prices as Medicaid patients. However, the analysts conceded that due to the strength of opposition, a watered-down version of the bill is more likely, possibly encompassing certain classes of drug. Prescription drug demand has not been attenuated by the payer/provider environment as a result of the lack of control over prescription trends and a lack of demand for cheaper health care plans. MSDW disagrees with the attribution of prescription drug costs to the poor performance of health maintenance organizations, although most HMOs are claiming that this is the fastest growing cost, or that, with the exception of HIV and asthma, higher drug utilization does not result in cost benefits.