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

To: Anthony Wong who wrote (7248)	3/19/1999 8:18:00 AM
From: BigKNY3	Read Replies (4) \| Respond to of 9523

Some Drug Companies/Pipeline Blues -2: 03/18/99 Dow Jones News Service "Lilly is a great company, and it's well-managed," says Sarah Ross, an analyst at Edward Jones, which rates Lilly a Hold. "But when you have a drug like Prozac most likely coming off patent in 2003, that's a big risk. Somehow, they're going to have to fill in that gap. It puts a lot of near-term pressure on these new products coming onto the market." Seiden notes that the premium Lilly commands relative to its peers "requires that pretty much everything goes right from here." That's not impossible, he says, but key drugs must deliver. Those include Prozac; Evista, an osteoporosis drug, and Zyprexa, a drug used to treat schizophrenia (it generated $1.4 billion in sales last year). "Lilly has a lot riding on just a few products," notes Seiden, who rates the stock a Market Performer, "....and we don't think investors are fairly compensated for the risk." Another big player, Schering-Plough Corp. (SGP), must contend with two key patent expirations in 2002: Claritin, an antiallergy drug with about $1.7 billion in 1998 sales, and Intron-A, used to treat cancer and hepatitis C. It generated more than $600 million in sales last year. The stock closed Thursday at 58 5/8, close to its 52-week high of 59 1/4, which it hit Tuesday. It trades at about 42x 1999 earnings estimates, and at more than 36x 2000 estimates, according to First Call. Those are some of the highest multiples among drug stocks, nearly 10% above the group average, based on 2000 estimates. The shares also trade at P/Es way above their projected growth rates of 16% to 17% over the next few years. No doubt, those impending patent expirations pose a threat to Schering-Plough's earnings growth, says Neil Sweig, a pharmaceutical analyst with Southeast Research Partners. At the same time, he says, the expirations are more than two years off, and a lot can happen in that time - a merger with another drug company, for example, or a protracted legal fight to extend patent exclusivity. Sweig insists the Schering-Plough's expensive valuation is justified. He points to the company's consistent earnings growth in the 1990s, typically above the mid-teens annually. New products slated for this year include Temodal, a brain cancer drug. But Michael Kagan, lead portfolio manager of the $1.8 billion closed-end Salomon Brothers Fund, describes Schering-Plough as a "trust me story," and says its multiple is too pricey for his investing taste. The fund does not hold the stock, he says. "It's more of an issue of what are they going to show us that's going to [boost the earnings] growth," Kagan says. A lot of investors have put a lot of money into big-cap pharmaceutical companies this decade, as the stocks' valuations attest. And for the most part, they've been richly rewarded. But these companies' thinning pipelines narrow their margin for error - and that could make the booming 1990s an even harder act to follow.