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Clouds Loom for Big Pharma

As big drug company executives look forward to next year, they can count on one big plus. John Kerry won't be president. And if you give them a few minutes, maybe they can think of something else.

Big Pharma enters 2005 with big problems. For example, there's legal uncertainty for Merck (MRK), because it withdrew the arthritis drug Vioxx from the market.

And for most of 2004, the biggest future uncertainty for Pfizer (PFE) was how to come up with big new drugs to drive growth at the biggest pharmaceutical company.

Now the greatest uncertainty is a review by the Food and Drug Administration of its arthritis drugs Celebrex and Bextra. That's because one clinical trial for each of the medications said they pose a higher risk of cardiovascular problems. These drugs are COX-2 inhibitors, the same class of drug as Vioxx. Pfizer is keeping them both on the market as the FDA urges doctors to consider restricting their use.

There's also reputation-repair uncertainty for several companies, whose stocks have been pounded in recent years, as they try to attract Wall Street's attention in a positive way.

Meanwhile, the key issues that analysts cited for choppy stock performances leading up to the presidential election haven't gone away. Wall Street drug watchers said George W. Bush would be better for Big Pharma: He's back, and so are a host of unresolved matters, such as drug reimportation; consumer complaints about drug prices; regulatory rule-writing for Medicare drug coverage; and political pondering about the Food and Drug Administration's effectiveness.

As for broad themes, Moody's Investors Service says R&D will play an increasingly important role for U.S. and European drug giants during the rest of the decade "as more blockbuster products go generic, pinching revenues and margins."

Sick List
Worst-performing drug companies in 2004
Company & Ticker Dec. 27 Closing Price Change
Merck MRK $31.95 -30.80%
Forest Laboratories FRX $45.26 -26.80%
Pfizer PFE $26.50 -25.00%
Amex Pharmaceutical Index 315.15 -6.10%
Source: TSC Research

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