No Love for Big Pharma Heading Into Second Half

Performance Anxiety

Big Pharma enters the third quarter looking a little better but still battered. Over the last 12 months, the Amex Pharmaceutical Index is virtually unchanged, while the S&P 500 is up 7.6% and the Amex Biotechnology Index is up 12%. Over the last six months, the big-drug index is up 3.5%, the biotech index is up 8.1%, and the S&P 500 is up 1.4%.

It has become hard to find a Big Pharma company that's more desired than denigrated. Except for Pfizer and Johnson & Johnson(JNJ Quote), which adds medical devices to its portfolio, you won't find any major U.S. pharmaceutical company whose buy ratings outnumber its combined total of neutral and sell ratings, according to data from Thomson First Call.

And in the relative quiet of the third quarter, it might be worth pausing to reflect on what a Big Pharma company really is. If you apply the standard definition, five U.S. giants -- Wyeth(WYE Quote), Bristol-Myers, Schering-Plough(SGP Quote), Eli Lilly(LLY Quote) and Merck -- have smaller market capitalizations than either Genentech(DNA Quote) or Amgen(AMGN Quote).

OK, that's enough time for reflection.

The Underdogs

As we enter the second half of the year, let's take a look at some of the underdogs -- the Big Pharma companies whose stock prices and sales have been hit by litigation, accounting problems, manufacturing difficulties, government investigations, etc. Using this definition, we could include almost every big drugmaker, but we'll focus on Wyeth, Bristol-Myers Squibb and Schering-Plough, which have been longtime members of this club, and Merck, which is the newest entrant.

Wyeth seems to have the best and fastest chance for a rebound, if you go by conventional wisdom. Most analysts (15) are neutral, but there are nine buy ratings and no sell ratings, according to Thomson First Call. Wyeth just upgraded its full-year earnings-per-share prediction to a range of $2.80 to $2.90 from a previous prediction of $2.70 to $2.80.