Time to Buy Drugmaker Stocks?

With most second-quarter results beating Wall Street estimates and several companies raising full-year guidance, is it time to declare Big Pharma back in favor?

Almost every big U.S. drugmaker posted higher-than-expected earnings per share for the quarter. The exception was Pfizer(PFE - Cramer's Take - Stockpickr), whose adjusted profits fell short of analysts' estimates. Pfizer kept its full-year forecast.

Four companies -- Bristol-Myers Squibb(BMY - Cramer's Take - Stockpickr), Eli Lilly(LLY - Cramer's Take - Stockpickr), Wyeth(WYE - Cramer's Take - Stockpickr) and Merck(MRK - Cramer's Take - Stockpickr) -- raised their 2007 earnings projections.

Merck was the most optimistic, boosting its EPS forecast by 25 cents.

But don't break out the champagne yet. "It's a little too early to declare victory," says Les Funtleyder, a health care analyst at the institutional trading firm of Miller Tabak.

Although many drugmakers "seem to be turning the corner" on sales-growth rates, it will be harder to grow for some of the biggest, such as Pfizer, Novartis(NVS - Cramer's Take - Stockpickr) and GlaxoSmithKline(GSK - Cramer's Take - Stockpickr), due to their sheer size, he says.

The best indicator of an industry comeback will be in the fourth quarter, when companies stage their R&D days to reveal the progress of their experimental drugs, Funtleyder says.

"We know who has the products, and we know when patents expire," he explains. "What we need is new classes of drugs. If the pipelines look better, people will get more excited."