Robert Steyer
Despite good second-quarter results, investors still aren't very excited, assuming that stock-price growth is an accurate indicator of sentiment.
The Amex Pharmaceutical Index, consisting mostly of big drugmakers, is off about 1% in the last 12 months, through July 26, while the S&P 500 is up about 17%. Over the last three months, the drug index is down by 7.5% while the S&P 500 is off by about 1%, again through July 26. As of last Thursday, only Bristol-Myers Squibb was beating the S&P 500 during the past three months, while Merck was in a virtual tie with the index. Some drugmakers with consensus-beating second-quarter performances and full-year EPS upgrades trailed the S&P. Shares of Wyeth, for instance, are down about 13%, and Lilly is off about 5% over the last three months. Even if Big Pharma returns to favor, some experts say the revival could be short-lived. A recent report by Moody's Investors Services warns there will be a "wave" of big-drug patent expirations, such as Pfizer's Lipitor, between 2010 and 2012, which could pressure credit ratings. Plus, a recent U.S. Supreme Court ruling could make it easier for generic-drug makers to challenge brand-name patents, causing earlier-than-expected revenue losses. And don't forget politics. Along with major product failures, the 2008 election could be a negative factor for the drug and managed care industries because "they are great targets," Funtleyder says. "The market hates uncertainty, and health care will be a topic of conversation."
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