This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Drug Companies Looking at Another Strong Quarter

Fueled by new blockbuster drugs and heavy advertising, drug companies aren't likely to disappoint investors when they report second-quarter earnings, beginning this month.

And while politicians and consumer advocates step up their calls to slash drug prices, the noise isn't likely to dampen investors' recent enthusiasm for drug stocks, which typically produce strong earnings growth no matter what the economy is doing.

Most major drug companies are expected to post at least double-digit earnings gains in this year's second quarter over the same period last year, analysts say. Some, like Pfizer (PFE - Get Report), which just bought Warner-Lambert, could show even stronger gains. The maker of Zoloft for depression and Viagra for impotence is expected to post a 22% gain in second-quarter earnings when it reports in late July.

Live Long and Prosper

"It's all being driven by new product flow and increased utilization of prescriptions," says Jeff Kraws, drug industry analyst with Gruntal, which doesn't do underwriting for drug companies. "People want to live longer. They realize that taking their medicine is good for them."

Feeling No Pain
Analysts expect drugmakers to report 12% earnings growth
Company Reporting date Quarterly EPS estimate Year-ago earnings Projected change
Bristol-Myers (BMY:NYSE) July 18 54c 47c +15%
Pfizer (PFE:NYSE) July 19 22c 18c +22%
American Home (AHP:NYSE) July 20 32c 34c -6%
Lilly (LLY:NYSE) July 20 60c 52c +15%
Merck (MRK:NYSE) July 24 69c 61c +13%
Pharmacia (PHA:NYSE) July 25 47c 40c +18%
Schering-Plough (SGP:NYSE) July 25 43c 37c +16%
SmithKline Beecham (SBH:NYSE ADR) July 25 46c 40c +15%
Glaxo (GLX:NYSE ADR) July 31 91c* 83c +10%
AstraZeneca (AZ:NYSE ADR) Aug. 4 42c 43c -2%
Source: First Call/Thomson Financial. *First-half figures.

Prescription chartbusters this time around are expected to include fast-growing arthritis drugs Vioxx from Merck (MRK - Get Report), Celebrex from Pharmacia (PHA) and Enbrel from American Home (AHP - Get Report) and Immunex (IMNX). And Pfizer's Viagra is no slouch: The drug generated sales of $333 million in the 2000 first quarter, marking a 58% rise on a year ago, and new prescriptions continued to rise in the second quarter, according to IMS America, a market research firm.

Analysts will also be looking at the impact of mergers on companies such as Pharmacia, which bought Monsanto, and Pfizer with Warner-Lambert. Companies typically buy competitors to expand product offerings and cut costs as a way to grow earnings, and the industry continues to consolidate. Pharmacia completed its merger with Monsanto in April, and Pfizer joined with Warner-Lambert in June. More mergers can be expected if companies fail to meet expectations over several quarters.

"Some newly merged companies will have some incentive to show good numbers," says C.J. Sylvester, analyst with PaineWebber, which does underwriting for drug stocks. "Pharmacia was a little weak in the first quarter, so they will really have to show some good growth." That company is expected to show a 17.5% gain in earnings to 47 cents in the second quarter, according to a consensus forecast compiled by First Call/Thomson Financial.

The Outcry

The earnings come amid a national outcry over rising pharmaceutical prices and demands for more drug benefits for the elderly and others who can't afford them.

While Congress is debating various proposals along those lines, PaineWebber's Sylvester said such a plan is unlikely to be passed this year with Congress now focusing on election campaigns. Even so, any such program is likely to be a net neutral for drug companies, since rising sales to the estimated 13 million seniors without coverage would offset any price cuts for those drugs through a government mandated program.

Drug stocks, which generally declined last year and in the first few months of this year partly on worries over possible government price controls, have rebounded in recent months, reflecting reduced concern over price controls and rising confidence in the industry over blockbuster drug development. The Amex Pharmaceutical Index, for instance, has gained 46% since early March to close at 417 Friday.

"Clearly there is increasing noise for some form of drug benefit for seniors, but the likelihood of any legislation getting past is less than 10%," PaineWebber's Sylvester says.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AHP $12.21 2.30%
BMY $71.24 0.13%
LLY $74.58 -0.92%
MRK $53.60 -0.91%
PFE $33.63 0.18%


Chart of I:DJI
DOW 17,740.63 +79.92 0.45%
S&P 500 2,057.14 +6.51 0.32%
NASDAQ 4,736.1550 +19.0610 0.40%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs