Market Hyperventilates over Drug Union Euphoria

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of drug companies has sent shivers of euphoria through the sector.

Right now, investors are taking a look at the confirmed merger talks between

Glaxo Wellcome

(GLX)

could hook up with another company soon, perhaps

Pharmacia Upjohn

(PNU)

or

Eli Lilly

(LLY) - Get Report

. Which is why AHP fell just 3 13/16 to close at 91 5/8 Monday after it added 13 points the day its now-terminated talks with SmithKline Beecham were disclosed last month.

Warner-Lambert

(WLA)

and

Schering-Plough

(SGP)

might look around for partners as well.

Wall Street thinks mid-sized pharmaceutical companies, such as the niche concerns

Dura

(DURA) - Get Report

and

Jones Medical

(JMED)

that license smaller drugs from Big Pharma, will also benefit. The thinking is that the more massive the drug companies become the bigger the products they'll need to maintain their double-digit growth rates. So they'll offer increasingly bigger -- and more profitable -- products to medium-sized pharmaceutical companies.

And even Little Biotech is going to be better off, investors now contend. "Maybe it will accelerate mergers between biotechs," mused Will Chester, of

Denver Investment Advisors

. "Biotech is falling behind Big Pharma. I don't know when the perspective changes to think merger are a positive" in biotech.

Well, waitaminute.

In a landscape where Glaxo and SmithKline are married, with a more than $3 billion research and development budget and roughly 7.5% market share -- which would dwarf other companies' -- there will be losers as well.

How about

Merck

(MRK) - Get Report

? This is the company that's watching while Big Pharma and Little Biotech alike munch on its lunchables.

Warner-Lambert/Pfizer's

cholesterol drug

Lipitor

has shocked Merck's cholesterol franchise drugs

Zocor

and

Mevacor

.

Agouron

(AGPH)

, with what many think is a less potent AIDS drug in

Viracept

, has become a serious thorn in the side of Merck's

Crixivan

. And then there's that patent issue in the first few years of the next century, when billions of dollars worth of Merck compounds lose patent protection. Despite its looming troubles and its repeated unwillingness to entertain a merger, Merck climbed to 120 3/16 Monday before giving much of that back. It closed up 3/8 at 117 3/4. Investors think that it will have to make a dramatic acquisition to keep up.

Pfizer

(PFE) - Get Report

? It has perhaps the best emerging pipeline in the industry and the P/E to reflect it, led by its impotence pill. But what happens if

Viagra

is not the recreational drug of the new millennium?

Amgen

(AMGN) - Get Report

and

Human Genome Sciences

(HGSI)

both jumped Monday, Amgen rising 4 to 54 and Human Genome climbing 3 3/4 to 41 5/8.

Why? Amgen is a takeover target, investors think. But this is a company that has focused distribution in a certain slice of the cancer arena and kidney dialysis and has a thin new-product pipeline. Its chief asset is a lot of cash.

Human Genome signed a blockbuster deal with SmithKline five years ago. But if SmithKline has such a wealth of targets and leads from its genomics collaborations with Human Genome, why does it feel the need to merge with Glaxo? The answer is cost cutting, which drove the

Novartis

merger between Swiss drug giants Ciba-Geigy and Sandoz. In that environment, SmithKline's projects derived from Human Genome leads could be delayed.

In any merger mania, it's always good to take a breath now and then.