There's never really a quiet time in the pharmaceutical business, but the third quarter usually offers a relative respite.

Most of the major medical conferences have been held or won't occur until the fall. The Food and Drug Administration advisory committee calendar for reviewing experimental drugs looks pretty sparse until late September. And there aren't many formal FDA decision dates slated for Big Pharma products in the next few months.

But all's not necessarily quiet behind the scenes.

The third quarter could produce more insight into how Big Pharma plans to use funds repatriated from foreign subsidiaries, thanks to the one-time tax holiday bill signed by President Bush last year. Some companies, such as

Pfizer

(PFE) - Get Report

, have already said how much they will repatriate at sharply reduced tax rates, but they haven't given a detailed picture of what they might do with the money.

Anticipated court rulings on patent-challenge lawsuits will continue to play havoc with analysts' economic models, especially for Pfizer and its cholesterol drug Lipitor, and for

Bristol-Myers Squibb

(BMY) - Get Report

and its anticoagulant Plavix. Analysts long ago stopped betting on when judges might rule in these cases.

Those economic models also will remain written in pencil rather than ink, thanks to two other issues: the still-open question about whether Congress will pass legislation allowing the reimportation of drugs from Canada or elsewhere, and the impact of the new Medicare prescription drug plan, which takes effect next year.

And in this third quarter, at least one trial is expected to start -- and maybe as many as four -- with

Merck

(MRK) - Get Report

defending itself in the first round of cases involving Vioxx, the arthritis drug pulled by the company Sept. 30 because of an increased risk of cardiovascular problems.

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) - Get Report

, 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)

, Bristol-Myers,

Schering-Plough

(SGP)

,

Eli Lilly

(LLY) - Get Report

and Merck -- have smaller market capitalizations than either

Genentech

(DNA)

or

Amgen

(AMGN) - Get Report

.

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.

"The company's newer products ... are driving earnings growth," says Albert L. Rauch of A.G. Edwards in a June 24 research report issued just before Wyeth guided higher. "With competitive pressure on Effexor and Protonix, this earnings growth is expected to become more difficult." Effexor is an antidepressant; Protonix is a treatment for heartburn and acid reflux disease.

Rauch is keeping a hold rating, partly because he says Wyeth hasn't completely shaken the financial impact of litigation and settlements emanating from the now-withdrawn fen-phen diet drugs, and partly because of "historical problems with execution at Wyeth."

Rauch also has a hold rating on Bristol-Myers Squibb, making him virtually an optimist among his peers. It has the most sell ratings (10) among Big Pharma companies, along with 12 neutral recommendations and three buy ratings, according to Thomson First Call.

The company "is experiencing multiple patent expirations and will likely exhibit no earnings growth for the next several years," he says in a late-June research report issued a week after Bristol-Myers Squibb settled a

long-running investigation by the federal government into past accounting and sales practices.

"The company's valuation is dependent on its dividend yield," Rauch says, and the dividend depends on continued good sales of the anticoagulant Plavix and the schizophrenia drug Abilify. He expects no earnings-per-share growth through 2007.

Rauch is more charitable to Schering-Plough, and he is one of nine analysts issuing a buy recommendation vs. 11 with neutral ratings and six with sell ratings. Schering-Plough provokes the most divisiveness among Big Pharma analysts.

Rauch was one of the earliest to forecast a Schering-Plough turnaround, and he is sticking to his prediction that the company's growth rate will far exceed that of the industry average for the next few years. Clearly, the key to Schering-Plough's success is Vytorin, the combination cholesterol pill that it markets with Merck. In an early June report to clients, Rauch notes that Vytorin continues to be the fastest-growing cholesterol drug in the U.S.

Merck will need a lot more than Vytorin to revive itself. Although the company "has gotten through a significant round of generic competition," Rauch predicts a slight decline in the compounded earnings growth rate between 2004 and 2007. The cholesterol drug Zocor is starting to feel the effects of generic competition in Europe -- it loses U.S. patent protect in mid-2006 -- and Rauch is watching how well Merck can switch patients from Zocor to Vytorin, which combines Zocor and the Schering-Plough drug Zetia.

"We remain concerned about the company's modest earnings growth, weak pipeline, damage to its reputation and litigation risk" due to the Vioxx lawsuits, he says in a June 29 report, which reiterated a hold rating. He's not alone: There are 19 neutral ratings vs. five buy ratings and three sell recommendations.

Rauch doesn't own shares in any of the companies mentioned above. His firm has had a recent non-investment-banking relationship with each of the companies except for Merck.