The market reaction to

Pharmacia's

(PHA)

first-quarter earnings demonstrated that meeting forecasts aren't good enough at a time when rivals are exceeding them. Shares slumped 4 1/16, or 7%, to 54.

Pharmacia, created through this year's merger of

Pharmacia & Upjohn

and

Monsanto

, posted a 27% gain in first-quarter earnings to 33 cents a share, in line with consensus forecasts.

But other companies reporting in the last week, such as

Warner-Lambert

(WLA)

,

Pfizer

(PFE) - Get Report

and

Bristol-Myers Squibb

(BMY) - Get Report

, beat consensus forecasts, fueled by strong drug-sales growth in blockbuster products. Pharmacia's drug sales, meanwhile, rose a mere 10% to $2.8 billion.

"They did hit their numbers, but all the other drug companies have been beating them," said Jason Young, an analyst with

Deutsche Bank Alex. Brown

. The brokerage rates the stock a market performer and has done no underwriting for Pharmacia.

Tuesday's slump followed a rally in Pharmacia's stock since early March, when it traded around 35 prior to its Monsanto merger. It then tracked a 32% rise in the

Amex Drug Index

on optimism over healthy drug company earnings and a shift from riskier technology stocks.

Although it didn't win the most-favored-earnings award this time around, Pharmacia is coming from far behind. It slumped into investor disfavor following a wrenching 1995 merger that created Pharmacia & Upjohn, the predecessor company. And while others were racking up billions selling blockbuster drugs like Warner-Lambert's Lipitor, Pharmacia was saddled with pushing more modest sellers, like Xalatan for glaucoma and Camptosar for colorectal cancer, along with a spate of older drugs.

That changed when Pharmacia bought Monsanto this year, mainly to get its hands on Celebrex, the blockbuster arthritis medicine that posted a whopping 92% sales gain, to $534 million, by far its biggest seller. Now the company is facing heavy competition from fellow New Jersey drugmaker

Merck

(MRK) - Get Report

, which sells Vioxx, a similar medicine.

But Vioxx, which was launched last June after Celebrex, is rapidly gaining on Celebrex, generating $370 million in sales in the quarter. Some analysts expect Vioxx sales to exceed those of Celebrex this year. "This drug has the potential to be the leading therapy in this large and rapidly expanding arthritis market," said

Lehman Brothers

in a recent report.

Fred Hassan, Pharmacia's chief executive, said he isn't worried. The market for Celebrex and Vioxx, both so-called Cox-2 inhibitors, is still wide open since many patients are still using traditional painkillers such as ibuprofen and aspirin, which can cause stomach upset.

One impediment to market growth, said Hassan, are health maintenance organizations, which can balk at paying higher prices for newer drugs when low-priced aspirin is available. New drug industry direct-to-consumer marketing campaigns have prompted consumers to demand that HMOs and others pay for newer medicines, however.

"We believe the market is poised for strong growth and it will be hard for managed care to hold back the product," Hassan said in a conference call.