Bear Mauls
Big Bad Pharma
Bear Market has dire implications for Pharma Corporates

by Fintan Dunne
Editor, SickofDoctors.com
25th July, 2002.

These are not a good times for the pharmaceutical corporates or the new biotechnology upstarts. The stock market may be a calamity, but the pharma sector is trending towards catastrophe.

Most large-cap drug stocks have taken a beating over recent weeks. Bristol-Myers Squibb, Pharmacia, Merck, Pfizer, Eli Lilly and Schering-Plough have all fallen.

Since the beginning of the year, pharmaceutical shares have fallen by a third, compared with a drop of a fifth in the S&P 500. Johnson and Johnson stocks nosedived Friday 19th July, 2002, as the Food and Drug Administration began asking questions about its Puerto Rican operations. But that was only the latest in a series of disasters.

Shares in pharmaceutical giant Merck tumbled after a Securities and Exchange Commission filing by the company revealed that 10 percent of revenue reported since 1999 was never actually collected by their pharmacy-benefits subsidiary Medco. Merck was forced to pull a $980 million initial public offering of Medco shares due to market response to the news.

Then New York law firm Milberg Weiss Bershad Hynes & Lerach filed a class action lawsuit July 2, 2002, on behalf of purchasers of Merck securities. They allege that Merc's financial statements were materially false and misleading. The same law firm is also pursuing a class action in relation to Enron Corporation.

Bristol-Myers Squibb(BMS), another huge drug company, also disclosed in July that the SEC was investigating the incentives BMS offered to wholesalers to take stock in order to enable it to meet sales targets. Elan, another pharmaceutical company, is now also facing investigation of its accounting policies.

EVEN GOOD NEWS IS BAD
 

Attempting to buck the trend, Pfizer's acquisition of rival pharmaceutical company Pharmacia for $60 billion in stock, seemed to have all the makings of a deal that could have boosted the sector. But the market was unimpressed.

"The weak got weaker today," said Christopher Bonavico, manager of the Transamerica Premier Aggressive Growth fund, which holds shares in both Pfizer and Pharmacia. As drug revenues slide, profits are under pressure from patent expirations on prominent drugs and increased competition from generic companies --added to by the concerns about accounting problems.

Confidence was hardly boosted by news that six officials of biotechnology group ImClone, including John Landes, the company's top lawyer, sold their shares in the weeks leading up to the US Food and Drug Administration's rejection of a licensing application for Erbitux, ImClone's anti- cancer drug. "Everybody but the mailroom boy was dumping stock," said House Energy and Commerce Committee chairman Billy Tauzin.

Along with MedImmune, Human Genome Sciences and Celera, four other biotechnology stocks also hit new lows for the year when the broader stock market turned lower: Digene Corp., EntreMed Inc., Gene Logic Inc. and Novavax Inc. Novavax shares took their latest dive because of reports questioning the effectiveness and the safety of hormone-replacement drugs, which generate billions of dollars a year for drug companies.

Pharmaceutical profits have been the envy of other sectors. Drug company largesse has greased the palms of politicians and showered doctors with everything from succulent dinners; to golf trips; to sunkissed symposiums. Excuse the warped metaphor, but now the chickens are coming home to roost --only to find the stockmarket henhouse is collapsing.

Reuters, London reported an interview June 27 with billionaire financier George Soros. His comments were a sobering and dire assesment. "The international financial system is coming apart at the seams," said Soros. "There is a lack of confidence. There is a liquidity crisis in financial markets. Everybody’s going home."

Without huge profits to underpin drug marketing, Big Pharma may be on a slippery slope. An even more apalling prospect is that the foundering pharma sector might no longer be able to keep the lid on the litigants who are now waiting in the wings.

It really couldn't happen to a nicer bunch of corporates.