Drug Stocks Weaken Anew on Reform Fears

Big drug stocks remain a bitter pill for their owners, as they sank again on Monday on new concerns over the possibility of federal reforms that could force drug prices lower.

The Standard & Poor’s index of six major drug stocks slid 3%, pulled down by names like Merck, off $3.19 to $68.25; Eli Lilly, down $1.75 to $64.13; and Schering-Plough, down $1.56 to $44.50.

The stocks have been in a sharp decline since late November, when President Clinton lashed out against the industry for spending large sums to derail his proposed reforms to provide better drug coverage for elderly Medicare patients.

Clinton’s anger has sparked fears that the government might seek to take a larger role in buying medicines directly from drug companies at forced price discounts.

“The mere fact that Clinton has targeted [the industry], and that it will be a topic of intense public debate going forward, means portfolio managers realize that’s going to scare people” away from the stocks, said analyst Charles Engelberg at AmeriCal Securities.

Medicare drug reform now isn’t expected to be tackled until after the 2000 presidential election.

Concerns also were raised Monday by a Wall Street Journal article describing a bill enacted by Massachusetts that could allow the state to demand drug discounts for about a quarter of the state’s population--including state employees and the uninsured.

State officials have until mid-January to develop the new program.

Drug stocks have rallied off and on this year amid expectations of more consolidation in the industry. But Merck, at $68.25, is down from $73.75 at the end of 1998. Lilly is down 28% since year-end.

Besides worries about Uncle Sam’s intentions, some drug companies have been depressed by investors’ concerns about a lack of blockbuster new drugs in some of the companies’ pipelines.

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Going Nowhere Fast

Major drug stocks have bounced in a narrow range for much of the last six months, hindered in part by concerns over the potential for new federal regulation. Weekly closes and latest for the Standard & Poor’s index of six major drug stocks:

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Monday: 5,378.40

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Source: Bloomberg News