Pfizer Woes Help Push Drug Stocks Lower

In the latest blow to one of the highest-flying stock sectors of recent years, shares of drug giant Pfizer Inc. have tumbled 10% over the last two days amid worries about its Trovan antibiotic.

Pfizer shares, down $5.38 to $99.56 on Thursday, helped pull the entire drug sector lower--continuing a decline that has slashed 25% from the Standard & Poor’s drug-stock index since it reached an all-time high on April 12.

Merck fell $2 to $67.88 on Thursday, Johnson & Johnson lost $2.31 to $89.50 and Schering-Plough slid $2.13 to $45.25.

The drug group, one of Wall Street’s favorite stock sectors since 1994, has been battered this year by fears of slowing earnings growth tied to concerns that fewer blockbuster drugs may be in the pipeline.

In addition, the stocks have been dumped by some portfolio managers who have shifted money from “growth” investing strategies to “value” investing strategies, in part because rising interest rates have made highly valued growth stocks appear much more expensive.

Pfizer, one of the hardest-hit shares, has dropped 34% from its record of $150.13 reached in April.

On Wednesday, the Food and Drug Administration told doctors that the drug Trovan should be used only to treat patients with serious or life-threatening illnesses because of concerns about liver problems. The limitation has dimmed hopes for the drug, and caused analysts to cut their earnings projections for Pfizer.

“A billion-dollar drug basically went ‘poof.’ That’s expensive,” said Jami Rubin, an analyst at Morgan Stanley Dean Witter. She said she now thinks Trovan will bring in $200 million a year at the most, down from her original peak projection of $1.3 billion.

The FDA instructed doctors to limit the use of Trovan after 14 reported cases of liver failure in patients taking the drug. Six patients died and four needed liver transplants.

“It’s certainly a blemish to Pfizer, especially since they invested so much money in getting the drug approved for so many indications,” said Michael Krensavage, a Brown Bros. Harriman analyst with a “neutral” rating on the stock.

Krensavage lowered his Pfizer earnings estimate for this year to $2.40 a share from 2.43, and his 2000 estimate to $2.85 from $2.92. The New York-based drug maker is expected to earn $2.46 this year, based on the average estimate of analysts polled by First Call Corp.

Rubin trimmed her 1999 earnings estimate to $2.43 from $2.45 and her 2000 estimate to $2.92 from $2.95.

Salomon Smith Barney analyst Christina Heuer said Trovan isn’t Pfizer’s only problem. She said the company is being hurt by slowing demand for its impotence pill Viagra, as well as its failure last year to win FDA approval for its Zeldox schizophrenia drug.

Public Citizen, a consumer group founded by Ralph Nader, asked the FDA on June 3 to recall Trovan, arguing that it is no more effective than similar drugs while posing higher risks.

Some money managers, eyeing drug stocks’ deep declines this year, argue that the shares are becoming much more attractive for long-term investors.

Still, the stocks’ price-to-earnings ratios remain among the highest for big-name growth stocks. Pfizer’s P/E is 40 based on expected 1999 earnings. The P/E was 61 at the stock’s recent peak.

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In Need of a Doctor?

Drug stocks have been careening lower in recent months after mostly soaring since 1994. Standard & Poor’s index of six major drug stocks, monthly closes and latest:

Jan. 1996: 2,389.75

Thursday: 5,480.35

Note: Index includes Lilly, Merck, Pfizer, Pharmacia & Upjohn, Schering-Plough and Watson Pharmaceuticals.

Source: Bloomberg News