Ailing Drugs Spark Stock Market Slide
Drug stocks gave investors a headache Friday, as a triple dose of bad news from Pfizer, Eli Lilly and AstraZeneca sparked a broad sell-off that clipped the blue-chip indexes.
Economic worries added to the downswing as oil prices jumped 5% on forecasts for colder weather in the Northeast and several technology firms reported disappointing earnings. But strategists said the latest in a spate of bombshells rocking the pharmaceutical industry this year set the market’s tone.
“People are finally coming to the realization of what a risky business this is,” Chris Orndorff, head of equities at Los Angeles-based money manager Payden & Rygel, said of the drug sector. “It costs an extraordinary amount of money to produce a new drug, the approval process is long, and eventually the patent expires.”
The Dow Jones industrial average fell 55.72 points, or 0.5%, to 10,649.92. The broader Standard & Poor’s 500 index slid 9.01 points, or 0.8%, to 1,194.20, and the technology-heavy Nasdaq composite lost 10.95 points, or 0.5%, to 2,135.20.
Trading was heavy, partly because of the “quadruple witching” expiration of quarterly options and futures on both stocks and market indexes, which can spur investors to reconfigure their portfolios.
Even with the setback, the three major indexes posted winning weeks, with the Dow rising 1%, the S&P; 500 gaining 0.5% and Nasdaq adding 0.3%.
Pfizer was the biggest drag on the S&P; 500 on Friday, tumbling $3.23, or 11%, to $25.75 after a study of its arthritis drug Celebrex showed an elevated risk of heart attack.
Eli Lilly fell $1.38 to $56.02 after saying it would add a warning label to its hyperactivity disorder medication Strattera because it could cause liver damage.
AstraZeneca sank $3.11, or 7.7%, to $37.10 in U.S. trading after the London company reported that its lung-cancer drug Iressa had failed to help patients live longer during a clinical study.
Russ Koesterich, strategist at State Street Global Markets in Boston, said that in addition to legal and regulatory problems, the drug sector has been ailing because companies’ product pipelines have gotten “anemic.”
“They are growth stocks with no growth prospects,” Koesterich said.
Oil futures soared in New York trading, finishing $2.10 higher at $46.28 a barrel, amid forecasts for continued harsh weather in the Northeast.
In the technology sector, Milpitas, Calif.-based PalmOne plunged $9.44 to $33.11 after the maker of portable electronic devices warned that sales and profit in the current quarter would fall short of expectations.
3Com, maker of computer networking gear, eased 19 cents to $3.79 and Take-Two Interactive Software slipped $1.01 to $32.46 after both reported disappointing quarterly results.
For the near term, the stock market remains vulnerable to “headline risk,” as Friday’s slide demonstrated, said Jack Caffrey, strategist at JP Morgan Chase’s private bank.
In the coming weeks, Caffrey said retailers’ reports on holiday sales, which are seen as a key indicator of consumer sentiment, and companies’ early “confessions” leading up to official fourth-quarter earnings reports could affect the market.
In other market highlights:
* U.S. Treasuries were little changed, with the yield on the benchmark 10-year note inching up to 4.20% from 4.19%.
* The dollar weakened against the euro and yen. The euro rose to $1.329 from $1.325 on Thursday. The dollar fell to 104.31 yen, from 104.78.
* Circuit City Stores shed 56 cents to $14.72 after the electronics retailer gave a cautious revenue outlook.
* Leapfrog Enterprises lost $1.99 to $12.38 after the Emeryville, Calif., maker of educational toys guided profit downward.
* Nike jumped $5.80 to $91.70 after topping Wall Street’s profit expectations for the quarter.
* CarMax rose $2.61 to $30.06 after giving an improved outlook on used-car sales.
