Big Pharma Blues

A rising rate of FDA rejections deepens the industry's woes. But S&P still likes three stocks in the group

By Herman Saftlas

A rudderless U.S. Food and Drug Administration is rejecting an increasing number of submissions from major drug companies. And that continues to weigh on stocks in the industry.

The most recent example: The rejection by an FDA panel on Jan. 25 of regimen changes submitted by American Home Products (AHP ) for its Rapamune kidney transplant drug. There was a sharp increase in FDA rejections of drug submissions in 2001, while the number of New Molecular Entities approved fell to 24, from 35 in 1999. Part of the problem reflects the lack of an FDA commissioner.

In addition to the rising rate of rejections, the industry is being buffeted by patent expirations and mounting pricing pressures from state agencies.

S&P is maintaining its neutral rankings on most Big Pharma stocks, including AHP. But we still recommend three issues: Johnson & Johnson (JNJ ), which carries S&P's highest investment recommendation of 5 STARS (buy); and Abbott Laboratories (ABT ) and Pfizer Inc. (PFE ), both ranked 4 STARS (accumulate).

Saftlas is an equity analyst covering pharmaceutical stocks for Standard & Poor's

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