Drugs & Biotech

Drugmakers aren't likely to soar as they did last year, but after 1996's glitches, biotech is likely to go up. One bright note: M&A madness is calming

After their best year since the roaring 1980s, drugmakers may be hard pressed to match 1996's stellar gains. Growth rates could slow because of a dearth of big new products and the ceaseless advance of generics and price-depressing managed care. "It's hard to draw a straight line and say this really supercharged environment is going to continue," says Cowen & Co. analyst Stephen M. Scala. "It's not."

Scala predicts that 10 large U.S. and European drugmakers together will increase profits about 12% this year, to $22.4 billion, while sales climb 8%, to $123.9 billion. The chief laggard might be Glaxo Wellcome PLC, whose earnings could shrink as it faces generic competition for its big-selling Zantac, the ulcer drug.

WORRISOME. Marketing expenses may slow some giants. Merck & Co. is spending heavily to support its cholesterol-lowering drugs against a rival product from Bristol-Myers Squibb Co. Pfizer Inc. will join the fray with Lipitor, a just-approved Warner-Lambert Co. drug it will co-promote. And Pfizer will push Aricept, a drug for Alzheimer's disease.

More worrisome is a shortage of new blockbuster treatments. Merck, Roche Holdings, and Abbott are doing well with protease inhibitors for managing AIDS but have few major new drugs. Scala counts just three pending drugs that could hit $500 million apiece in sales by 2000--Lipitor and the diabetes drug Rezulin, both from Warner-Lambert, and Coreg, a SmithKline Beecham antihypertensive awaiting approval as a congestive-heart-failure treatment.

Fewer worries over mergers and acquisitions could help. The pace of deals is flat--the $30 billion alliance of Sandoz and Ciba accounted for nearly all the $36.4 billion worth of deals recorded through early December, compared with $35.4 billion across several deals in 1995, according to Windhover Information Inc.'s Health Care Strategist. Few big deals appear on the horizon, even though speculators talk up a potential takeover of SmithKline Beecham by Roche. "I don't really see the need [for mergers] today," says Richard J. Kogan, chief executive of Schering-Plough Corp. "The industry is doing pretty well."

For their part, biotech companies must overcome recent disappointments. Chiron Corp.'s decision in November to kill a long-awaited herpes vaccine after it proved ineffective briefly sliced 17% off its stock price. This year could be better for biotech, should positive test results be forthcoming on such products as leptin, an Amgen Inc. obesity treatment, and BDNF, an Amgen-Regeneron treatment for Lou Gehrig's disease. Helpful, too, could be a forthcoming protease inhibitor, Viracept, from Agouron Pharmaceuticals Inc. For both biotech and pharma, the question is: Will the medicine prove strong enough?