Q&A: Big Year For Big Pharma

Drug stocks in the Standard & Poor's 500-pharmaceutical index are off almost 20% from the beginning of 2002. But Stephen M. Scala, a pharmaceutical analyst with SG Cowen Securities Corp., thinks the industry will bounce back soon. Scala talked with Personal Finance Editor Carol Marie Cropper about the reasons:

Q: Why do you see 2003 as a good year for drug stocks?

A: First, sales and earnings for the industry overall should accelerate in 2003 vs. 2002. The comparisons are easy because 2002 was quite weak.

Q: Of course, the market in general was down.

A: That really had nothing to do with it. It was predominantly because of major patent expirations, which clipped profits and sales for a number of companies: Bristol-Myers Squibb (BMY ), Eli Lilly (LLY ), and GlaxoSmithKline (GSK ).

Q: What about 2003?

A: Six to eight new products are rolling out in 2003. You have Abilify from Bristol-Myers Squibb for schizophrenia. There's Zetia, a cholesterol-reduction drug, from Merck (MRK ) and Schering-Plough (SGP ). And from Lilly, you have Strattera for attention deficit hyperactivity disorder.

Q: So, that's a second reason for your optimism. Anything else?

A: We now have a new Food & Drug Administration commissioner, and the FDA has picked up its new drug approval rate.

Q: Would congressional passage of Medicare prescription coverage for seniors be a drag on this industry, since there would be government pressure to hold prices down?

A: We believe it would be a positive for the industry....They'll sell more drugs, and the marketplace--not the government --will dictate the price.

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