Big Pharma On The Mend
Biotechnology and pharmaceutical stocks mirrored the overall market last week as traders mark time until the sectors' heavyweights begin to report in earnest next week. The American Stock Exchange Pharmaceutical Index fell 1.4% for the week, while the Nasdaq Biotechnology Index ended flat. Banc of America Securities said 2005 will be "another tough year" for U.S. large-cap pharmaceutical companies. The sector "is in the latter stages of a cyclical downturn in research and development productivity, with limited visibility into the next wave of innovative new products," the research firm said. "Importantly, we do not believe the business model is necessarily broken, but it will be at least 12 months before we get solid visibility on the critical innovation that we believe is slowly emerging in the pipeline." Notably, Banc of America initiated coverage of Schering-Plough (nyse: SGP - news - people ) at "sell" with a $17 target price. Genentech (nyse: DNA - news - people ) shares fell 6.85% Jan. 11 after the biotech stalwart reported disappointing sales for its cancer drug Avastin, logging fourth-quarter revenue of $190 million, below the Wall Street consensus of $220 million. "This result is likely to precipitate a slew of lowered forecasts and negative revisions," said Sanford Bernstein. "Avastin appears to have reached a peak in this indication and, as we anticipated, is likely to generate peak sales of $800 million to $850 million in metastatic colorectal cancer, rather than the $1.3 billion to $1.6 billion widely expected." The research firm maintained a "market perform" rating and $55 target price. "While we would like to make the company a core long-term holding in our group, we continue to examine the opportunity for Avastin in NSCLC [non-small-cell lung cancer], which is the key incremental driver of value at this stage," it said. "We would advise investors to wait out the inevitable forecast reductions and negative estimate revisions." Late on Jan. 11, Genzyme (nasdaq: GENZ - news - people ) pre-announced strong fourth-quarter revenue of $591 million, $8 million higher than the Street forecast of $583 million. Genzyme shares gained 5% in the Jan. 12 trading session. The biotech firm also issued upbeat 2005 guidance, with earnings per share projected at $2.08 to $2.16. Prudential Equity Group maintained a "neutral weight" rating for Genzyme and a $61 price target. "We believe a significant portion of the fourth-quarter differences between our estimates may be due to the depreciation of the U.S. dollar, given the company's substantial degree of international sales," Prudential said. The research firm expects Genzyme's arthritis drug Synvisc to command more investor attention in the coming quarters. "Given the favorable demographic trends in this disease and the ability of Genzyme to gain full control of the marketing of this product, we believe that Synvisc may present a growth opportunity for Genzyme," it said. Pfizer (nyse: PFE - news - people ) shares fell 2.69% on above-average volume Jan. 13 after the U.S. Food and Drug Administration said the pharmaceutical giant's effectiveness claims in ads for Celebrex and Bextra were misleading. Mylan Laboratories' (nyse: MYL - news - people ) intended acquisition of King Pharmaceuticals (nyse: KG - news - people ) fell apart this past week after Mylan said King's planned financial restatements make it "highly unlikely that the parties would be able to consummate the merger contemplated by our merger agreement with King by Feb. 28, 2005, which is the date in the merger agreement after which generally either Mylan or King may terminate the agreement." Standard & Poor's Equity Research said, "At this point, we think the deal is unlikely to close at all" and noted that Mylan "still faces competitive pressure in key generic lines." Mylan has recently lost its patent challenge on Levaquin from Johnson & Johnson (nyse: JNJ - news - people ), but the research firm said it still sees promise for Mylan's nebivolol heart drug. S&P Equity Research maintained a "hold" rating on Mylan with a 12-month target price of $20.