EURO DRUGMAKERS STOCK "UNDERVALUED"

Despite the enormous size of some Continental European pharmaceutical companies, they are being valued by their respective equity capital markets at a fraction of the market values enjoyed by US and British drug companies, according to Hemant Shah of US consultancy HKS & Co. Taken together, Hoechst, Bayer, Ciba-Geigy, Sandoz and Hoffmann-la Roche are currently being valued at about slightly over $60 billion, whereas Merck & Co alone enjoys total market value of almost that amount. Meantime drug sales for these five Euro-pean companies together are over three-times that achieved by Merck.

Hoechst's market value is not significantly higher than the current market value of either Warner-Lambert or Upjohn, he notes, while Rhone-Poulenc's current market value is less than half of Rhone-Poulenc Rorer's stock held by Rhone-Poulenc. Mr Shah feels that these five European companies are being valued not as drug giants but rather as commodity chemical companies.

Normally, these understated market values would mean nothing in terms of the future of the companies, but with the rapid consolidation of the industry, it becomes a major negative for them. Unlike earlier acquisitions of Key Pharmaceuticals or A H Robins, the majority of acquisitions or mergers in the drug industry are now likely to involve companies with current market values closer to $10 billion.