Polarization Concerns For Chemical/Drug Majors?

Commoditization in the pharmaceutical industry is expected to continue and will bring about some polarization of individual company performances, according to analysts at Goldman Sachs, who have published a report examining the major European chemical and pharmaceutical groups.

The report is not designed to give an in-depth review of the businesses more heavily weighted in pharmaceuticals, but looks at the more cyclical companies. The analysts expect to see favorable trading conditions at least through to 1997. They say that following their indifferent performance last year, shares in many of the companies are trading at or close to the bottom of their historical range for the current stage of the cycle. This is especially true of the German companies, which seem to be trading on the sort of valuations last seen after the stock market crash in 1987.

Regarding companies that are active in the pharmaceutical industry, the analysts say that firms with innovative products will group at one end, and at the other will be those whose franchises are threatened as patent protection is lost. Investors and the industry itself have concerns about this polarization which has led to a shake-out of share values and initiated a period of industry consolidation.