US 4th QTR SHOWS NOT ALL COMPANIES STRONG

The fourth-quarter earnings that are being released point to the fact that some US pharmaceutical companies are going to be able to make it in a more hostile environment while others will not be able to increase unit sales and bring new products to market. "In the past it was easy to generalize about this group because all companies were strong," according to analyst Mariola Haggar of Salomon Inc, who added that going forward there will be a greater demarcation between the strong and the weak.

The "haves" include Merck, Pfizer, Schering-Plough, and Bristol-Myers Squibb, while the "have-nots" that analysts caution investors to avoid include American Home Products and Syntex. Upjohn earnings per share are not expected to grow through 1996 after averaging a 16% gain from 1987 to 1991, according to industry analyst Ron Nordmann of PaineWebber, and Marion Merrell Dow's EPS will skid from an average of 24% in the past five years to only 8%. He has not yet categorized Lilly and Warner-Lambert since it is not clear how they might do. Lilly has recently lost patent protection for its second generation oral cephalosporin Ceclor (cefaclor), and Warner-Lambert's lipid lowering agent Lopid (gemfibrozil) goes off patent this month. Lopid accounts for 29% of W-L's sales, says Mr Nordmann. "The fourth quarter is going to be one of the most difficult for investors to understand," he said, because so many companies reported extraordinary items.

Drug companies are just beginning to restructure, and the special charges that are being taken for these changes are resulting in a decline in growth throughout the industry. There was also a sharp decline in price increases in 1992. Mr Nordmann said that the magnitude of that charge will be felt to a lesser extent in 1993 and beyond as increases continue to match the rate of inflation.