US DRUG STOCKS AT A DISCOUNT

The US pharmaceutical industry's stock is now selling at a 5% discount to the market multiple, based on 1992 earnings per share, according to Christina Heuer of Smith Barney. She told Barron's magazine that the sector is running close to an 8% or 9% discount, based on (expected) 1993 earnings. While there is always a danger in this business, she noted, investors are overlooking the fact that the new drug pipeline is quite full at some companies.

Even though there is always the worry that regulators will limit drug prices, she noted that the drug business is a product-upgrade, market-share-growth industry that does not have to rely on unit growth plus price increases for sales growth. While a once-a-day product can cut unit growth, it probably will increase both revenues and boost profit margins, she said.

There is room for an expanded market in the field of AIDS, Alzheimer's disease and benign prostatic hypertrophy, she commented, adding that there is room for geographic expansion, with increased sales in both the former Soviet Union and in Latin America. Latin America, previously a problem area because of its lack of patent protection, will be a significant market in the 1995 to 2000 timeframe.