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Wyeth Woes Weigh Down Drug Shares

Pharmaceuticals: The sector slides on news of possible risks in a hormone medication. Also, Merck further delays Medco IPO.

July 10, 2002|From Bloomberg News and Times Staff Reports

Shares of major drug companies suffered another steep decline Tuesday as a popular drug of industry giant Wyeth was linked to health risks.

Another pharmaceutical giant, Merck, said late in the day that it again would delay a planned $980-million initial public offering of its Medco Health pharmacy unit.

Drug stocks closed broadly lower after a government study showed that Wyeth's Prempro, one of a group of hormone replacements used by more than 8 million menopausal women, was linked to increased risk of breast cancer and heart disease.

The report sent shares of Wyeth down $11.94, or 24%, to $37.30 on the New York Stock Exchange.

"It's bad," said Lloyd Kurtz, a health-care analyst at Harris Bretall Sullivan & Smith, which held 1.2 million Wyeth shares as of March. Hormone replacement products are "a very important cash-flow generator" for Wyeth.

The risk to Wyeth further unnerved drug stock investors. The sector has fallen sharply this year on concerns about earnings growth and, most recently, on jitters over Merck's accounting.

Merck has come under fire for the way its Medco unit has booked billions of dollars in revenue. The concerns have been magnified by the doubts about corporate accounting raised by a host of financial scandals.

Merck has said its accounting for Medco followed generally accepted accounting principles.

But after trading ended Tuesday, Merck said it would delay the IPO of Medco a third time, signaling that the firm had failed to lure buyers even after reducing the stock's asking price, analysts said.

Merck said the postponement was "due solely to market conditions," and that it expects to complete the deal within 12 months.

Merck fell $2.06 to $45.75 in regular NYSE trading. Among other drug stocks, Eli Lilly lost $2.11 to $49.98, Pfizer slid $1.31 to $33.10 and Abbott Laboratories lost $1.59 to $35.41. All trade on the NYSE.

The American Stock Exchange index of 15 major drug stocks has tumbled 25.5% this year, compared with a 17% drop in the Standard & Poor's 500 index.

Other health-care stocks also were hit. Among drug distributors, AmerisourceBergen plunged $8.02, or 11.3%, to $62.78, and Cardinal Health sank $5.66, or nearly 10%, to $52.68, both on the NYSE.

One drug firm offered some good news: Corona-based Watson Pharmaceuticals said it would meet second-quarter and 2002 earnings estimates. The generic-drug maker said it would earn 38 cents to 41 cents a share in the second quarter, compared with 52 cents a year earlier. The average estimate of analysts surveyed by Thomson First Call is 39 cents a share.

For the year, Watson said it expected to earn $1.60 to $1.70 a share.

Watson shares rose 70 cents to $19.60 on the NYSE.

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