Shares of big drug makers fell Friday after a Citi Investment Research gave "Hold" ratings to most of the sector, assigning a top rating only to Merck & Co. and saying Pfizer may need to consider a breakup.
John Boris gave Merck a positive rating because he expects strong sales growth for the Whitehouse Station, N.J., company. He said Wall Street is underestimating the competitive advantages possessed by Merck's HPV drug Gardasil and its diabetes treatment Januvia. That will lead to stronger-than average profit growth for Merck, he said.
Shares of Merck picked up 55 cents to $37.51 in afternoon trading.
Boris set "Hold" ratings on Wyeth, Bristol-Myers Squibb Co., Schering-Plough Corp., Eli Lilly & Co., Pfizer Inc. and Allergan Inc. He said Lilly and Bristol-Myers will face big challenges as the patents on key drugs expire _ although Bristol-Myers doesn't have any major patent expirations until 2012 _ while Wyeth's growth outlook is weak.
Those drugs include Lilly's anti-psychotic Zyprexa and its depression treatment Cymbalta. Bristol-Myers will lose patent protection on its anticlotting drug Plavix and high blood pressure drug Avapro.
Lilly shares declined 65 cents to $47.73, while Bristol-Myers Squibb stock gave up 39 cents to $22.15.
He said investors are overlooking Wyeth's forecast because of the strong potential for its Alzheimer's drug candidate bapineuzumab. But he said the stock is at risk if clinical trial results or sales of the drug don't live up to expectations.
Wyeth's shares dipped 65 cents to $46.87.
The analyst added the biggest issue for Schering-Plough is revenue from its joint venture with Merck, through which the companies sell cholesterol drugs. Sales slumped after trials challenged the effectiveness of the drug Vytorin. The company has started new aftermarket clinical trials to bolster sales, but Boris said they could pressure the stock.
Schering-Plough shares lost 57 cents, or 2.6 percent, to $21.56.
He wrote that weakness in the U.S. economy is hurting sales of Allergan's wrinkle treatments, including Botox, and those problems could spread to other markets.
Allergan shed 75 cents to $52.03.
Pfizer faces several of those obstacles at once, and Boris said the company needs to make a major change to fight them off. He added that Pfizer has a "limited pipeline and an unprecedented 2011-2013 patent cliff."
"We believe that Pfizer needs to consider a major strategic initiative(s) such as a large scale acquisition or break up of the company to return the company to sustainable long-term growth," he said.
Shares of Pfizer fell 27 cents to $18.12.
Boris wrote that total prescription volume for Pfizer has fallen every year since 2004, and that trend has continued through the first quarter of 2008, as U.S. prescriptions are falling for two-thirds of Pfizer's products, including cholesterol drug Lipitor, anti-smoking drug Chantix, arthritis drug Celebrex and impotence treatment Viagra.
Pfizer declined to comment because it is preparing to report its second-quarter earnings on Wednesday.
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