The harder they fall

Everyone knows that the price of stocks and shares can go down as well as up - even if they prefer to ignore it. But the most seasoned financial experts would have been hard put to forecast a catastrophic fall of the magnitude seen last month on markets across the world.

Even the pharma sector which, if not immune to such epidemics normally has a fairly strong resistance to them, seems to have been infected by the general malaise. But if companies as large and apparently strong as Enron, Xerox and WorldCom prove to have foundations built on sand, how can investors - no matter how astute - be expected to trust any of the multinational corporations?

And the news that the accounting procedures of Bristol-Myers Squibb and Merck & Co are both facing investigation by the US Securities & Exchange Commission (SEC) has done nothing to alleviate anxieties over just how economically sound the big pharmaceutical companies really are. What in former, happier times might have been passed off as merely putting a favourable spin on a worsening earnings situation is now a cause for deep suspicion.

But for those who looked carefully, the signs were there. Three months ago a study by UBS Warburg warned that several drug companies had been inflating revenue through frequent price increases (Manufacturing Chemist, May 2002, page 6), while in this issue a new report suggests that the pipelines of some of the top pharma companies are not as promising as they would like investors to believe (see page 11).

All of this makes the timing of Pfizer's announcement of the purchase of Pharmacia particularly unfortunate. In just about any other circumstances, news of such a deal, which takes the new company straight into the top spot in every market across the world, would have been hailed with great rejoicing as a match made in heaven - good for both parties and for the

sector as a whole.

Pfizer has consistently outperformed the market over the last year, and the deal will restock the pipeline and replenish the company's cupboard with blockbusters while also creating synergistic savings put at US$2.5bn in 2005. The merger is likely to increase pressure on other big pharma groups, notably GSK, Merck and AstraZeneca, but in the current climate other mega-mergers are unlikely.

Unfortunately, it will take more than one sweet deal to cure investors of their cold feet. But perhaps it might be just enough to encourage them to dip a toe back in the water without fear of developing hypothermia.