Hints of Recovery May Be Backfiring on Drug Stocks

While many other Wall Streeters are applauding signs of an improving economic outlook these days, followers of blue-chip drug stocks aren’t so overjoyed.

Ever since “recovery fever” hit the market a few weeks ago, the shares of prominent pharmaceutical manufacturers have endured a rare bout of disfavor.

Consider the last week of May, during which the Dow Jones average of 30 industrials soared 113.59 points on evidence that the recession might be ending. That same week the Dow’s index of pharmaceutical stocks dropped 1.66%, to rank last among the 82 industry groups tracked.

“Aggressive traders may just say no to drug stocks,” Barbara Dreyfuss and Barbara Ryan, analysts at Prudential Securities, said in a report last week.

The main stumbling block right now, analysts say, is a fear that drug shares might start losing some of their popularity to stocks in cyclical industries that have more to gain should the economy keep gathering momentum.

There are a few other clouds on the horizon. For one thing, any move to revamp the health-care system in this country could hurt drug industry profitability if it concentrated bargaining power for prescription drugs in the hands of the government.