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Executive Summary

Bristol-Myers and Warner-Lambert were the strongest performers among the drug and drug diversified NYSE and AMEX issues during the downbeat first quarter of 1984. Bristol-Myers (B-M) continuing its against-the-trend strength from the second half of 1983 added 5-3/8 points (or 12.7%) to its 1983 close during the first three months of 1984. The issue closed March 30 at 47-5/8, gaining 2-3/8 in the final week of the month, when it announced its exclusive distributor agreement with Upjohn for ibuprofen OTC, Nuprin. B-M has been riding a period of good news from almost all sides. For example, when NIH highlighted the results of a long-term cholesterol study in January, a Mead Johnson product, Questran, was featured as the drug used to reduce low density lipo-protein-cholesterol. Stressing the goal of reducing cholesterol levels, the NIH project director said that the results should not be extrapolated to other types of cholesterol-lowering agents ("The Pink Sheet" Jan. 16, p. 7). Warner-Lambert (W-L) rejoined the most favored group of drug stocks in the first quarter after a long period as an also-ran. The issue closed March 30 at 33-7/8, up 4-1/4 and 14.3% from the start of the year. W-L is only 1-1/8 below its high during 1983, while most of the drug and diversified issues are lagging well below last year's high points. W-L's rise is taking place as the "Street" finally warms to the IMED purchase, the broad line of products adding sales gains, and a large R&D stable. W-L has been hard for the Street to peg because it hasn't had any big winners in the drug area. Instead, the firm has a number of drugs producing good gains which have added up to sizeable increases. The firm points out in its 1983 annual report that its recent product additions added more than $100 mil. to U.S. sales in 1983. SmithKline Beckman Continues Slide; Chains Lose Ground, Could Trigger More Consolidation Also on the upswing in the first quarter of 1984 were Lilly, Searle, Upjohn, Merck, American Home Products (AHP) and Bolar. Upjohn gained 3-7/8 for the three-month period; most of its gain came in the last week on the Nuprin license agreement. AHP, which has the other OTC NDA pending at FDA for ibuprofen (Advil), climbed 3 points for the quarter and 1/2 in the last week. The company's high volume beta-blocker, Inderal (#2 in the retail Rx market with sales over $310 mil. in 1983), may have more exclusive marketing life left in the U.S. than its patent would indicate. While the propranolol patent expires in mid-August, generic competitors are finding the paper NDA requirements for the drug hard to fulfill because of the lack of animal carcinogenicity data in the public domain ("The Pink Sheet" Feb. 6, T&G-1). Seven of the 40 issues in the drug and diversified drug components of the "F-D-C" Index lost more than 15% of their 1983 closing value in the first three months of the year. The biggest percentage losers were: Frigitronics (down 31% to 18-1/2); Syntex (off 27% to 38-7/8); and Baxter Travenol (slipping 27% to 16-7/8). The Plarmaceutical Component of the Index lost 4.4% during the quarter and the Diversifieds dropped a similar 4.5%. Twelve of 17 issues in the Pharmaceutical Component were down; 13 of 23 issues in the Diversified Component were off. SmithKline Beckman continued its market decline from 1983. After finishing last year near its 12-month low, the issue lost another 3 points in the first quarter. If it hadn't rebounded 2-1/4 points in the last week of the quarter, SmithKline Beckman would have finished just above the 50 level. It closed March 30 at 53.5. The divestiture of one of SmithKline's non-health businesses and the continued prospects for Ridaura couldn't turn the issue around in the face of Zantac competition and confusion about the Beckman segment. Some of the smaller health care segments within SmithKline are also performing well but not getting much attention. Allergan, for example, is up to over $200 mil. in sales and has a number of new NDAs filed ("The Pink Sheet" March 26, T&G-8). McKesson lost 6-1/8 points (15%) of its market price in the first quarter as drug wholesaling apparently began to lose some of its recent glamor, despite the successful offerings for several new NASDAQ issues at the end of the summer. McKesson may also be suffering concern about its management depth following the announced medical leave for President Thomas Drohan. Bergen-Brunswig was flat in the first quarter, closing up 1/4 at 24-1/4. The chain area was the hardest hit during the first quarter. All 13 issues, except merger-bound Peoples, were off in the first quarter. American Stores lost 8 points (20%); Longs dropped 6-7/8 (14%); Thrifty slid 5-1/2 (31%); and Rite Aid was down 4-1/4 (19%). Overall, the component average declined 13.5%. The reduced market values in the chain segment could indicate a new period of consolidation -- especially for firms on the fringe of the business like Imasco. The Canadian firm picked up Peoples for only a 10% premium above the D.C.'s chain's 1983 high price. Chart omitted.

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