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SMITHKLINE, STERLING REBOUND SHARPLY AFTER MARKET'S OCT. 19 COLLAPSE; "F-D-C" INDEX COMPOSITE'S WEEKLY LOSS IS LESS THAN DOW JONES AVERAGE

Executive Summary

SmithKline Beckman and Sterling Drug showed some of the strongest resilience among "F-D-C" Weekly Index issues following Wall Street's 500-point plunge on Monday, Oct. 19. In the four sessions after the market's historic decline, SmithKline rebounded 32% and Sterling an impressive 36% to lead the Pharmaceutical and Diversified Components of the "F-D-C" Index. Both firms, however, had a lot of ground to make up in the positive swing on Tuesday and Wednesday. They were among the more severe casualties in the drug group during Monday's downward vortex. SmithKline's valuation was down about 27% on Monday, while Sterling's was off nearly 35%. By comparison, the Dow Jones average retreated roughly 23% in Monday, and the overall 20-issue Pharmaceutical Component's one-day loss was about a third less at 18.5%. However, at the close of the market on Friday, the Dow had cut its loss almost in half to 13.2% and SmithKline trimmed its loss to less than 4%. Sterling remained in double figures, off 11.1% for the week. Other drug stocks regaining ground after Oct. 19 included Upjohn (up 23.2%), Schering-Plough (up 22%) and Marion (up 18.2%). Not far behind Sterling in the Diversified group was Procter & Gamble (up 32%), followed by Novo (up 21%), Colgate-Palmolive (up 17%) and Baxter (up 14.3%). Overall, drug-related stocks fared slightly better during the week of Oct. 19 than the market in general. The Index Composite was off 11.1% for the week, a full two percentage points below the Dow. Drug chain issues, which have tended to hold better in previous drops, comprised the only Index component to keep its loss in single digits, at just under 10%. Adapting to the changing market conditions, a number of firms stepped in to support prices and take advantage of their depressed levels. Bristol-Myers (off 4% for the week and 12% the last four days), for example, announced a share repurchase program, noting that "current market conditions have created an excellent opportunity to strengthen the company." Schering-Plough also jumped on the buyback bandwagon, authorizing an additional $200 mil. on top of an existing $125 mil. program. Squibb (off 15%), decided not to purchase a 5% equity position in Cetus, as it agreed in-principle to do in June, but to limit its agreement to a $75 mil. R&D joint venture with the biotech firm. Under the original agreement, Squibb would have been required to purchase at $32 a share Cetus stock that currently trades for less than half that price. Kodak became more bullish in its quest to purchase a drug business. About a year ago, the firm announced that it had $1 bil. to spend on such an acquisition. Showing its resolve and also hoping to take advantage of potential bargains, Kodak let it be known on Oct. 23 that it would up the ante to as much as $2 bil., giving it a strong purchasing power in the weak market. Six of the seven drug chains tracked by the "F-D-C" Index rebounded form the Oct. 19 drop. Two of the chains, American Stores (closing at 60-1/2) and Longs (closing at 30-5/8), gained back more than 20% after the drop. Gaining 11 points from Tuesday through Friday, American Stores made up more than half of a drop of 18-1/4 on Monday. The issue closed 7-1/4 points down for the week. At the end of the volatile week, only American Stores and Rite Aid (35-7/8) among the chains were above their closing prices at the end of last year. Rite Aid lost 11.5% in the Oct. 19 collapse and gained back 1-1/4 during the rest of the week. Chart omitted.
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