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Pharmaceuticals get a lift
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April 20, 1998: 3:32 p.m. ET
Leading drug stocks continue climb, but rising tide doesn't raise all boats
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NEW YORK (CNNfn) - Pharmaceutical stocks continued to outpace overall market performance Monday as industry leaders released healthy financial results for the quarter.
At least one drug company, however, saw its stock price cut in half on news of failed clinical results.
Shares of Interneuron Pharmaceuticals (IPIC) of Lexington, Mass., plummeted to 7-15/16 in midday trading, down 7-1/8, or 47 percent, after the drug maker said it would withdraw its application to market a new stroke drug. The prescribed dosage level of CerAxon was found to be unsuccessful in late stage clinical trials.
Earlier this month, the product had been given "fast track" status by the Food and Drug Administration (FDA).
As a result of the clinical trials, Interneuron laid off its 25-person sales force.
"The new findings announced today, although in a small patient population, weaken the existing data package for CerAxon," the company said.
According to Interneuron, clinical trials failed to show that 500 milligrams of CerAxon reduced the size of the damaged heat tissue among patients suffering from ischemic stroke.
It also failed to show significant improvement in neurological function among drug-treated patients.
"We are closely evaluating protocol revisions, including increased dosage amounts, that would apply to an approximately 700-patient study expected to commence shortly," the company statement said.
But the damage already has been done.
"This was really unexpected," said Dirks & Co. analyst Stevens R. Monte. "It's been a disappointment for a company that a couple of years ago had so much promise."
Interneuron's stock took a major hit in September 1997 when the FDA ordered the company to take its weight loss drug off the market.
Outside studies last year had revealed a link between the product, Redux, and heart valve problems. The news caused investors to jump ship and left Interneuron facing multi-million dollar lawsuits.
The company's stock, however, began to rebound last month after Interneuron published a report through the American College of Cardiologists that discounted the outside study and suggested no link between Redux and heart complications.
Its stock was trading earlier this month at about $14 per share, up from $8 per share in February.
Then Monday, the company dropped another bomb.
"Here they get clobbered and recover and boom, they get punched in the nose again," Monte said. "It's so disheartening for what was once a very, very exciting biopharmaceutical firm."
Monte, who was projecting profitability in 1999, now says Interneuron won't see black on the balance sheets before 2001.
Interneuron's plummeting stock price stands in stark contrast to the activity of the market segment as a whole.
Shares of Pfizer (PFE) rose 7-1/16, or 6.7 percent, to 112 1/4 Monday, as PaineWebber upgraded the company's stock from "neutral" to "attractive."
Eli Lilly's (LLY) reported 20 percent jump in quarterly earnings drove its stock price up 3-1/2 to 71-7/8.
And Merck & Co. (MRK) stock rose 1-1/4 to 122 5/8 in mid-day trading.
"Drug stocks are doing great today and they've been doing phenomenally well all year," said Hambrecht & Quist analyst Alex Zisson. "The drug group is growing earnings in the mid-teens, double the S&P 500."
Zisson noted that as a non-cyclical stock sector, pharmaceutical stocks are well insulated from the depressed Asian market.
"They have very little exposure to Asia," he said. "If [investors] are really concerned about Asian performance, they rotate into drug stocks."
Moreover, the drug sector has been buoyed by the prolonged period of economic prosperity, low interest rates and low inflation, Zisson said.
"All of these things have come together at one time to produce very high price earnings," he said. 
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