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Stock Analyst Update

Pharmacia's Prospects Merit Premium

Thanks to Celebrex, drug company isn't feeling much pain.


Drug firm Pharmacia (PHA) demonstrated Tuesday why it is one of the most appealing companies in the pharmaceutical sector.

The company announced before the market opened today that adjusted net income for the second quarter of 2000 was $622 million, or $0.47 a share, in line with consensus estimates.

More important, however, Pharmacia reported good news on the revenue front, both from its swiftly growing pharmaceutical segment and from its more problematic agricultural division.

On the drug side, the firm reported sales of $3.2 billion. Especially pleasing was the company's $630 million in sales from pain reliever Celebrex, up 18% from the previous quarter. Several other drugs also reported gains; most notably, cancer therapy Camptosar logged $111 million in sales, well above expectations.

After a difficult first quarter, Pharmacia delivered much better news on the agricultural side during the second period. Thanks in large part to growth from its Roundup herbicide, agricultural sales in the second quarter were up 13% over a year ago, a stark contrast with the first quarter's 2% drop.

However, management acknowledged in the conference call that revenue and earnings in the agricultural segment will continue to be volatile. Sales from that division are closely tied to the vagaries of the weather, and the firm faces intense resistance--especially in Europe and Asia--to its genetically modified crop strains.

But given the strength of Pharmacia's current pharmaceutical lineup, it remains a very appealing choice in the drug arena. Investors have begun to flock to the stock, and shares have appreciated about 50% so far this year. On a forward-P/E basis, the stock now trades at a premium to the industry group. Considering the company's strong growth prospects, though, such a premium seems justified.

Emily Hall does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.