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Stock Analyst Update

Pharmacia Bruised but Not Out

Earnings are in line and Celebrex label issue isn't a disaster.

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What Happened?
Pharmaceutical firm Pharmacia (PHA) on Monday reported fourth-quarter adjusted earnings of $0.32 per share, in line with First Call consensus estimates and a 33% increase over the year-ago period. Most notably, sales of the blockbuster arthritis therapy Celebrex came in at $772 million, a 55% increase from a year ago, with especially strong international sales of $175 million.

What It Means for Investors
Pharmacia's story may not be perfect, but we believe the stock remains one of the better picks in the pharmaceutical group. Management expects 20% EPS growth for 2001, and perhaps slightly higher for adjusted EPS. That's on the conservative end of the 20%-25% range given earlier, but higher than the expected growth of many peers, like American Home Products (AHP). Pharmacia won't face completely smooth sailing in the coming years, however. For example, in 2002, the company's rights to market insomnia drug Ambien will revert to European drug firm Sanofi-Synthelabo. This leaves a significant hole in Pharmacia's lineup, and management acknowledged that it would consider licensing another product to help replace Ambien's revenue.

The most important issue for Pharmacia remains the future of Celebrex. Last week, a Food and Drug Administration advisory committee met to consider improving the labels for Celebrex and its arch rival Vioxx (sold by Merck (MRK)). Both companies wanted labels that stated that their drug is safer on the gastrointestinal (GI) system than other types of pain medications known as NSAIDs. In all, it looks as if neither Pharmacia nor Merck fared particularly well in the meetings. Merck appears to have more robust data demonstrating Vioxx's GI safety. But Merck may also have to include a warning about possible cardiovascular side effects on Vioxx's new label, while Celebrex probably will not have to issue any such warning. The FDA itself will issue its final word on the matter in the coming weeks. For now, there's not a lot of evidence to indicate that Celebrex will gain--or lose--ground in its neck-and-neck race with Vioxx.

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