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May 13, 2002
 |  BioCentury  |  Strategy

Rebasing pharma's growth

Blue Shift

Rebasing pharma's growth

If both investors and management of pharma can't wait for 2002 to end, there is one silver lining to this year's likely dismal growth numbers: it will be easier to grow off a smaller base in 2003.

For example, it should be much easier for Merck & Co. Inc. to post solid '03 growth, seeing that it is projecting flat EPS this year. "This could be the perfect setup for out-performance," said OrbiMed's Sven Borho. "At some point investors will write off 2002 earnings and they'll start to look at '03 EPS. And suddenly EPS will go back to double digit rather than single digit growth, and that could provide some enthusiasm" (see "Delayed Gratification").

Jonas Alsenas of Crestwood Capital cautioned that such enthusiasm might be have its limits. "People are already valuing Lilly and Merck on 2003 earnings," he said, which should include sales of key products under FDA review.

For Eli Lilly and Co. (LLY, Indianapolis, Ind.), the Street expects 2002 and 2003 EPS of $2.61 and $2.99, respectively. Using Friday's close of $64.71, LLY is trading at a price-to-earnings (P/E) multiple of 25 times '02 EPS and 22 times '03 EPS. By comparison, the pharma group as a whole is trading at 23 times trailing 12-month earnings, while the S&P 500 is trading at 21 times trailing...

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