Drug Companies Thriving Amid Crisis As investors shy away from tech stocks, it looks like they're turning to pharmaceuticals. Third quarter earnings show that big U.S. drug companies did better than expected.
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Drug Companies Thriving Amid Crisis

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Drug Companies Thriving Amid Crisis

ALEX CHADWICK, host:

From NPR News, it's Day to Day. With all the economic turmoil, who knows where to invest? Well, Marketplace's Janet Babin notices in the earnings reports, there's something that actually doesn't look so bad, biotech drug makers. Janet Babin, welcome back. What are the latest earnings results that have you interested?

JANET BABIN: Well Alex, Bristol-Myers Squibb announced today that its third quarter profit tripled. The company's well known for its drug, Plavix, and you might of heard of the cancer drug, Erbitux. Also, this week, Angen reporting better than expected third quarter profits, it raised its earnings forecast.

Forest Labs is another one, coming in higher than expected. It makes Alzheimers and depression drugs. Pfizer too, beating expectations.

Now, not every pharma company was a winner. Merck's profits fell 28 percent on flat sales it announced this week. But overall, Alex, the sector appears to be doing, dare I say it, pretty well.

CHADWICK: So, even in a down economy, maybe pharmaceuticals are, at least overall as an industry, recession-proof?

BABIN: Well, that is the traditional view, that pharma is somewhat protected because people need to buy medicine no matter what the economy. But some drugs, it turns out, are more recession-proof than others. Analyst Eric Schneider covers pharma and Biotech for Medipartners.

Mrs. ERIC SCHNEIDER (Analyst, Medipartners): Where it is less true is obviously when there's me-too medications or drugs that are for, say, non-life threatening conditions. So, something like insomnia, will patients still pay two dollars a pill for Ambien CR, or will they just have another cup of tea and try and sleep?

BABIN: Me, Alex, I'm probably taking tea unless it's really, really bad. But a lot of firms are also worried about other things. Customers might be flocking to generic medications earlier than expected. Another issue for pharma is, the drugs that have a high co-pay might not get purchased. Cash-strapped consumers just might forgo these biologics if they can't afford them. And some companies still have weak drug pipelines.

So, we'll probably see a trend of consolidation. You might have heard of Roche and Genentech in the news or Eli Lilly buying Imclone. Schneider says we'll probably have more of these mergers in this downturn, and again, there's more proof that a large sales force model isn't working. And those earnings from Merck reflected that, the company also announced it's slashed 7,000 jobs.

CHADWICK: But what does work is just producing more breakthrough medications. It's difficult, but the fortunes of those companies are on the rise.

BABIN: That's true. I spoke to the head of venture capital firm this week. He told me, if you're truly innovative and biotech oriented, then private equity firms are very interested in you right now, despite this downturn. People are afraid of big losses, even the big investors, so they're focusing on places where there's less downside, and maybe that's pharma and biologics over, say, tech firms making gadgets that are cute, Alex, but they're discretionary, too.

CHADWICK: Thank you, Janet. Janet Babin of public radio's daily business show, Marketplace.

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