Investor sentiment
Financial scandals are not exclusively affecting the tech or telecom sector. Some large pharmaceutical and biotech companies (like Merck, Bristol Myers and ImClone) have also been accused of accounting fraud. In particular Merck has recognized of having booked $14.1 billion in revenue it didn't receive during the last three years.
The other news that affected the sector duri
ng the recent weeks is the announcement made by Pfizer that it will acquire Pharmacia Corporation for 60 billion dollars in stock, a premium of nearly 40% over Pharmacia's stock price. With this merger Pfizer will be the most dominant drug maker in the world with 11% of the world market share and will force its rivals to move. The day after the announcement Pfizer dropped more than 15%.
Outlook
Even if the sector fundamentals (ageing population, need of new drugs for new diseases,…) continue to support the long term perspective, it is more and more clear that the sector will remain under pressure in the near future due to the increasing generic competition (in the US a new legislation could ease generic competition) and a reduced speed of new drug development (which means reduced earnings expectations for the large pharmaceutical companies). The result of all this is that the industry earnings may decline for the first time in a decade.
Apart from this there is also the risk that investors, as the global economy recovers, shift into more economic sensitive sectors and away from defensive sector such as healthcare.
