Drug companies may also be pressured as insurance reimbursement rules change. Some managed health care plans have eliminated coverage of some of the most popular prescription drugs. Aetna U.S. Healthcare, for example, won't fully pay for Prozac to treat depression or Lipitor to lower cholesterol. Meanwhile, President Clinton wants to add drug benefits to Medicare, opening the door to price controls that could also erode profits. But he added that most industry watchers expect Republican opposition to prevent the coverage from ever taking effect.
Some analysts believe the drug sector is merely weathering a seasonal slump.
Most companies stimulate investor interest by unveiling new products late in the year, and drug consumption spikes once the cold and flu season hits. I think these companies will pick up again later this year. Another factor in the drug sector's favor is that it offers investors seeking growth stocks a safer bet than Internet or high-technology stocks, Saks said. This past week, the Dow Jones industrial average rose 259.62 points. The Dow rose 184.26 points Friday, closing at 10,973.65.