Make Money With Drugs - The Legal Way
The first half of 2006 proved to be a boon for investors with stock in leading pharmaceutical giants Merck and Pfizer. After a disappointing 2005 when the drug industry saw a 5 percent dip in stock earnings, industry pundits now point to a year-to-date overall increase of 10 percent, tripling the S&P 500 index performance for these companies.

Price surges in July and August gave Pfizer, the world's largest drug maker, strong earnings in the second quarter for an overall 15 percent gain. The leader of the pack, however, was Merck, up 24 percent although still ranked as the fourth largest drug company in the United States.

Over the next twelve months Merck is expected to gain approximately $4 a share, an additional 9 percent increase. Two drugs are expected to fuel these profits, the cervical cancer vaccine Gardasil and Januvia, a diabetes treatment. Still, Merck faces more than 14,000 lawsuits against its arthritis painkiller Vioxx, which the company took off the market in 2004, at an estimated annual loss of $2.5 billion.

Analysts point to several factors to account for the improvement in the pharmaceutical sector. In part the companies are benefiting from the much debated Medicare prescription plan implemented on January 1, 2005. Seemingly, however, the plan has led to a broad-based increase in prescription volume.

In an overall sense the markets also seem to be riding a surge of renewed investor confidence, a product of strong earnings forecasts in the first part of the year. Bristol-Myers Squibb and Wyeth each gained 9 percent while Johnson & Johnson picked up three. Schering-Plough received a 2 percent gain and only Eli Lilly & Co. suffered declining numbers, a 4 percent slip since the first of the year.

In spite of these positive trends and forecasts, however, the pharmaceutical companies have a long way to climb to erase the losses of the past five years that account for a staggering 20 percent. These numbers are especially negative when viewed against the steady improvement of the S&P 500, which has climbed 47 percent since September 2001.