Relative Industry Valuation
In general, the U.S. pharmaceutical industry traded at a substantial premium to the market (S&P 500) in the years 1951 to 1993.19 In the early 1990s, the industry’s relative valhation was at its lowest level and priced at a discount to the market. Had the U.S. pharmaceutical industry prospects changed?
To some extent, the industry outlook had changed due to the prospect of U.S. health care reform and secular changes in the industry in the early 1990s. Nevertheless, stocks in this sector continued to rise dramatically through the year 2000. Recent S&P industry data indicate that as of 31 May 2001, the U.S. pharmaceutical industry was trading at an average PIE of 33.7 compared to an S&P 500 PIE of 25.1 once again, at a premium to the market.