Pharmaceutical stocks have long been a favourite of investors seeking to invest in growth stocks.

Long-term growth prospects for these companies are typically much higher than average and, consequently, pharmaceutical company's shares tend to trade on relative high price/ earnings ratios.

During late 1999 and early 2000, pharmaceutical stocks were overshadowed by the market boom in the technology, media and telecoms (TMT) sectors.

Investors poured money into the fashionable technology stocks and shunned other growth sectors such as pharmaceuticals.

However, over the past year there has been a sharp reversal in fortunes and falling TMT share prices have been mirrored by rising prices in pharmaceutical and healthcare stocks.

Pharmaceutical stocks typically form a major sector of most of the world's major equity markets.

For example, the 13 constituents that form the pharmaceutical sector of the FTSE Eurotop300 have a combined market capitalisation of P647 billion (£509.5 billion).

The Eurotop300 is a broadly based index of Europe's 300 largest quoted companies. The largest stock is GlaxoSmithkline which is capitalised at P185 billion.

Elan is also included in this index with a market capitalisation of P17.2 billion.

Not surprisingly, the quoted sector in the US is even larger. The large cap pharmaceutical sector there has a total market capitalisation of $1,480 billion.

There are several other healthcare sectors in the US market covering companies involved in health insurance and a supply of medical devices amongst others.

The US drug market still underpins the performance of the drug sector globally. Approximately 40 per cent of global pharmaceutical sales occur in the US and 55 per cent of global profits are generated in the US market.

The US market also continues to grow at a faster pace, with an annual growth rate in the region of 12 per cent. This compares with global growth of 7 per cent per annum.

Even this relatively slower pace of global demand for pharmaceutical products is much faster than the overall rate of growth in nominal GDP.

Ageing populations and longer life expectancies are long-term trends that are certain to underpin continuing strong global demand for pharmaceutical products.

In recent years, the pharmaceutical sector of the ISEQ has grown to become a substantial portion of the market. Much of this can be attributed to the phenomenal success of Elan, which now accounts for approximately 20 per cent of the ISEQ's total market capitalisation.

However, the Irish sector now includes the Northern Ireland based Galen Holdings, Bioglan Pharma and United Drug.

The table highlights the higher valuations that investors place on these companies. Elan is trading on a price/ earnings ratio of 27.9, while Galen is trading on an even more demanding rating of 39.3.

The column showing the 12month projected earnings-per-share growth provides a clue to these high valuations, with earnings per share forecast to grow rapidly for all these companies.

The high degree of uncertainty surrounding prospects for global growth for 2001, and the ongoing shake-out in the TMT sectors seem set to remain a feature of financial markets for the foreseeable future.

This background, combined with the favourable long-term growth prospects for drugs, suggests that the pharmaceutical sector of most stock markets will continue to be favoured by many investors.