All change as big pharma rounds off a stellar 2012

What a difference a year makes. Bristol-Myers Squibb and Elan, the standout big pharma and midcap share price performers of 2011, ended last year nursing heavy losses, while Bayer, one of the biggest losers of 2011, crowned a stellar 2012 by edging out Novo Nordisk to become the best performing big cap stock.

Despite an October glitch that had prompted doubts about the sustainability of pharma and biotech valuations, the industry has fought back and outperformed many general market indices. Economic uncertainty has underlined pharma’s defensive characteristics, and although several companies now look distinctly overvalued this popularity will likely continue into the current year.

Stock Index % change in 2012
Dow Jones Pharma and Biotech (US)   17%
S&P Pharmaceuticals (US)  11%
NASDAQ Biotechnology (US) 32%
Dow Jones STOXX Healthcare (EU)   12%
Thomson Reuters Europe Healthcare (EU) 16%
TOPIX Pharmaceutical Index (Japan)  12%
FTSE-100 6%
Euro STOXX 50 14%
S&P 500 13%
DJIA 7%

Success in launching the macular degeneration injection Eylea secured Bayer’s performance as the best performing big pharma share, up 45% over the course of 2012. Eylea’s originator, Regeneron Pharmaceuticals, rose more than threefold to become the year’s top mid-cap performer.

True, Bayer’s resurgence did come from a relatively low base, the company having finished 2011 as the third-biggest faller. This earlier weakness had been caused by concerns over the ability of its blood thinner Xarelto to face up to impending competition from Bristol-Myers Squibb’s and Pfizer’s Eliquis; in fact, Bayer was granted a reprieve as Eliquis suffered a surprise US FDA delay.

The Eliquis setback hit Bristol’s overheated share price badly, ending the string of R&D successes that had allowed the company to finish 2011 as the best-performing big pharma share. Still, as 2013 gets under way things are set to be shaken up again, Eliquis having been approved right at the end of last month in the key stroke prevention indication with the best label of all of the new-generation clot-prevention drugs.

The FDA decision came three months before the FDA’s action date, and positioned Bristol for what should be an interesting 2013. The company was earlier hit by an embarrassing failure in hepatitis C, which meant that its $2bn purchase of Idenix was money down the toilet, but this has already been reflected in its stock and no further harm can come from this misadventure.

Novo’s star wanes

Bayer snatched the 2012 big-cap crown from Novo Nordisk, which, helped by continued dominance in insulin, had stood in first place at the nine-month stage.

However, doubts quickly set in when a US advisory panel – the first for an insulin analogue for over a decade – was called for Tresiba, the long-acting insulin degludec, and Ryzodeg, a combination of degludec with the fast-acting insulin aspart. While the novel insulins did scrape through the November adcom doubts about cardiovascular risk linger; an FDA verdict is expected shortly.

Large-cap ($30bn+) pharma companies: top risers and fallers in 2012
Share price (local currency) Market capitalisation ($bn)
Rank Top 5 risers 31 Dec 11 31 Dec 12 Change 31 Dec 11 31 Dec 12
1 Bayer €49.50 €71.86 45% 55.9 77.1
2 Novo Nordisk DKr645.34 DKr916.50 42% 57.5 72.1
3 Amgen $64.21 $86.20 34% 50.9 66.1
4 Sanofi €57.42 €71.39 24% 104.4 122.7
5 Eli Lilly $41.56 $49.32 19% 48.1 57.2
Rank Top 3 fallers
1 GlaxoSmithKline £14.72 £13.35 (9%) 117.1 105.3
2 Teva Pharmaceutical Industries $40.36 $37.34 (7%) 38.0 35.2
3 Bristol-Myers Squibb $34.90 $32.59 (7%) 59.7 53.8

Little demonstrates pharma’s strength as simply as the fact that apart from Bristol only two other big-cap stocks ended the year in the red: GlaxoSmithKline and Teva.

While Teva has felt the effect of flattening generics sales and the ironic threat of generic competition to its branded multiple sclerosis best-seller, Copaxone, no similar cataclysms have befallen Glaxo. Rather, analysts have simply decided that after three years of decent gains now is a good time to take profits.

Meanwhile, Glaxo’s UK neighbour AstraZeneca continues to limp along. Although Astra’s shares ended the year up 2% this was thanks to share buybacks – the scrapping of which in October prompted speculation that the company was about to embark on an acquisition spree. Amgen also returned cash to investors, with dividends and a $5bn share buyback combining with solid, albeit flattening, sales to secure its number-three spot among 2012 big-cap performers.

Somewhat surprisingly, despite a string of R&D failures Lilly finished fifth, thanks to its solid position in diabetes and a phase III success with ramucirumab. Also important was the result of a pivotal programme with its much-touted Alzheimer’s disease antibody solanezumab; while this did fail, the indication is seen as so lucrative that positive cognition signals in milder disease were seized on as a success. A confirmatory phase III trial could start this year.

Elan out of luck

No such luck for Elan, whose similar antibody bapineuzumab clearly lost the 2012 battle of the Alzheimer’s titans. Bapi’s unequivocal phase III failure secured Elan’s position as the second-biggest mid-cap faller, defined here as companies with a market cap between $2.5bn and $30bn.

Elan was outpaced only by the hapless Questcor Pharmaceuticals, whose shares collapsed by 36% when Aetna, one of the biggest US health insurers, moved to limit coverage of Questcor’s Acthar, and said the controversial drug was not medically necessary for most uses. Among other mid-cap fallers, a strategic review of Warner Chilcott failed to stem a haemorrhaging share price, while Lundbeck turned in a disappointing 2012 financially and surprised the markets by cutting its sales and profit expectations for the next two years.

Mid-cap ($2.5-30bn) pharma companies: top risers and fallers in 2012
Share price (local currency) Market capitalisation ($bn) 
Rank Top 5 risers 31 Dec 11 31 Dec 12 Change 31 Dec 11 31 Dec 12 EP Vantage comment and analysis
1 Regeneron Pharmaceuticals $55.43 $171.07 209% 5.0 16.2 Zaltrap in Europe should mean a payday for Regeneron – but pricing is problematic
2 Grifols €13.14 €26.36 101% 3.8 7.3 Daily Market Movers (24 Apr 2012)
3 Hypermarcas R$9.00 R$16.62 85% 3.0 5.1 Daily Market Movers (7 May 2012)
4 Gilead Sciences $40.93 $73.45 79% 30.7 55.6 AASLD – Gilead hits new high with a little help from its friends
5 Aspen Pharmacare ZAR96.68 ZAR169.00 75% 5.3 8.9 Daily Market Movers (20 Apr 2012)
Rank Top 5 fallers
1 Questcor Pharmaceuticals $41.58 $26.72 (36%) 2.6 1.6 Questcor’s Acthar fairy tale goes sour
2 Elan $13.74 $10.21 (26%) 8.1 6.1 Phase III bapi failure opens up Russian roulette opportunity
3 Endo Health Solutions $34.53 $26.23 (24%) 4.0 3.0 Daily Market Movers (5 Nov 2012)
4 Lundbeck DKr108.00 DKr82.90 (23%) 3.9 2.8 Daily Market Movers (19 Dec 2012)
5 Warner Chilcott $15.13 $12.04 (20%) 3.8 3.0 Warner Chilcott move fails to live up to its billing

When 2012 started the sector was gripped by hepatitis C mania, and subsequent events showed much of the hype to be overblown. Gilead, though, seems to be running away with the prize in the race to develop a one-pill, once-daily, interferon-free regimen, and this has caused a seemingly unstoppable surge in its share price.

While many had questioned the logic of Gilead shelling out $11bn to buy Pharmasset in November 2011, the stock has gone from strength to strength and made the company the fourth best-performing mid-cap player.

Investors will continue to hope that nothing happens in 2013 to threaten the sustainability of either Gilead’s share price or the sky-high expectations of some analysts as to the potential size of the hepatitis C market.

To contact the writers of this story email Jacob Plieth or Joanne Fagg in London at news@epvantage.com or follow @JacobEPVantage and @JoEPVantage on Twitter

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