Big pharma stocks end year on a high note; BMS and Elan stand out

The share prices of the world’s big drug makers certainly put on a mixed performance in 2011, a year marked by huge swings in stock markets driven by the ongoing Eurozone turmoil and fears of a global economic slowdown. Pharma indices in Europe and the US managed to end the year in positive territory, however, thanks to a late rally in the last few months of the year.

Leading big pharma stocks higher was Bristol-Myers Squibb with a 35% surge in its share price that added a huge $15bn to the company’s value, thanks to a string of pipeline successes. Teva topped the fallers’ board with a 23% decline in its value; with a well-respected chief executive about to take the reins the generics giant will be hoping to reverse that picture this year. Among the mid-caps the likes of Elan, Alexion and Biogen Idec put on unstoppable share price performances last year, surging by 140%, 78% and 64% respectively, while the likes of Dendreon and Human Genome Sciences finished 2011 shadows of their former selves (see tables).

Leading the pack

Amid ongoing debates about big pharma’s ability to turn huge R&D budgets into profitable products Bristol-Myers has proved that it is indeed possible and has been rewarded by investors accordingly. From strong data on blood thinner Eliquis that looks set to win the product market leading position to approval of immunotherapy Yervoy, the company achieved valuable pipeline success last year.

Bristol-Myers are mirrored by losses at Bayer, one of the biggest fallers last year; Eliquis’ success has raised concerns the German company’s competitor Xarelto will struggle to complete.

Pfizer, meanwhile, put on a remarkable surge in the last quarter of the year – the stock was flat on the year at the nine-month stage. A general “flight to safety” by investors, particularly towards the end of the year as the Eurozone crisis peaked, certainly benefited a number of big pharma names, including Pfizer and more diversified players like GlaxoSmithKline and Sanofi, which were also among the top risers.

The company that is about to lose its ranking as the world’s biggest drug maker following Lipitor’s patent expiry has also produced a number of pipeline successes – including RA pill tofacitinib and lung cancer drug Xalkori – and announced a well-received restructuring programme and huge $5bn share buyback programme. Pfizer ended the year close to a three-year high and the third best performer on the Dow Jones Industrial Average, behind McDonalds and IBM, a notable achievement for a stock that has been on a downward trend for the last decade.

Finally among the gainers, Eli Lilly was another big beneficiary from the fourth-quarter surge and is perhaps the most surprising. The company is facing one of the industry’s biggest patent cliff, is viewed as having a weak pipeline and is steadfastly sticking to its strategy of investing in R&D as others scale back. The company today forecast a much bigger drop in profits in 2012 than analysts were expecting, prompting the stock to drop and highlighting the challenges the company faces. The stock is already 4% lower than its year-end price.

Large cap ($30bn+) pharma companies: top risers and fallers in FY 2011
    Share price (local currency) Market capitalisation ($bn)
Rank Top 5 Risers 31-Dec-10 30-Dec-11 % change YE 2010 FY 2011
1  Bristol-Myers Squibb ($) 26.15 35.24 35% 44.5 59.7
2  Pfizer ($) 17.51 21.64 24% 140.3 166.3
3  GlaxoSmithKline (£) 12.40 14.72 19% 100.6 117.1
4  Eli Lilly ($) 35.04 41.56 19% 40.4 48.1
5  Sanofi (€) 47.85 56.75 19% 83.0 104.4
             
  Top 5 Fallers          
1 Teva Pharmaceutical Industries ($) 52.13 40.36 (23%) 46.8 38.0
2  Takeda (¥) 3,995.00 3,380.00 (15%) 38.6 34.8
3  Bayer (€) 55.30 49.20 (11%) 60.5 55.9
4  Novartis ($) 58.95 57.17 (3%) 135.0 133.1
5  Baxter International ($) 50.62 49.48 (2%) 29.3 27.9

Leading the fallers of 2011 is Teva; with the appointment of Bristol-Myers' Jeremy Levin to take over as CEO the company will hope it can draw a line under almost two years of stock market declines. Its US-listed shares were trading just shy of $64 in March 2010.

The company’s disappointing performance largely stems from impending generic threats to its biggest branded product, MS therapy Copaxone, and doubts about pipeline products supposed to replace it; diminishing prospects for follow-on drug laquinimod in particular have caused worries about the Israeli generics giant’s growth prospects.

Concerns about Takeda’s ability to ride out a patent cliff and find future growth drivers have also hurt the Japanese company; investors have yet to warm to the Japanese company’s $13.7bn takeout of Nycomed (Takeda confirms defensive course in Nycomed buy, May 19, 2011).

Novartis and Baxter with 3% and 2% declines respectively have both had rollercoaster years on the stock markets.

Baxter was second biggest gainer at the ninth-month stage with an 11% advance but has been hit more recently by concerns about profit growth at the blood plasma giant in the coming years. Novartis has actually recovered from a big drop in the middle of the year when the stock tumbled, along with broader indices, to at least a decade low amid concerns about future growth.

The performance of last year’s fallers looks even more disappointing when considering they were the only five stocks among EvaluatePharma’s 17 big cap cohort to lose value in 2011, a year in which big pharma indices outperformed broader indices such as the Dow Jones Industrial Average and FTSE-100.

Stock Market Index % change in FY 2011
Dow Jones Healthcare (US)   9%
S&P Pharmaceuticals (US)  13%
AMEX Pharmaceutical (US)  9%
Dow Jones STOXX Healthcare (EU)   12%
Thomson Reuters Europe Healthcare (EU) 2%
TOPIX Pharmaceutical Index (Japan)  (7%)
Thomson Reuters India Healthcare (India) (13%)

Mid cap gainers

Elan continued its run of good fortune to finish the year the biggest gainer in the mid-cap sector. The Irish group continued to benefit from a turnaround strategy that included the sale of its drug delivery business EDT that allowed it to pay down large debts. Also in a year where there was a lot of attention given to some of the newer oral MS drugs, Tysabri continued to hold its own due to its high efficacy, and sales were given a further leg up by European approval and hopes of FDA approval of a test for JC virus, which could identify patients at risk of PML.

In a year where its shares touched record highs, thanks primarily to Soliris, the world’s most expensive drug, Alexion Pharmaceuticals is hoping this trajectory in its share price will continue into next year following the $1bn acquisition in December of rare disease specialist developer Enobia. The decision to diversify its business, but remain within ultra-rare diseases, has so far pleased investors.

After falling in the first half in the year, Regeneron staged an impressive recovery thanks to expectations and then confirmation of US approval for its wet age-related macular degeneration therapy, Eylea, in November. The shares could continue to rise next year if the group is successful in its aim of stealing share from current standard of care Lucentis, with a lower pricing point and increased convenience for patients.

For Valeant its policy of spend, spend, spend during the year won it plenty of admirers and a place in the top five risers. The company has been one of the most prolific dealmakers in the sector and during the year spent almost $3bn in acquisitions, if its current hostile bid for eye care group ISTA is included in the tally.

If Elan’s rise this year was all about relying on its old stalwart Tysabri, Biogen Idec’s was firmly the buzz around its oral MS drug, BG-12. In April positive data left many predicting the drug was destined to both blockbuster and frontline status. These expectations were further underpinned when results of another phase III trial released in late October proved to be just as good. A filing for the drug is now expected in the first half of this year.

Mid cap ($2.5bn-$30bn) pharma companies: top risers and fallers in FY 2011  
    Share price (local currency) Market capitalisation ($bn)  
Rank Top 5 Risers 31-Dec-10 30-Dec-11 % change YE 2010 YE 2011 EP Vantage comment and analysis
1  Elan ($) 5.73 13.74 140% 3.4 8.1 Event – FDA label decision could give Tysabri turnaround another boost
2  Alexion Pharmaceuticals ($) 40.28 71.50 78% 7.4 13.2 Alexion’s Soliris continues its approval march
3  Regeneron Pharmaceuticals ($) 32.83 55.43 69% 2.9 5.0 Regeneron gets boost from Eylea approval
4  Valeant Pharmaceuticals International ($) 28.29 46.69 65% 8.6 14.4 Valeant goes hostile with bid for ISTA
5  Biogen Idec ($) 67.05 110.05 64% 16.1 26.7  Confirm shows BG-12 potential
               
  Top 5 Fallers            
1  Dendreon ($) 34.92 7.60 (78%) 5.1 1.1 Dendreon discloses another Provenge surprise
2  Human Genome Sciences ($) 23.89 7.39 (69%) 4.5 1.5 HGS suffers the launch blues as Benlysta forecasts slump
3  Hospira ($) 55.69 30.37 (45%) 9.3 5.0 Daily Market Movers
4  Shionogi (¥) 1,603.00  989.00 (38%) 6.6 4.5  
5  Actelion (Sfr) 51.20 32.25 (37%) 6.3  4.7   Actelion wins shareholder support as crucial data approaches

Mid cap fallers

During 2011 both Dendreon and Human Genome Sciences continued to buckle under the weight of expectations placed on their shoulders. If 2010 was Dendreon’s dream year by 2011 it had turned to a nightmare. While it would have been difficult for the group to live up to the hopes built in the run up to and shortly after approval of prostate cancer drug Provenge, the company did little to help itself.

The biggest hit to shares happened when the company withdrew its sales guidance and admitted that take-up of the product would be much slower than forecast. One of the many issues facing Provenge are concerns about reimbursement, thanks to its hefty price, its complicated manufacture and slim survival benefit. That could all change once again, however, with news today that fourth quarter revenues more than tripled, raising hopes the product's troubles may be behind it and sending the stock up as much as 55%.

HGS is also experiencing some of the headaches of Dendreon, with sluggish sales of its lupus drug Benlysta again due to reimbursement issues and lack of knowledge about the drug among doctors. The group is hoping that changes to reimbursement this year and a concerted marketing campaign will see it climb out of the losers group.

Actelion continued to suffer from its over-reliance on pulmonary hypertension drug Tracleer and uncertainty over whether follow-on drug macintentan can deliver the clinical goods to secure the franchise. It did not help that the company spent much of the first half of the year fighting off the efforts of activist shareholders who wanted the company put up for sale. With macintentan due to report data in the first half of 2012, Actelion is due for another active year.

Hospira in turn has been beset by on going and expensive manufacturing issues at its North Carolina plant that originated from a FDA warning letter in April 2010. In October the group admitted that the problems had slowed production and would impact full year results. Investors have also not been pleased by the fact management estimates of the cost of remedying the problem have crept up to around $375m.

It is not just Pfizer that is feeling the pain of the looming demise of Crestor’s patent life. Shionogi, which derives between 5%-15% of Crestor sales in royalty income is also hurting. The group is continuing to struggle to find anything of its own to replace what will be a big hole in its balance sheet and investors have also been concerned at the losses incurred by the company’s US subsidiary.

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