Generic shares stay strong amid wider big cap recovery

With three-quarters of 2009 behind us, a year that has been marked by massive swings on global stock markets, the latest quarterly review of global share price performances by EP Vantage reveals that amongst the industry’s biggest drug makers, generic companies continue to top the tables as the best performing stocks this year.

Still, the picture overall has shifted considerably and the gainers are now a much more diverse group. Three months ago there were only four big cap stocks registering increases over the year, and two of them, Schering-Plough and Wyeth, were bid targets. Notably, three European majors – Bayer, Sanofi-Aventis and Novo Nordisk – have now recovered significantly, and join Teva and Alcon as the five best performing large cap companies of the year so far (see tables below).

The same analysis conducted three months ago was so thin on gainers that Schering-Plough and Wyeth were left in, despite the bid premium caveat (Generic players continue to impress in the first half, July 1, 2009). This time they have been excluded, along with Sepracor amongst the mid caps, following a recent takeover bid from Dainippon Sumitomo Pharma.

Large cap ($30bn+) pharma companies: top risers and fallers in 9M 2009
Share price (local currency) Market capitalisation ($bn)
Rank Top 5 Risers 31-Dec-08 30-Sep-09 % change YE 2008 2009 (latest)
1  Alcon ($) 89.19 138.67 55% 26.8 41.4
2  Teva Pharmaceutical Industries ($) 42.57 50.56 19% 34.8 46.4
3  Bayer AG (€) 41.55 47.58 15% 42.8 55.4
4  Sanofi-Aventis (€) 45.40 50.15 10% 80.3 92.9
5  Novo Nordisk (DKr) 298.00 318.50 7% 34.1 30.9
Top 5 Fallers
1  Takeda (¥) 4,640 3,740 (19%) 38.6 31.3
2  Eli Lilly ($) 39.74 33.03 (17%) 45.2 38.0
3  Gilead Sciences ($) 51.14 46.50 (9%) 46.6 42.0
4  Abbott Laboratories ($) 53.37 49.47 (7%) 82.9 76.5
5  Pfizer ($) 17.71 16.55 (7%) 119.4 111.7

Alcon has gone from strength to strength across the year, essentially recovering from a surprise profit warning last October that erased a third of the company’s market value in one week. However, investors minds are no doubt on the buyout deal struck with Novartis last year, when the Swiss company bought Nestle’s 25% stake for $143 a share.

Novartis has an option to buy Nestle’s remaining 52% stake between January 2010 and July 2011 for $181 per share. Meanwhile Nestle has an option to sell its stake to Novartis at a premium of 20.5% to the market price, not exceeding $181. As January approaches, investors are no doubt speculating on the outcome.

The impressive climb in Sanofi-Aventis' value could well be to do with confidence in new chief executive Chris Viehbacher, who has taken swift action to try to reinvigorate growth at the French drug maker. Bayer could well be benefitting from improving sentiment at its other divisions such as chemicals, which are more influenced by economic cycles.

Novo Nordisk meanwhile has managed to shrug off disappointment around its novel diabetes drug Victoza, which is struggling to gain approval in the US, as confidence in the remainder of its diabetes portfolio has grown.

Amongst the losers Takeda remains as the worst performing big cap stock, hobbled by the set back to its new diabetes drug alogliptin, which is unlikely to reach the market until 2012 at the earliest. With the significant patent cliff of Actos approaching, this has been a big blow for the company (Alogliptin disappointment continues for Takeda, June 29, 2009).

Eli Lilly’s performance has worsened over the last few months, amid mounting fears about the diabetes franchise, the expensive acquisition of ImClone Systems late last year and their rapidly approaching patent cliff.

Gilead Sciences is probably suffering from a stellar share price performance earlier this year, prompting some profit taking, as well as its move into the cardiovascular space with the acquisition of CV Therapeutics in April, which has not convinced all commentators.

Despite its spending spree this year, Abbott Laboratories seems to be struggling to convince shareholders about future growth rates (Abbott's buying spree continues with €4.5bn Solvay buy, September 28, 2009). Pfizer, meanwhile, remains in the doldrums, its mega merger strategy seemingly forever in question.

Mid caps

The mid-cap table also has some familiar names from the previous analysis, with investors remaining convinced by the generics story.

Mid cap ($2.5bn-$30bn) pharma companies: top risers and fallers in 9M 2009 
Share price (local currency) Market capitalisation ($bn)
Rank Top 5 Risers 31-Dec-08 30-Sep-09 % change YE 2008 2009 (latest)
1  Hospira ($) 26.82 44.60 66% 4.3 7.2
2  Mylan ($) 9.89 16.01 62% 3.0 4.9
3  Cipla (Rs) 186.90 279.75 50% 3.0 4.5
4  Warner Chilcott ($) 14.50 21.62 49% 3.6 5.4
5  Allergan ($) 40.32 56.76 41% 12.3 17.3
Top 5 Fallers
1  Abraxis BioScience ($) 65.92 36.38 (45%) 2.6 1.5
2  Cephalon ($) 77.04 58.24 (24%) 5.3 4.3
3  Myriad Genetics ($) 33.13 27.41 (17%) 3.2 2.6
4  Genzyme ($) 66.37 56.73 (15%) 18.0 15.3
5  Endo Pharmaceuticals ($) 25.88 22.63 (13%) 3.5 2.7

Warner Chilcott's recent acquisition of Procter & Gamble’s drug business delighted investors (Warner Chilcott piles the debt back on with $3.1bn P&G moveAugust 24, 2009), whilst Allergan has benefitted from bid speculation, with GlaxoSmithKline’s name often in the frame.

Of the fallers, Endo, Abraxis and Cephalon remain out of favour, with investors seemingly unconvinced by any of their respective strategies.

Genzyme can blame its woes on the contamination of a bioreactor which has caused a big shortfall in the production of key niche drugs Cerezyme and Fabrazyme; this could allow competitors Shire and Protalix BioTherapeutics a crucial foothold in these lucrative markets.

Myriad Genetics, meanwhile, has suffered because of a disappointing performance from its molecular diagnostics division, and vastly lowered growth expectations.

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