It’s official: the good times are over
It might not have been biopharma’s worst-ever quarter, but it wasn’t far off. With fears about a slowdown in China, the oil price plunging, and a sector ripe for selloff after nearly four years of a bull market, the first quarter was clearly going to be tough. Now the numbers reveal the extent of the carnage.
Indeed, virtually no large-cap stock was immune, and across the quarter the best performers were mostly the ones that managed to fall the least (see tables below). What looked at the end of 2015 like a contained market wobble has now been confirmed to be the end of the good times in biopharma.
At the riskiest end – biotech – the crisis can be seen most clearly, the Nasdaq biotechnology index having lost 20% of its value from the start of this year. This makes it the index’s fourth-worst ever quarterly performance, after the third and first quarters of 2001 and the second quarter of 2002, according to an Evercore ISI analysis.
|Stock index||Chg in Q1|
|Nasdaq Biotechnology (US)||(20%)|
|S&P Pharmaceuticals (US)||(5%)|
|Dow Jones Pharma and Biotech (US)||(10%)|
|Dow Jones STOXX Healthcare (EU)||(13%)|
|Thomson Reuters Europe Healthcare (EU)||(9%)|
|Euro STOXX 50||(9%)|
|TOPIX Pharmaceutical Index (Japan)||(9%)|
The downturn has been more restrained across the big caps, as would be expected seeing as these stocks tend to represent a safe haven. Still, only two big pharmas – Johnson & Johnson and GlaxoSmithKline – managed an up quarter.
Since J&J is a conglomerate of sorts it probably represents an especially secure healthcare investment right now, and it was helped by bullish 2016 guidance. Glaxo has benefited from sellside upgrades, perhaps in the hope that the recently announced planned retirement of its chief executive, Sir Andrew Witty, will generate M&A.
|Big pharma companies: top risers and fallers in Q1 2016|
|Share price (local currency)||Market capitalisation ($bn)|
|Top 3 performers||YE 2015||Q1 2016||Change||YE 2015||Q1 2016||3mth change|
|Johnson & Johnson||$102.72||$108.2||5%||283.01||298.45||15.44|
|Merck & Co||$52.82||$52.91||0%||146.90||146.84||(0.06)|
|Top 3 fallers|
No such luck for Glaxo’s UK neighbour AstraZeneca, which led the big cap fallers. And another respiratory rival, Novartis, had a disappointing 2015, with significant underperformance reported in its generics business, leading to a planned restructuring.
But it is at the smaller end of the spectrum that the pain has been worst. Among other big companies capitalised at over $25bn only Baxalta finished up year to date – and this was only thanks to its pending acquisition by Shire (Tax U-turn means Shaxalta is a go, January 11, 2016).
For Valeant things just keep getting worse, notwithstanding the group’s desperate attempts to contain the fallout from the scandal over its pricing strategy, debt-fuelled acquisitions and reliance on questionable arrangements with speciality pharmacies.
Valeant’s collapse coincided with the macroeconomic downturn, and the group easily finished the first quarter as most heavily punished large healthcare group, having shed an amazing $26bn of market cap in three months. With an imminent board conflict, and the threat of a debt default, Valeant’s problems seem far from over (Valeant turns crisis into farce, March 21, 2016).
As for the other big fallers, Teva is fighting a losing battle trying to convince the markets that it can weather the storm of Copaxone’s patent loss, while the declines of Vertex, Regeneron and Alexion might simply be the result of the market falling out of love with some of the best-performing stocks of the bull run.
With the losses sustained by all three you could excuse investment bankers for wondering just how much further valuations have to fall before big pharma looks to publicly traded as well as private companies for deals.
|Other big pharma companies ($25bn+): top fallers in Q1 2016|
|Share price (local currency)||Market capitalisation ($m)|
|YE 2015||Q1 2016||Change||YE 2015||Q1 2016||3mth change|