Large cap drug stocks enter recovery mode

Data Insights

President Trump might still be able to strike fear into the heart of a biopharma investor, but it seems his impact is lessening – if shares in the world’s biggest drug makers are any indication. Large cap companies and sector indices broadly performed positively in the first quarter of 2017, an EP Vantage analysis reveals.

This encouraging start to the year is off the back of an appalling 2016, which saw the Nasdaq Biotechnology Index fall into the red for the first time in eight years and very few large cap stocks register advances. The life science sector must hope that this apparent return to favour continues to build throughout the year (see tables below).

Stock index % change in Q1
Nasdaq Biotechnology (US) 11%
S&P Pharmaceuticals (US)  6%
Dow Jones Pharma and Biotech (US)   7%
S&P 500 6%
DJIA 5%
Dow Jones Stoxx Healthcare (EU)  6%
Thomson Reuters Europe Healthcare (EU) 9%
Euro Stoxx 50 6%
FTSE-100 3%
Topix Pharmaceutical Index (Japan)  -1%

A look at some key drug indices shows that these have pushed higher in the past three months along with broader markets. The new US administration’s policies on healthcare remain largely unknown, but it seems that investors have come to terms with this to a certain extent.

President Trump’s tweets, for example, no longer prompt the huge share price drops seen in his first few weeks of power. His failure to push through reforms to the ACA served to highlight just how hard it will be to achieve sweeping changes to US healthcare system.

Things can change quickly, of course, and while investors will be encouraged to see the NBI up 11% in particular it is far too early to be talking about a sustained rally.

Big pharma: top risers and fallers in Q1
Mar 31 share price Q1 change Mar 31 market cap ($bn) Q1 change
Top 3 risers
Lilly $84.11 14% 92.8 11.6
Astrazeneca £49.12 11% 50.4 4.8
Sanofi €84.62 10% 116.3 6.9
Top 3 worst performers
Bristol-Myers Squibb $54.38 (7%) 89.6 (8.1)
Novartis  SFr74.35 2% 177.9 7.8
AbbVie $65.16 4% 103.8 2.1

Big pharma as a group has performed well so far this year, with only one of the 11 global majors registering declines. Step forward Bristol-Myers Squibb, which continues to be punished for the seeming collapse in its oncology strategy, and a perception that much ground has been lost to its chief rival, Merck & Co.

Novartis will not be happy with its performance either, and is under huge pressure to reassure investors that its struggling Alcon division is under control. First-quarter earnings on April 25 will be a big event.

At the other end of the scale Lilly was the best first-quarter performer. It has staged a remarkable recovery since announcing the failure of its Alzheimer’s asset solanezumab in November, helped by some optimistic guidance for the coming year.

Astrazeneca's performance is perhaps surprising given the importance of looming data from its immuno-oncology portfolio, and the rise only makes a positive readout more crucial. Sanofi, too, has performed very well for a company struggling to define its future strategy amid several assaults on its top line. Recent approval of the atopic dermatitis therapy Dupixent has perhaps allowed investors to look further into the future.

Other big drug stocks ($25bn+): top risers and fallers in Q1
Mar 31 share price Q1 change Mar 31 market cap ($bn) Q1 change
Top 3 risers
CSL A$125.33 25% 42.6 7.7
Allergan $238.92 14% 80.2 1.4
Amgen $164.07 12% 120.8 12.1
Top 3 fallers
Teva  $32.09 (11%) 32.6 (4.2)
Astellas ¥1466 (10%) 27.5 (6.2)
Novo Nordisk  DKr239.5 (6%) 68.9 (6.9)

Outside big pharma, large drug stocks staged a big turnaround from last year, when not one managed to advance. Of the 17 stocks in EP Vantage’s big cap universe, 10 registered share price rises in the first quarter, with Australia’s CSL leading the pack by some margin.

The company, which specialises in blood products and vaccines, has been rewarded for strong growth in its plasma business and hopes for a hereditary angioedema project.

Teva stands out among the fallers, continuing to be punished for apparent overpayment for Allergan’s generics business and the mess in its boardroom, which has left the group searching for its third chief executive in five years.

Novo Nordisk is one to watch this year – after years of stellar performance driven by its strong position in diabetes, intense pricing pressure in the US has brought this to a sudden halt. With a new chief executive in place there are hints that a dramatically different strategy could emerge from the Danish company, which has long relied on home-grown innovation. Talk of acquisitions abounds, with rumours of a biotech buyout on the horizon.

Indeed the M&A market in general will be a major driver of stock market sentiment for the sector in the coming months; much emphasis has been placed on the role of takeover activity in drawing investors back into the sector this year.

The $30bn takeout of Actelion in January no doubt helped. But with no biotech buy breaching the billion-dollar mark since, the pick-up that many have predicted might yet struggle to materialise.  

To contact the writer of this story email Amy Brown or Edwin Elmhurst in London at news@epvantage.com or follow @EPVantage on Twitter

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